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  • #991256
    TakingthePlunge
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    Hello everyone,

    New here after reading through the forums for a while. I am currently looking at a franchise in Perth. It isn’t a strong performer however there appears to be potential for the business to be turned into a profitable venture with some attention (changes to staff, additional training and incentives to existing staff, large focus on local marketing etc.). The business is located in a decent position with limited competition so I have some confidence that there could be some money to be made here and capital gains to be achieved.

    Has anyone here done this before? What strategies did you use to turn the business around? What was your most effective marketing strategy?

    #1180666
    nikmaricic
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    Taking over a franchise can be tricky, especially if you don’t have experience in franchising. However, there is always “potential” to turn a business around.

    The difficulty with turning a franchise business around is that sometimes they have really strict compliance that has to be adhered to. This could involve reporting systems, staffing protocols, marketing, fit-out, etc. These are all things that would need to be assessed to to see how much leeway you have, therefore allowing you to turn the franchise around.

    The unfortunate thing is that many companies sell a franchise to unsuitable candidates. These people are most likely unsuitable, they don’t have experience and the support network from head office might be non-existent. Some companies simply sell a franchise so they can make quick money, but don’t analyse the location or market potential or the suitors capabilities.

    One thing you have to remember is that when the franchise opened, I’m sure the franchisees were really keen to ensure the success of their venture. However, something might have happened along the way to turn things pear shaped. Question is, what was it? Lack of a market? Lack of experience? Lack of head office support?

    There are many things to look at when wanting to buy a franchise, but biggest thing to worry about is the compliance. I’ve done countless research on franchising and I have a friend who’s the National Ops Manager of a large coffee chain. He tells me there are franchisees that become non-compliant for simply changing a process. These franchisees then need to be dealt with. That being said, maybe the franchise you are looking at are non-compliant and aren’t following the systems and processes put in place by the head office. Maybe the franchisee thought they knew better?

    Whatever question you can think of, write it down and ask it – the answer of one of them could be what ultimately makes up your mind.

    Good luck!

    #1180667
    TakingthePlunge
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    Hi nikmaricic. Thanks for your response. The franchise is currently a franchisor managed store however they are based interstate so have not been able to give the business the attention it needs (or so it seems). There has been some history with this store that I need to delve into further so there will certainly be many questions to ask. I appreciate your advice and any advice that others may be able to provide.

    nikmaricic, post: 210687 wrote:
    Taking over a franchise can be tricky, especially if you don’t have experience in franchising. However, there is always “potential” to turn a business around.

    The difficulty with turning a franchise business around is that sometimes they have really strict compliance that has to be adhered to. This could involve reporting systems, staffing protocols, marketing, fit-out, etc. These are all things that would need to be assessed to to see how much leeway you have, therefore allowing you to turn the franchise around.

    One thing you have to remember is that when the franchise opened, I’m sure the franchisees were really keen to ensure the success of their venture. However, something might have happened along the way to turn things pear shaped. Question is, what was it? Lack of a market? Lack of experience? Lack of head office support?

    There are many things to look at when wanting to buy a franchise, but biggest thing to worry about is the compliance.

    Whatever question you can think of, write it down and ask it – the answer of one of them could be what ultimately makes up your mind.

    Good luck!

    #1180668
    Anonymous
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    Hi TakingthePlunge,

    I’m not the right person to answer your questions (so I’m glad that nikmaricic has done such a good job of that – thanks Nik!).

    However, I did want to welcome you to the forums. I hope that initial response has been helpful and that you pick up some additional useful info too.

    I’ll be interested to learn which way you decide to go :)
    Jayne

    #1180669
    TakingthePlunge
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    • Total posts: 4
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    Hi Jayne,

    Thanks for the welcome. I’m currently reviewing all data available on the store. It certainly looks intriguing and quite an exciting challenge. Hopefully I receive some further advice here to assist in ensuring I cover all bases while making my decision.

