Today in Australia there are business franchises available to purchase in almost every industry, each with varying levels of complexity and cost. Purchasing a franchise can be an effective way to start out in business as you are provided a tried and tested business model and instruction book on how to follow the bouncing ball to make the business successful.
Before purchasing a franchise you need to consider the same issues as when purchasing any business, as well as specific issues surrounding franchising. When you are looking to purchase a franchise it is common practice to receive an information kit from the franchisor containing operational details and financial projections. Some of these are excellent, others less so. Frequently overlooked items that we often see missing in financial projections provided by franchisors are:
Depreciation of fixed assets;
Wages for working proprietors; and
Whilst the initial financial projections provided by the franchisor may look great, once the financing and market value wages for working owners are taken into consideration, the business may not produce a desirable return for the owners. It is important to be armed with this information from the outset. Having performed some analysis of the information at hand you can determine whether the initial franchise purchase fee and any ongoing fees are reasonable.
The next step would generally be a negotiation of purchase price. However, in the case of a franchise, particularly if you are dealing with a large organisation, there will usually be little scope for negotiation of the purchase price. This means you are faced with the decision to proceed with the deal and the given price or to continue looking for a franchise that better suits your needs.