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buying a business or buying a job?
by WHK, last updated on 15th May 2012
Martin Richardson looks at the differences between franchise types
Over the years I have worked with many franchisee and franchisor businesses in my role as principal at WHK Auckland and have found that many of New Zealand’s major brands are ‘business’ franchises rather than ‘job’ franchises. What is the difference? Well, in a business franchise, the franchisee employs staff and requires a reasonable amount of capital to purchase the assets and fund the ongoing operation of the business. In a job franchise, the franchisee is likely to be a sole operator or work with just a spouse or partner. The two types require potential purchasers to be aware of different pitfalls.
With a business franchise, franchisors normally set a financial strength requirement with an application process that must be completed before a new franchisee is accepted. We have worked with a number of prospective purchasers to guide them through the process, create plans, and implement measurement and reporting systems to help them understand what is required to make the business successful. Many franchise systems provide extensive documentation, advice and support, but ultimately the success of the business will be dependent on the owner understanding it and having the passion to make it work.
Warning bells for a prospective purchaser include the franchise being the first franchise for sale (especially if the franchisor has not demonstrated the business model themselves); representations that things will be happening rather than already being in place; and the price being too cheap for the promised financial return. As the old adage goes, ‘If it sounds too good to be true, it probably is.’
With job franchises, on the other hand, care needs to be taken that the purchaser is not just relieving the vendor of what would have been employer responsibilities; that the purchase price is appropriate to the return expected; and that the franchise can be sold without too much difficulty. Job franchises are also often expected to provide more day-to-day support to franchisees, especially in the sourcing of work and assistance with administration – call centres and invoicing, for example.
In both cases, the franchisor needs to have a sound business offering, a workable franchise model and documentation and support systems that are available and dependable. While a franchise system can reduce risk and should be far easier than starting a business from scratch, the purchaser still needs to do their homework to make sure they are getting what they expect and ensure any franchise will provide an appropriate return on the initial investment and from the ongoing input of the owner’s time and money. That’s why you should always seek advice from franchise-experienced professional advisors before making any commitment. Contact us at WHK for more details.
This advertorial is taken from Franchise New Zealand magazine Volume 21 Issue 1
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