What type of person buys a franchise?

WHAT TYPE OF PERSON BUYS A FRANCHISE?

Having decided to take on business ownership, there are no set rules, and there is no definitive profile for those that opt for a franchise over ordinary business ownership.

A sound decision, however, should be based on:-

1.            Your personal goals (a firm decision that the business will support your lifestyle, not the other way around), a realistic idea of the size of the business (present and future), and an assessment of your skillset;

2.            A realistic assessment of the working capital (which will determine the size of the business you can purchase);

3.            An objective assessment of your skillset;

4.            A realistic decision about the type of work that you personally want to do within the business you are looking for;

5.            A realistic view of your technical ability with regard to producing a product or service.

Once this has been done, looking at the gaps and shortcomings, will tell you whether or not you have the skillset to take on all aspects of the business.

If you do not, you will either need to gain that skillset, or buy a business that is big enough to financially support the hiring of those skillsets.

A simpler option may be to look at a franchise system which will provide support, and “plug the gaps”, in your ability to provide a well rounded business operating system.

In effect, your franchise fee, a proportion of your gross turnover, is the price that you pay for receiving this supplementary support.

When considering a franchise, you should also think about whether territorial and other constraints (having to comply with systems, procedures and directions from the franchisor), are going to suit you.

Typical profile of a successful franchisee

People are different.  Although psychological profiling is being undertaken by some franchise groups, it is impossible to say, “This is the profile of a future successful franchisee”.

There are some common characteristics, however:-

1.                  They understand their role within the franchise group;

2.                  They understand and value the role of the franchisor;

3.                  They have a good grasp of the dynamics of how the business works, that is, they have an appreciation of the “levers” of the business (stock and staff systems, presentation, sales, advertising, processes), and how each relates to the other;

4.                  They are clear about their goals;

5.                  They are realistic about where the business fits into their lives and have a balance between the two.

Profile of an unsuccessful franchisee

Profile A

1.                  Treats the business as a personal __________ and resents intrusion and direction from the franchisor;

2.                  Refuses to follow processes;

3.                  “Knows better”, that is, refuses to accept that there are processes that work in every other franchise, and insists that his/her franchise is “different”;

4.                  Sees no value (rightly or wrongly) being given for the franchise fees;

5.                  Does not respect the rights of neighbouring franchisees;

6.                  Seeks to expand the franchise beyond its existing product range or territory without consultation with the franchisor, or regard for existing rights or responsibilities.

Profile B

1.                  Isn’t really interested in being part of a franchise in the first place;

2.                  Simply wants to “learn the system”, and then look for a way out;

3.                  Doesn’t value the input of the franchisor;

4.                  Sees no value being provided for the franchise fee paid;

5.                  Doesn’t respect systems and procedures as intellectual property;

6.                  Will breach a franchise agreement at any available opportunity.

Either of these profiles are unsuitable to a franchise business.

It is true that some franchisors do not offer value for the fee paid.  It is a common complaint that the franchisor “gives nothing and is only interested in fees”.  This is, in many cases, a reflection of the franchisee’s subjective assessment of the value received, as often as it is an objective reality.

This comes down to choosing a good franchisor system.

For more information on franchising, and the science and process behind buying a business, see my book “How To Buy A Business” on this website.

Reasons to buy a franchise

REASONS TO BUY A FRANCHISE

There are almost as many reasons to go into business as there are business owners.  Every decision is individual, and not all are “good” reasons.  For whatever reason, for centuries, people have felt the need to control their own destiny by buying or starting a business.

So what is so different about a franchise?

Running a business requires a large range of skills, which go well beyond the mere technical ability to produce the product or service which the business sells.  Finance, marketing, accounting, human resources, scheduling, managing growth, developing installing and maintaining systems; all these skills are necessary to successfully run a business.  An even larger skillset is required to grow a business from its existing size. 

That is where franchising can come in.

When you buy a franchise, you should receive the benefit, on an ongoing basis, of a system that is already developed and works. 

