Why Build When You Can Buy Ready-Made?

Stuff:

What do Pak ‘N Save, The Wiggles and Fastway Couriers have in common? They are all franchise chains. John McCrone looks at why buying a franchise can be the best way to get into business.

It is amazing how many different kinds of business are now franchises, from big-name retailers such as Pak ‘N Save and Mitre 10 to off-beat propositions such as the toddler-entertaining troupe The Wiggles.

According to Westpac’s national franchising manager, Daniel Cloete, New Zealand has 350 franchise chains covering 64 areas of business. That makes 14,000 enterprises employing 41,000 people and turning over $10 billion a year.

And franchising is running hot – especially in the services and business-to- business sectors, Mr Cloete says. For next to no capital or experience, people can buy their way into ownership of an operation with a brand name, ready-made back office systems, and central office training and support.

Why struggle to invent your own business when you can just go out and buy one off the shelf?

The dream certainly drew a crowd to the recent Franchise Expo in Christchurch. A few eyes popped when they heard talk of earnings of $100,000 and $200,000.

Equally, there was some scratching of heads about which were the real goers. The guy with the concrete kerb-edging business or the cheerful ladies surrounded by balloons and toys in the partyware booth? The eftpos terminal installer or the slick-looking mortgage chain?

Once the expo-goers started asking questions, alarm bells might have begun ringing. What about the hefty initial licence fee followed by the regular royalty payment? The sales conventions you pay to attend? The uniforms you are required to wear? There are plenty of reasons to get cold feet.

Mr Cloete says it is right to be suspicious, but in fact the franchise approach is the nearest thing to a sure bet when starting up a business.

“The failure rates are low. Which is why banks like us are happy to lend money to get people started. There’s much less risk involved.”

He says franchising is steadily sweeping the business world because it has such an obvious logic. Most people who start up in business may have strong professional skills, or huge motivation, but they lack basic business nous. Marketing, accounting, purchasing – these are all foreign territory.

Buying a franchise should mean buying into strong systems with brand recognition. There can even be an existing customer base.