    Thanks

    FS Concierge, post: 210789 wrote:
    Hi TakingthePlunge,

    I’m not the right person to answer your questions (so I’m glad that nikmaricic has done such a good job of that – thanks Nik!).

    However, I did want to welcome you to the forums. I hope that initial response has been helpful and that you pick up some additional useful info too.

    I’ll be interested to learn which way you decide to go :)
    Jayne

    #1180670
    MCP
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    • Total posts: 16
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    All of the improvements you mentioned cost extra so if you are heading into a new business be prepared to have enough cash to fix it up first and then start making a profit. If you are buying a franchise it should be reasonably established (good brand, steady client base etc) otherwise it will be cheaper just to open a similar business next door and try your luck.
    Do you have experience in the industry that the franchise is located – do you know the location well enough?? If the location is good then there will either be a similar nearby or about to open – franchisers do a lot of research regarding location (traffic flow, average household income etc etc), that is why when you see a McDonalds there is always a Red Rooster or Pasta Cup nearby!!!

    It seems like you have already identified a few elephant traps so beware the fine print.

    The only way to tell what is really going on with the business is to look at the recent set of financials – you may need to sign a confidentiality agreement and if you are not financially minded it may be best to get you accountant (or a really good business analyst) to look over the figures.

    Good luck

    #1180671
    TakingthePlunge
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    Hi MCP,

    I am making a drastic career change so I have no experience with this type of business. This was a motivator for me to find an established business with a well established franchisor rather than building something from scratch. I am familiar with the location and will be spending time at the centre and surrounds to improve my knowledge of the location over the next couple of weeks. There currently isn’t much in the way of competitors nearby which is nice. I will research similar franchises to see if they have plans to build within this shopping centre.

    I have the financials for the store and am going through them as I write this. There are some obvious areas for improvement and I will book a meeting with my accountant shortly to get his opinion.

    What I am really interested to know if there is anyone here who has done something similar in the past. Can anyone share their experience whether it be a success or less than a success?

    MCP, post: 210810 wrote:
    All of the improvements you mentioned cost extra so if you are heading into a new business be prepared to have enough cash to fix it up first and then start making a profit. If you are buying a franchise it should be reasonably established (good brand, steady client base etc) otherwise it will be cheaper just to open a similar business next door and try your luck.
    Do you have experience in the industry that the franchise is located – do you know the location well enough?? If the location is good then there will either be a similar nearby or about to open – franchisers do a lot of research regarding location (traffic flow, average household income etc etc), that is why when you see a McDonalds there is always a Red Rooster or Pasta Cup nearby!!!

    It seems like you have already identified a few elephant traps so beware the fine print.

    The only way to tell what is really going on with the business is to look at the recent set of financials – you may need to sign a confidentiality agreement and if you are not financially minded it may be best to get you accountant (or a really good business analyst) to look over the figures.

    Good luck

    #1180672
    Tony Manto
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    I personally have not owned a franchise but I have coached a couple in the past. What you are asking is possible but not easy to answer in one post. As mentioned, sometime the rules and regulation of the franchise you are buying can inhibit you from growing the business.

    The easiest way to answer your question is to make a list of what you thing needs to be done and how you are going to do it. Then cost it out. Do you have the experience and the resources to do these things or do you have to hire someone to do them. How much is it going to cost. Who are you going to target, how are you going to target them??? So many questions to be asked and answered. I would recommend you download a business plan template and fill in as much as your can. If not it might be worth hiring a business adviser to work through this with you. It will be a small price to pay rather the price you will pay in getting it wrong.

    #1180673
    Brad Turville
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    • Total posts: 55
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    Hey there

    Franchises are marketed as a business in a box but unfortunately that is not always the case. The first step, which you have already indicated, is a thorough due diligence which I’m sure your accountant is helping you with to identify if this is truly an under-performing asset and if it matches your goals and required rate on investment (….that includes time!)

    First timers usually get caught out by the ongoing annual franchise fees like advertising and rebates etc. which should form part of a 3-way cashflow forecast as part of the due diligence and factor in a ‘poor performing scenario’.

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