In exchange for parting with a percentage of a gross turnover, you should be joining a group which already has established systems and procedures to consistently turn out a high quality product which is valued and appreciated by the buying community.  You should also receive the benefit of all of the experience that went into making the system successful.

The idea of buying a franchise is that any gaps in your skillset are able to be filled by the collective experience of the franchisor, and the other franchisees.

And the concept works.

You need only look at successful and well run franchises, and speak to the franchisees in them, to see that a franchise structure can be very successful.

The question is – which one?

For more information on franchising, and the science and process behind buying a business, see my book “How To Buy A Business” on this website.

Selling your business Blog 1

SELLING YOUR BUSINESS

Introduction

Once you have been in business, the decision to get out of it and the decisions that you make after that can have an enormous effect on your future life.  Undertaking this process in an organised way at the right time for you, the business, the business cycle, and sometimes the financial year, can make a huge difference to how well you retire, or what capital you have to move into the next business.

There is a large number of variables that need to be considered.

The decision to sell

Making the decision to put the business on the market can sometimes be the hardest part.  Yes, we’re all supposed to have entered into business with a plan for exit but the reality is almost no one does.  The primary motivator should be a clear plan for a move to something that is, in your view, a better situation.

Most businesses are sold due to desperation, ill health, an unforeseen event or simple business exhaustion.  Selling a business in these circumstances:-

(a)        narrows the number of people likely to want to buy the business;

(b)        encourages bargain hunters;

(c)         will attract buyers who treat the exercise as akin to a lion circling wounded prey.

This is not the bargaining position in which to be.

Planning

As ever, planning and organisation are central issues.  You need to have a clear and, I suggest, detailed written plan, or at the very least a list of the issues, and how you intend to deal with them.

Is the business “sale ready”?

To have your business in the best shape to be sold you need to look at the following:-

1.           Do I have 36 good months of good net profit?

2.           Are my debtors under control?

3.           Are my creditors being paid?

4.           Is my stock at optimum level?

5.           Do I have all my documentation that might be asked for either by a broker or under due diligence?

6.           Are my tax records up to date?

7.           Do I have employment contracts in place for key staff members?

8.           Will the business run without me or will the new owner have to step into an operational role?

9.           Are there procedures in place and are they recorded in a manual?

10.       If I am reliant upon a small number of key customers, do I/can I have contracts in place for those customers?

11.       If I am a franchisee, what is my relationship with the franchisor like?

12.       Are my franchise fees up to date?

13.       Have my staff undertaken most recent training with the franchisor?

14.       What is my equipment like (new, old, leased, rented, paid out, due for renewal)?

15.       Do my premises need a fitout update?

16.       How long have I got to go on my lease (should I be asking for further options to extend from my landlord)?

Having all or most of these in order will make your business more attractive.  Sometimes it’s impossible to have the perfect scorecard but making a list and sorting out as many of these as you can, will help.

Financial performance

The value of your business is a factor of its profit.  Every business has goodwill (although in some cases, the goodwill figure may be zero or, in fact, negative).

The goodwill component of the business often makes up a large proportion of the sale price and is the most hotly argued and negotiated portion of the contract price.

The goodwill of the business is based upon the last 36 months of trade.  The 12 months average of that trade period will be taken, and then an industry multiplier will be applied.  This multiplier depends on the type of business and in each industry it will be different.  Not only that, the multiplier changes from time to time within industries due to market forces, the economy, and the amount of demand for businesses in that industry.

The industry multiplier is designed to work out what percentage return a buyer will receive for the capital investment of the business.  For example, a business that was quite risky, small, short term or disorganised might be in a situation where a buyer may want as much as 50% return on money invested.  In that situation, the industry multiplier would be 2, and the 12 month average of net profit would be multiplied by 2 to give a goodwill figure.

If this were done, a buyer would receive 50% return on the investment.

In a stable, organised business in a well recognised and settled industry (or in a good franchise), the percentage return expected may be significantly lower.

As an example, a 33% return would have an industry multiplier of 3; a 25% return would have an industry multiplier of 4; a 20% return, an industry multiplier of 5, and so on.  The better the business, the lower the risk, the lower the percentage return, the higher the multiplier, the higher the goodwill value and the overall sale price.

