Franchising Financials (Pt I)

Date AddedOctober 12, 2009 12:24:14 AM

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Franchising can be a great way for people to take charge of their financial future. The lure of becoming the boss has attracted a huge number of Australians to buy into franchise systems, making Australia one of the most franchised countries in the world per capita.

In fact, franchising has become so popular in Australia that it now plays an important role in the country's economy. According to the Franchising Council of Australia, franchising accounts for approximately 14% of national GDP, making it a major part of the economy.

WHY FRANCHISE?

One of franchising's main draw-cards is the security that a franchise system can provide: that of a proven business model which has already been replicated,.often in different states across the country and even around the world.

Franchisees can often access guality training courses, draw upon powerful central marketing funds and enjoy the benefits of a large and established supply chain - all significant advantages over stand-alone small businesses.

While franchising does provide a framework for new owners to operate within, there is still a great deal of responsibility on the part of the franchisee to run the business efficiently and profitably - franchising is certainly not a guaranteed path to business success - it reguires hard work and perseverance,

A main part of establishing and running a successful franchise will depend on the owner having a clear grasp of the financial side of the business. For many, it will be their first attempt at running a business and the financials can seem daunting. However, the right information and guidance, coupled with realistic projections and solid planning, can make securing sufficient funding and successfully managing the finances well within reach.

Franchisees need not be experts in every aspect of the business - rather, they should have a good general overview of how the business operates and then know when to consult experts such as lawyers, accountants and specialist franchising bankers for assistance.

FAILURE TO PLAN IS PLANNING TO FAIL

Like any new business owner, a franchisee has to put in a great deal of work ahead of opening the doors to the paying public.

One of the very first steps is to undertake a process of thorough due diligence - essentially a detailed background check and inspection of all facets of the business. Right from the outset, this will help to set expectations, identify strengths and weaknesses of the business and the franchise system, and hopefully set a prospective franchisee on the road to success.

During this period, franchisees should source professional advice from people with the relevant franchising experience. This could include meeting with the franchisor, a specialist franchising banker and a lawyer for some legal advice. It can also be useful to speak to existing franchisees from within and outside the franchising model. This will present an ideal opportunity to find out what their critical factors of success were and also what they would have done differently if they had their time again.Undertaking thorough due diligence will provide prospective franchisees with important information on the business and its operations, and will assist in the development of the next major phase in buying the business - the business plan.

The business plan is critical in securing funding, but its value to the business is much greater than just that. A well researched, detailed business plan willnot only be viewed more favourably by a bank, it will also provide an invaluable insight to the business before any financial commitment is made and act as a blueprint for the business once it opens.

Continued: See Franchise Financing (Pt II)