Nick Roberts

Someone commented the other day that the failure rate of franchised businesses is much higher than non-franchised. I've certainly met a lot of unfortunate franchisees going bust in the Free Business Clinic I run (I recently met a franchisee who is the 26th franchisee to go bust out of the 28 in NZ) but a good franchise can have its advantages. If you're tempted: 

• Make sure the franchisor has a successful business model which has been running successfully for some time.
  
• Seek advice from a decent accountant and a lawyer beforehand.
  
• Fully understand the franchise agreement and the restrictions it will place on you. Rather than help the remaining franchisees or spend the massive unspent advertising fund the franchisor in the 28 franchise example above is suing the 25th ex-franchisee for trying to eke a living out of the remaining customers!
  
• Recognise the business might be taken away from you in the future as has happened in HB more than once.
  
• Recognise also your area might be split in the future.
  
• Be careful of the amount you finance which could place you under unsustainable financial pressure. I've seen huge sums paid for franchises in very competitive business areas.
  
• Compare the cost of the franchise with starting a business from scratch - just how much of a brand are you acquiring?

Apparently, a huge increase in the claims against franchisors is expected but it's a bit late by then. Remember the 7 P's we used in my Territorial Army days "Proper preparation and planning prevent p*ss poor performance". You probably only have one house!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz

. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.