How to find a franchise

McFedries recommends doing as much background research as possible on a range of franchises, and once the options are narrowed down to about five potentials, set up face-to-face meetings with the franchisors. He also recommends talking to more than one in any given franchise sector.

During these meetings, he says, it’s important to establish the franchisor’s background, asking questions around how much time, money, and effort they’ve put into setting up the franchise system. This will give an indication of the level of foundation, support, infrastructure, and systems that the franchisor will be able to offer. And, a clear understanding around the financial proposition is important, particularly the establishment costs.

Through her interview process, Mason requested to see Mortgage Choice’s balance sheets. "Most franchisors probably wouldn’t do it, but we thought if we’re signing up to a franchise agreement—and at that time they weren’t a publicly listed company—we wanted to know how strong they were. They were very open, and that’s one of the things that appealed to us—they had nothing to hide." Mortgage Choice was also forthcoming about how long it would take Mason to start getting a return on her investment.

When it came to background checking, she went to the Franchise Council of Australia and the Department of Consumer Affairs to ensure the franchise hadn’t had any complaints or legal proceedings brought against it.

"We chose Mortgage Choice for a number of reasons. A lot of it was really around where the franchisor thought they were going, and where Mortgage Choice stood out strongly was the ethics behind it. And their business model was all about empowering the franchisees with knowledge, expertise, and tools to let them advance themselves."

Realising there was no ice cream store in the Berwick area gave Jones his direction when researching franchise options. He spoke to three different ice cream franchises and one other before settling on Cold Rock. "I was looking for stability, honesty, and something a little bit different," he says. "In this state, we’re the fourth Cold Rock store and I think we can definitely support 20 in Victoria, so to be one of the first stores to come out here was what grabbed us at first. Then there’s a lot of people at head office who know where they want to take the franchise, and I want to be heading in that direction as well."

Getting Started

With all there is to consider when entering a franchise, it’s important to seek advice from a number of professionals. Your accountant or banker will advise you on your financial position, and your accountant will also be able to help you value the business if you’re buying an existing franchise.

"It’s important that the financial aspect of the business meets their expectations first," says Kojok, cautioning to make sure set-up costs fit within, and the valuation of the business meets expectations after due diligence is complete.

"Once they’ve done that and they’re satisfied, then it’s a good time to have a lawyer review the documents and negotiate the terms." And it’s very important to engage a lawyer experienced in dealing with franchise systems, he adds.

From a legal perspective, potential franchisees should understand there is a Franchising Code of Conduct regulated by the ACCC, which outlines the rights and obligations of franchisees and franchisors. A lawyer will be able to explain this properly, and will also go through the franchise agreement to ensure it complies with the code, and to explain any legal jargon.