Veechi Curtis - Small Business for Dummies

P is for profitability: Make sure you obtain Profit & Loss statements for a minimum of the last three years, certified by a public accountant. Examine all expenses and ask whether they’re reasonable. Do you think expenses are going to increase or decrease under your reign?

Q is for QuickBooks: Or MYOB or Xero for that matter. If the owner already subscribes to accounting software, ask if they can export all of the lists (the accounts list, the customer list, the supplier list and the employee list) into an Excel spreadsheet. You can then import this information into your own accounting software, thereby saving hours, days or even weeks of typing.

R is for restrictions: Consider whether you want to add a restriction clause preventing the seller from starting up a similar business in the area and for what period the restriction applies.

S is for sales: How many customers made up the bulk of previous sales? If a substantial proportion of sales come from only one or two customers, can you be sure these customers are going to remain loyal to you? Examine trends both for total sales and for profitability. Scrutinise sales figures on a month-to-month basis and make sure you understand the reason behind any inconsistencies, seasonal variations or trends. Downward trends are almost always of significant concern.

T is for technology: Is the business likely to continue its success? Be aware of the impact that technology may have on this enterprise. For example, an appliance repairs business may experience dwindling demand as decreasing costs mean that replacing appliances, rather than repairing them, becomes the trend.

U is for utilities: Organise to get electricity, gas and water transferred to your name, and clarify what happens with these bills at handover time.

V is for vendor: Make sure you know who you’re dealing with. Conduct a name search on the vendor. (I recommend you check them out both on Google and Facebook, and ask your solicitor to conduct a full credit check also.)

W is for workers compensation: Are any workers comp claims outstanding? What is the safety record for this business?

X is for X-ray vision: Something you’re going to wish your solicitor has.

Y is for why: Yes, I know I’m pushing the envelope here as far as the alphabet is concerned. Never mind. Why is the business really for sale?

Z is for Zebra, Zebedee and Zulu: Yeah, right.

See Chapter 7for more about signing contracts and legal decisions.

Even if you’re not entirely sure what franchising is all about, chances are that you , as a consumer, do business with a franchise most days of the week. International franchises include names such as The Body Shop, Century 21 and Pizza Hut. Aussie upstarts include Bakers Delight, Boost Juice, Poolwerx and VIP Home Services.

The idea is that an established business (the franchisor ) licenses its business name and its operating systems to another person (the franchisee ). In return for an upfront fee and an ongoing royalty, the franchisor agrees to provide the franchisee with the product or the service, as well as the business concept itself. This concept includes marketing strategy, operational standards, software systems, training and guidance.

A win–win relationship lies at the heart of franchising. Franchisors win because they can grow their business much faster because you (the franchisee) provide capital and ongoing revenue. And you, the franchisee, win because you gain a business with a proven formula and a substantially reduced risk.

Before you get stuck into checking out individual franchises, I suggest you take a step back and consider what’s good about franchising, and what isn’t.

I like to start with the good things in life. You know, the red wine before the cooking begins, and the wild adventures overseas before settling in to a sensible university degree. And so, before considering the downside, here are a few reasons that explain why franchising is so popular:

You benefit from an established brand name and reputation: Assuming that the franchise has a well-established brand with a good reputation, your business is likely to have an intrinsic goodwill before you even open your doors for trading. Customers are going to recognise your business name and associate it with a consistent level of quality products or services.

You’re working with a proven formula: Working within a franchise model is like making a chocolate cake with a tried-and-trusted recipe — as opposed to concocting a creation from whatever’s sitting in the back of the cupboard. A company that already has successful franchisees has done the hard yards, proving the demand for its products or services and figuring out a system that works.

You’re off to a flying start: The decisions you make in the first few months of business are often the most crucial. As a franchisee, you receive expert guidance regarding trading location, shop layout, stock levels, product mix, software systems, signage and much more.

Your risk is reduced: One key benefit of a franchise is that you don’t waste your precious capital repeating someone else’s mistakes. Hopefully, the franchisor has ironed out the bugs and found solutions to the most common problems.

You get training to fill the gaps in your knowledge: A good franchisor is keen for you to succeed. Your initial training can help you to identify your weak points, shore up your knowledge and start your business in a much stronger position. However, if you’re really green to business, don’t expect that belonging to a franchise is going to completely compensate for a lack of experience.

You’re part of a group: When you’re part of a franchise, you get to share ideas and knowledge within your group and, hopefully, you have the positive experience of being part of a dynamic team.

You can increase profitability through economies of scale such as coordinated group advertising and bulk purchasing power: For example, if you have a Bakers Delight franchise, chances are the head office buys flour at the best possible price and quality, with its high-volume purchases providing leverage when negotiating with suppliers.

You can compare your performance with others in the same franchise in key areas such as wastage, margins and average spend: This ‘benchmarking’ helps you identify areas where you can improve.

You’re smart to weigh up the negatives of franchising before you consider signing on that dotted line. Franchising may not be your cup of tea for any of the following reasons:

You’re paying for goodwill, rather than exploiting your own creative genius: The significance of this downside depends on how much of a creative genius you really are.

You may be committing to something you hate: Like a blind date, you have no time for a slow build-up. What if you bought a shoe franchise and developed a pathological aversion to the smell of feet? Or you bought a lawn-care franchise and discovered your inner loathing of lawnmowers?

You have to abide by other people’s rules and decisions: Even if the franchisor’s decisions seem ludicrous, you have to stick by them. You may have to pay for advertising campaigns that seem like total duds, wear a uniform in a colour scheme you despise or sell a new product that you don’t believe in.

You have less control over your long-term future: No matter how well you run your business, you run the risk that other franchisees may not be so conscientious, acting in ways that damage the reputation of the brand. For example, if one cafe in a franchise chain has poor hygiene standards, disappointed customers are unlikely to patronise other cafes in the same chain when they’re travelling around.