Is Now Really be a Good Time to Start a Franchise Business in Australia?

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With most of the developed economies either in, or heading for a recession, can now really be a good time to start a franchise business in Australia?

Firstly, recession in Australia is not by any means a certainty and even if it does happen, it seems that it will be less severe and have a faster recovery than most other economies. But still, bad times are bad times, is it wise to start a business in less than ideal conditions?

The answer to that is unique to each person that asks the question, but generally speaking, if most of the other factors influencing your decision are still positive then you shouldn’t let a weak economy dissuade you from taking the plunge.

Of course there are some cautions. Go through your business plan again (the real one, not the one you did for the banks!) and analyse how well you will fare with reduced revenues. Quite possibly it may simply mean a slightly longer period before you hit break-even.

If your funding isn’t already in place, you might find it harder to secure a business loan, at least for the next few months until the banks have sorted through some of their woes and a sense of stability returns to the financial markets again.

There are plenty of factors that will work in your favour if you go ahead with your business start-up plan.

Firstly, talented people should be much more available and for less expensive wages than at any time during recent years. If you are looking for partners, there will now be a pool of people just like you who are looking for an opportunity, people who realise how fragile a career in the corporate world can be and are looking at ways to take more control of their future. Some up these may have received a retrenchment package or be cashed-up through prudent savings. Not many potential investors are going to trust the financial markets or fund managers any time soon and this ought to make investing in a franchise a much more attractive proposition.

It will be easier to negotiate a lease and get the rental significantly cheaper than it was just a few months ago. Office renovation and shop-fitting expenses will be cheaper, as will perhaps any new or second-hand equipment that may be required for the new business. Consider using the services of a “virtual office” which can handle everything from answering telephone enquiries to secretarial services to basic book-keeping. Most of the time your clients won’t even realise they are not talking to one of your employees and you may find that the level of professionalism they bring to your business helpful in the start-up phase.

Buying a franchise as distinct from creating your own unique business, adds a level of safety that should not be underestimated. Franchises that have been around for a while have already weathered economic downturns in the past and have proven strategies in place to see it through this one as well. If the franchise is relatively new, the creative minds and determined personalities who founded the business are probably still at the helm and you can be sure they are not about to let their business fail.

All the usual advantages of a franchise apply. Franchisors have the buying power to negotiate the best prices on raw materials or ingredients while franchisees have a good knowledge of their customers and their neighbourhood and stand to profit from the trust and familiarity of the franchised brand.

When choosing a franchise don’t underestimate the newer arrivals in the market. Although their brand may not have the instant recognition of the market leaders, often their artwork, advertising and business models are as equally professional. People are naturally curious about a new brand and if it looks interesting and their logos and catch-phrases have appeal, they are likely to give it a try.

Do the same yourself. First test each franchise you are considering as a customer, evaluate the product and make an assessment from this perspective. Next talk to as many franchisees as possible. You should be able to arrange this through the franchisor. Add to this your feelings about the branding and the business concept. Although more caution is warranted with a new brand, you may find it a much easier franchise to buy into compared to a more expensive established one and if it grows quickly, being one of the pioneers should bring greater rewards. Don’t be afraid to negotiate. If the franchisor feels that you are the right person you may be able to get a substantial discount, or a deferred payment scheme of some sort. Explore these alternatives openly an honestly with the franchise sales team. An eagerness to negotiate doesn’t mean you you are coming from a position of weakness, if done professionally it could demonstrate that you have a mind for business and that could work in your favour.

Look at what is happening in other states. Does a new car wash franchise in Perth seem to be taking off? Are there any in Sydney, yet? Or does that new juice bar franchise that started and grew quickly in Melbourne have similar take-up rates in Adelaide? How well would it be accepted in Brisbane or the Gold Coast? If it is the retail sector that you are interested in look around your local shopping centres. Which businesses are doing well? Which ones are under-represented? Does this represent a niche that could be successfully filled by your new business?

Remember, when things are going well, people assume they will keep going well, when there is a recession, people fear the worst and wonder if it will ever end. Now may well be the best time to put the contrarian principles into action and become established during times of economic weakness, get the bugs ironed out and be well positioned to benefit from the good times just over that next hump.

Michael Tunstill
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