“Buying into a franchise? Before you get into it, know how you are going to get out of it!”
It happens too often when I am talking to franchisees. A statement I hear regularly is “If I could just get out of my franchise for what it cost me to get in to it, then I would do that now!”
I hear this so often from franchisees struggling to make a profit in their franchise and having to work 7 days a week. They realise after a while that they have bought themselves a job doing lawn mowing, dog washing, car detailing, making pies or something like that. If you are happy doing these things, can make enough profit for yourself and still have time for a life - then maybe go for it.
If you are getting into a retail situation in a shopping centre then be very careful. Some franchisees I've talked to are working 7 days a week and the only people making any money are the shopping centre owners and the franchisors.
Thinking of getting into or out of a franchise then BOOK A CHAT with me.
Look, I am not against franchises! There are some excellent franchises out there and most franchisors will do the right thing by their franchisees! A franchise can be a great learning experience for someone transitioning from being an employee to a business owner. My point is though that you need to have your eyes open when considering a franchise and understand what you are getting in to.
When you get into a franchise – new or established;
(1) You are not buying a business! You are signing up to an agreement to operate a business for a ‘term’. That means that you effectively have a license to operate one of the franchisor’s businesses for a period of time (the ‘term’). As a franchisee YOU DON'T OWN A BUSINESS! In fact, you don't own anything.
(2) There is no guarantee that your agreement will be renewed at the end of the ‘term’ or that you will be able to sell the business. READ THE AGREEMENT AND GET LEGAL ADVICE! Know what will happen at the end of the ‘term’ and what your options will be. Contact me if you need a referral to a good lawyer!
(3) No matter how well you build the business over the ‘term’ the client base (goodwill) belongs to the franchisor.
So, I always say “Do your due diligence REALLY WELL and find out how are you going to get out of it before you get into it.”
As I said above, there are some very good franchise operations in Australia. We have such a strict Code of Conduct for both parties in a franchise, there is no excuse for a prospective franchisee NOT having their eyes open before they sign up.
Always speak to existing franchisees before you complete the contract. Find out how they are going, and if possible talk to franchisees who have left the franchise. Under the Act the franchisor must provide details in their disclosure document for you to do this.
The Franchising Code of Conduct is a mandatory industry code across Australia that regulates the conduct of franchising participants towards each other. Copies are available online from the ACCC website.
Thinking of buying or selling a business, of any kind, then BOOK A CHAT with me. You can also sign up for one of my online courses or join a Business Owners Taking Action mentoring group - online and face to face versions available. Check them out at JOHN DENTON ONLINE.
All the best, John