Add these lower percentage returns with the higher industry multipliers, and the goodwill component could be many times larger, resulting in a much better deal for the seller.

In many cases, however, the sale price at which the business is listed, is determined by:-

1.           The amount of money the owner believes it is worth arbitrarily;

2.           The amount of money the owner needs to “get out”;

3.           Some kind of guess at the “going rate” for some other subjective measure chosen by the owner.

In these circumstances, without any homework or justification to back up the asking price, the business will either be undervalued, or worse, wil languish, unsold on the books of a broker.

Other factors

(a)              Plant and Equipment

Any plant and equipment which is owned (as opposed to leased or rented) should also be added to the purchase price.  Most times this is done at the “written down value”, that is the depreciated value in the books, but it may be justifiable with certain equipment for you to ask a higher price for the equipment (its replacement value, for example).  The seller may not necessarily be unhappy with this, given that the buyer will be able to claim depreciation on the equipment based on that figure.

(b)              Debtors

Money owed to the business, called debtors, is not normally sold with the business.  It will be up to you to collect that money before or after settlement.  You may, in fact, need some assistance from the buyer to do so, and this may need to be written into the contract.  If you have key ongoing customers, it may in fact be that the buyer has to collect these funds for you, and some arrangement will need to be made for this.

(c)               Work in Progress

In some businesses (professional services firms and manufacturing particularly), at settlement there will be jobs for clients that have been started but not completed, or paid for.  Time will have been spent on those jobs, which you have paid for in resources, wages and other expenses, for which you have not yet been able to issue an invoice.

If your business is a business of this type, then a formula for you to be paid for work in progress will need to be settled.

(d)              Stock

Stock is the most common and contentious of purchase price add-ons.  Stock, for the purposes of the contract, is normally valued at its wholesale invoice price (that is, the price that you paid for the stock when you bought it).

There are several ways to deal with stock:-

(i)          The walk-in walk-out contract.

       This is the shortest, simplest and easiest contract, where the purchase price includes whatever stock is on hand at the day of settlement.  The contract will require you as the seller to continue to run the business in its ordinary manner, but there is nothing to prevent you from “running down” the stock in the period before settlement, to a level at which the business can still run effectively, thereby maximising your return.  The benefit of a walk-in walk-out contract for the buyer is that it is often cheaper, and is certainly simpler.  The risk for the buyer is that there may be very little stock, and the buyer will have to have capital on hand immediately after settlement to replenish stock.  This will reflect in the price that you are offered for the business;

(ii)        The “plus stock” contract. 

       Most contracts are for a purchase price “plus stock”.  This means just what it says, the stock at the day of settlement, at its wholesale invoice price, must be paid for in addition to the purchase price.  The contract should specify a stock level at settlement.  The parties will do a stocktake, and the buyer will only be required to take good and saleable stock, of his choosing, up to that price ceiling.

       You, as the seller, have the ability to influence that stock level figure, at least as a starting point for the negotiations.  Careful preparation of your stock levels during this time will ensure that you are not left with extra stock that the buyer does not want, or be faced with the possibility of selling that additional stock to the buyer at a very cheap rate.

36 months of good profit

If you are in control of the decision to sell your business, that is, it is not being driven by lack of profitability, ill health, or business fatigue, then you have the ability to ensure that you can present financial figures that are as good as you can manage.

There will obviously be a limit to the amount of time that you want to spend on this process, otherwise the business would never be listed and sold.  You can, however, take the time to focus on profitability which involves optimising the following variables:-

1.           Gross profit (obviously).

2.           Limiting expenditure (discretionary spending, private expenses masquerading as business expenses, “little business luxuries”, should all be watched and excluded, if possible, during this period).

3.           New equipment purchases.  During this period, think about whether there is any benefit to having bright, shiny new equipment, which will damage your cashflow or capital requirements.  Counterbalance this with the need to keep your business up to date, and a value judgment about whether old, tired equipment might affect saleability.

FAMILY LAW BLOG - The Divorce Settlement – How does that work?

