BUYING A FRANCHISE Presented by Brian Mayoh

What is Franchising? A method of distributing products or services The granting of the right by a franchisor to a franchisee to operate a business using a trade mark and a business system The franchise agreement specifies such things as the period of time, the territory and the initial & ongoing fees etc.

Franchising in Australia Some 1100 Franchisors (1998 = 693) 57% increase in number systems since 2002 (=700) 74,000 franchised outlets – av. 67 per Franchisor Approx 4,800 new units per year Employs some 413,500 people - av.5.6 per outlet $130 billion turnover per year Age of Franchisors – 15 yrs in business, 9 as a Franchisor 3 times number of systems per capita than USA 1/3 rd no of franchised outlets per capita than USA 2% of franchisees in serious dispute 25%+ Australian Franchisors franchising overseas Survey by Griffith University “Franchising Australia 2008”

Types of Franchises Product and Trade Name Franchise Petrol, Coca Cola, Motor vehicle Business Format Franchise Most common form of franchising “Operate It Yourself Business System” Franchisor provides entire business system + advice, guidance training and assistance Operations Manual

Benefits for Franchisees Brand names and reputation (goodwill) Reduced risk of business failure Established business methods Proven product or service Site selection Training Launch assistance and continuing support Group purchasing benefits Reduced cost of national or regional advertising Ongoing research and new product development

Restrictions on Franchisees The franchisor has ultimate control The need to abide by the rules The need to be a team player You can only sell to an approved buyer Ongoing commitment to pay royalties Lack of control over corporate direction Relationships with franchisor and their staff The lifecycle of the concept

How to select your franchise The process starts with YOU Critical self assessment prior to investigating specific opportunities What are your strengths & weaknesses? Do you want to use familiar skills or try something totally new?

What are you looking for? Job satisfaction Independence Money Lifestyle Necessity To provide jobs for the family Career Security

Basic questions to ask yourself Does self employment suit you? Can you manage people? Are you prepared to work long hours? Are you prepared to risk your assets? Can you build relationships, sell? Are you a team player? Will this impact your lifestyle and family? What kind of business is for you? Managerial or physical labour?

Franchising Code of Conduct Mandatory Code introduced in 1998 Wide definition of franchise agreement Provides a cooling off period Disclosure requirements for franchisors both prior to and after the grant of the franchise

Checking out the fine print Franchise Agreement Key terms Cost Length Territory - Exclusivity Obligations of franchisor/franchisee Termination & post termination

Contents of Disclosure Document Information re the franchisor company and its directors, shareholders and executive officers Performance of franchise system Intellectual property Obligations of agreement May contain earnings and projections Financial viability of the Franchisor

Legal and other advice Prospective franchisor should obtain Specialist legal and accounting advice Prospective franchisee should obtain Independent accounting advice – is there a $ in it? Independent business advice – a mentor Independent legal advice

Steps in the journey 1. Initial Investigation meet franchisor, discuss franchisees 2. Accounting / Financial Advice Initial Meeting – bring in docs, discuss system, further research?, finance required – determine, discuss alternative business structures Further Research – answers to specific questions, outcome Business Valuation, negotiate & agree a price – if an existing franchise Financial Analysis / Profit & Cashflow Budget – with comprehensive notes - complete as req’d 2 nd Meeting – go through Analysis / Budget – proceed to next step? Assist in negotiating with Franchisor? Obtaining Finance?

Steps in the journey… cont 3. Bank Finance - Submit Budget with business plan 4. Legal Advice – if there is a $ in it & you have the finance 5. Business Structure – acquire & register with relevant authorities once the above is finalised

Business structure and planning Type of business structure Accounting systems Monitoring your performance

Cost of the franchise Consider the total cost of your investment Franchise Fee Fit out or equipment Working capital Training Opening Promotion Assignment Fee?? Legal Fees Rental bonds Stock Office supplies/computers

Financing the franchise Can I afford the franchise? Personal funds External finance sources Leasing / CHP / Chattel Mortgage - of fitout, equipment etc

What’s in it for me? Undertake critical review of operating costs and profitability scenarios Prepare your own business plan Prepare a worst case scenario Assess the real rate of return on your investment

Life As A Franchisee In business for yourself, not by yourself Part of a group Ongoing direction and guidance Be prepared to accept change Enhanced ability to sell a brand name business Financial rewards due to personal efforts Contribute to the system

Useful sources of information Franchise Council of Australia (FCA) Franchising Magazines Government Agencies such as Office of Small Business & ACCC

Questions??????? We hope you have enjoyed the Seminar Presented by Brian Mayoh HILL MAYOH