RETIREMENT & LIFESTYLE PLANNING      Baby boomers need to plan their transition into retirement for  Financial Security     Active Health Management  Emotional Wellbeing  Maximum Self Esteem ISSUE - 17 - APRIL 2003

“Am I actually suited to franchising?” is the first question to ask when considering buying a franchise.

If you’re tempted by the idea of buying a franchise, you’re in good company. The most recent survey of the sector, Franchising Australia 20021 shows franchising continues to make a significant contribution to the Australian economy, and that there is considerable scope for further growth.

One attraction is the high success rate franchised businesses enjoy compared with their independent counterparts.

Another is that franchised businesses tend to become profitable sooner.

Sergio Alderuccio, managing director of the Franchise Developments consultancy, believes franchising can be a good investment strategy for those planning or embarking on retirement.

“Unlike more dormant investments such as bank deposits, real estate and stocks, a franchised business can generate an attractive cash flow which caters for the income needs of the investor and further development of the business, as well as the day-today running costs of the venture,” Sergio says.2 He also points out the potential for building the resale value of the business, adding that the brand awareness and franchisor support associated with franchised outlets mean they are a better sale prospect than independent small businesses.

Then there’s the family angle, where investing in a franchise provides parents with the opportunity to provide a stable and rewarding career for their children.

“It is becoming increasingly common to see children take over and continue the business or, alternatively, expand into additional locations,” he says.

Is franchising for you?

Corporate psychologist Greg Nathan has researched and written extensively on franchising in Australia. After almost a decade’s work, he has identified the following characteristics as important for franchisee success (the list is not exhaustive):

• Openness to learning – always looking for ways to do things better, smarter, faster.
• Promotional drive – willing to get out and promote your service or product.
• Achievement motivation – having clear goals, and the ability to keep going through adversity.
• Working with others – able to work in a group, talk through disagreements, and go with group decisions even if you disagree with them.
• Team leadership – able to motivate and develop any staff working with you in your franchise.
• Wellness and energy – enjoying high enough health and energy levels to cope with stress and getting things done.
• Hands-on commitment – accepting full responsibility for running your franchise (and not having unrealistic expectations of the support to be provided by the franchisor).
• Family support – knowing your family supports your venture, and will not be jealous or fearful of the time and money you need to invest in your franchise, particularly in the early days.

Greg has developed a short franchisee suitability survey which appears in the Franchising Yearbook and Directory 2003.3 You can also purchase a more comprehensive Franchisee Suitability Survey by visiting his website www.franchiserelationships.com.

Money matters

- What you need to put in

Another factor that will affect your decision to buy a franchise is the amount of capital you have available to cover start-up costs and the first few months of operation.

Franchises cost from around $10,000 (now rare) to more than $500,000. The start-up costs (including initial franchise fee) are higher for retail franchises than service franchises, and higher for fixed-site franchises (including retail outlets) than for mobile and home-based businesses.

As an indicator, Scott Weaven and Lorelle Frazer of Griffith University4 estimate the current median start-up cost (excluding GST) for mobile and home-based businesses is $44,750, for new retail outlets is $208,000 and for other fixed site franchises, $62,500.

The initial start-up cost covers the franchise fee plus a range of expenses depending on the franchise package bought. The franchise fee gives you the right to use the intellectual property, brands and systems of the franchisor; the initial payment to the franchisor may also cover store construction and fit-out, a vehicle, initial training, uniforms and so on. Make sure you check exactly what the start-up package contains when you begin investigating franchises that attract you.

Besides your initial investment, many franchises also charge these ongoing fees:

• franchise service fees/royalties (usually based on a percentage of sales), and
• advertising/marketing fund levy (usually around 4-6 per cent of sales).

You will also need to cover all the normal running costs, including salaries, utilities, stationery and so on. Because new businesses take a while to establish themselves it is generally recommended you have enough working capital on hand to tide you over for at least the first three months of operation.

Pamela Oddy is co editor with Ros O’Sullivan of Franchising magazine.

1. 1. Lorelle Frazer & Scott Weaven, Franchising Australia 2002.
   Enquiries to Dr Lorelle Frazer, Griffith University, L.Frazer@mailbox.gu.edu.au
2. 2. Sergio Alderuccio, Franchising, July/August 2001,
   ‘Investing for your own and your family’s future’.
3. 3. Franchising Yearbook and Directory 2003. Niche Media, Melbourne 2003. Enquiries to
4. 4. Scott Weaven & Lorelle Frazer, Franchising Yearbook and Directory 2003.

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