Should I join a franchise?

Hi Aunty B

I am evaluating purchasing a franchise or continuing to build my own business.

I have a due diligence document that I am using as a tool to help evaluate the alternatives. Do you have any other suggestions to help me come to a decision?

Have a great day.

Gerry,
Brisbane

Hi Gerry,

Do you consider yourself an entrepreneur or someone who is better suited to being an employee?

Most people are employees. In terms of skills, talents, personality and interests as well as in reality. And there is nothing wrong with this; let’s face it, the world works better this way. As the cliché goes, “too many chiefs and not enough Indians” doesn’t work… or something like that.

It’s an important question to ask yourself when you’re considering joining a franchise. Because, like it or not, joining a franchise means giving up some control over your business destiny.

There are lots of benefits to joining a good national franchise system. You get support from other franchisees and the franchisor, you potentially get the benefit of a national brand, you get leads, you get systems, and you get to feel part of something bigger than yourself.

But, to some extent at least, you have to toe the franchisor’s line. Big business goals and dreams belong to the franchisor, not you. Contrary to the popular myth, you are not really your own boss.

You are accountable to the franchisor. You have to follow their manual, your rights to operate are probably restricted to a territory, and your hard work is building a brand owned by somebody else.

At the end of the franchise agreement, you have to pay the franchisor again to renew – if they feel like it – or you are out on your ear. Just ask KFC’s Jack Cowin how that feels. His long-term franchise agreements with his US-owned franchisor for West Australian KFC restaurants are expiring one by one and his franchisor is refusing to renew.

Multi-millionaire Cowin has the clout to get the WA Parliament to call an inquiry franchising to address his problem. But I bet you don’t Gerry.

Still interested in franchising? Good on you – it is the new great Australian dream.

But make sure you do your sums. Be hard nosed. You have to make your investment pay inside the term of the franchise. Remember you’ll probably have to charge your clients more because you have to pay the franchisor their cut.

And as for whether the franchise system you are considering joining is a good one, ring everybody on the previous franchisee list (that the franchisor is now obliged to provide you with) and ask them whether they would do it again.

It’s called due diligence, and it’s critical.

Good luck!