It's your money, so ask the hard questions
If you feel nervous about launching a start-up, the answer might be to strike a compromise: buy a franchise. You get the benefit of a ready-made business model and access to the nous of other franchisees, and the franchisor's professional team.
But much can go wrong, not least disagreements with the franchisor about problems ranging from unexpectedly low earnings to lack of training. Hence the recent review of the franchising code of conduct, which recommends the government strengthen the obligation of all parties to act in good faith.
So, before jumping into a franchise, consider some vital selection process do's and don'ts.
Engage your other half
Your life partner should be part of your franchise quest because,whether or not they work in the franchise, they are coming for the ride. So dial them in, says franchise consultant Troy Hazard. One successful franchise couple is Neil and Sharon Menzies, who run two San Churro cafe businesses together. The couple did extensive collaborative research, frequenting a local branch, talking to the owner, calling as many local franchisees as possible and observing customers.
Know the whole network
Ensure you meet all the key players involved in any franchise you assess, says business coach Tracey Leak. Get to know the franchisor and whoever will offer support when you join the group, and check if you like that person. Also meet the marketing manager and everyone else in the franchisor's head-office team, because they will be key to your business. See what they contribute, she says. Meet as many franchisees as you can. A list should be included as part of the disclosure information franchisors must provide by law.
An inquisitive approach is vital, says Leak, who warns that in your excitement you may neglect to ask probing questions. "No question about the franchise is off limits," she says. For instance, ask what training you get and what you should earn.
Don't get suckered
Just because a franchise is sexy or cool it is not necessarily a winner, warns Leak. "Some of the best franchise businesses I've seen from the inside are the good, honest businesses that have stood the test of time and wouldn't be considered sexy," she says. The less glamorous ones had the best systems and support so don't make judgments on wow factor. She highlights the bookkeeping business First Class Accounts and the cleaning business Gutter-Vac as great everyday franchises that can yield "a very comfortable living".
Don't tolerate waffle
Beware of franchisors with a fuzzy strategic vision, Hazard says. He lists some areas of inquiry to neglect at your peril. You must find out if the franchisor has a business plan covering one year, two years, five years or 10. Also establish if the franchisor has an exit plan. Investigate how their exit will affect you, as you may be left in the lurch. A 2006 report by University of New South Wales academic Jenny Buchan found 93 per cent of franchisees involved in a franchisor collapse sustained sharp financial losses and were forced to sack staff.
Don't forget you might want to sell up one day
Some franchisors have been known to make the exit process so complex that you have no choice but to sell the business back at a huge loss, warns business coach Melanie Miller. The franchisor then sells the business you toiled to build to whomever they like at a price that suits them, Miller says. Two of the biggest franchisors had Australian Competition and Consumer Commission cases launched against them for just this reason, she says. So, as part of due diligence, enlist some advisers - your accountant, solicitor and perhaps an external consultant - for another objective, professional and qualified opinion.
As often applies in business, the secret of picking a franchise is rigorous research. Never hesitate to ask awkward questions. Scrutinise the small print in contracts for snags. Also, experts say, look for solid signs of innovation and refuse to be "sold". The franchising world has its share of slick sales reps who will talk you in circles if you let them.