Lets first clarify that term ” Divorce Settlement “. To the Lawyers of whom you may be asking questions it’s actually two things!

The term Divorce really only deals with unmarriage. That is a Divorce application is one which seeks to have the Court make a Decree Nisi in dissolution of a particular marriage. That Application does not deal with the welfare of the children (other than in the respect that the Court needs to be able to make a finding that proper arrangements in all the circumstances are made for any children under the age of 18 years before it can grant that Decree Nisi) but the Court won’t on that application for Divorce make any such orders relevant to children or for that matter property. Those issues of  How to Parent Children and Property settlement are the subject of entirely separate Applications to the Court. 

Most people asking about a Divorce Settlement are actually looking for information about how to divide property.

That’s actually a complex question. It’s made so because there does not exist any prescriptive list of how it’s done for each Family. What we can say is that the Court goes through a four (4) stage process in assessing how a settlement should work.

Firstly the Court (and I mention the Court as it represents our benchmark) will want to assess the content of the property pool that you are looking to divide. I feel compelled to say at this point that less than 3 % of the people all around Australia that go through this process actually need the Court to sort it out. What that means is that of the 55,000 odd applications filed each year in the Court some 97% of them get settled often with the help of the parties Lawyers. Solicitors who work consistently in this field (Family Law) know how this works and although at times it is difficult, we work to guide our client’s toward a settlement that will avoid having to run a full trial in the Court.

The Second step in the process is to value the property Pool so we know what we are dealing with in Money terms. And all sorts of things represent property in the marriage – it includes all the real estate and chattels no matter in who’s name it is held; all the superannuation of both parties; sometimes an inheritance or windfall sum of money particularly if it’s been in the marriage for many years and is now actually represented by assets into which it was invested. That does not mean it is not a relevant contribution for one party or the other but it is most likely part of the asset pool.

Thirdly the contributions of the parties, both financial and non financial, to the acquisition or improvement of that asset pool must be catalogued and considered. For instance it may be that a wife has spent 20 or more years of a marriage as home maker and carer for children rather than as an income generator for the Family. That role of Homemaker and parent is no less valuable in terms of contributions than the efforts of a Father as a provider of income. So that role of homemaker is an example of a non financial contribution.

Finally the Court (and your Lawyers considering what outcome might apply to your case ) must consider what’s called the Section 75(2) factors and these are the intangibles like each parties health, ability to work, develop career and build up a retirement fund etc.  So each parties employability and possible income prospects are relevant issues coming out of the marriage. Also the Court must then consider what adjustment in property is just and equitable in all the circumstances.

It’s that last adjustment opportunity that many forget exists and which allows the Court to do what it thinks best with your property! This is important and in the final analysis it’s what gets that 97% of folk to a settlement. Better to settle and be in control of that process than give up the right to make that choice. What you do with a Trial is hand over to a Judge, who did not know you before that Trial day, the right to divide up all your property on a basis that he thinks is fair and reasonable. He may well (and most likely does) have a completely different set of criteria to you when he comes to that task.

So when you come to consider your Divorce Settlement we think that requires some lengthy consideration. You can see from what we’ve set out above that the consideration process will take some time. We actually use up about an Hour and half. We find that our client’s are in a far better position to make informed choices after one of our Fixed Fee consultations. That investment of a few hundred dollars at the front end of the negotiation will usually save thousands at the decision end just because you are well informed on your best and worst possible outcomes.

See our blog on Fixed Fee consultations for more information on how they work.

By Warren John Tegg

FAMILY LAW BLOG - “Family Law Answers – What’s the cost”

So you are separating or at least feel you should understand your rights if you do?

How do you find out ? Get a lawyer ? You might think that a step too far and you “Don’t want to go to Court”.

In the environment of a dispute at home be it about How you parent the children; property division; how do you keep it together or how you leave safely – knowledge = empowerment. 

To make informed decisions on any subject it is vital that we gain some knowledge ; none of us are experts in every field of Endeavour. And in my experience there are a lot of Myths doing the rounds in Family Law.

Here’s a few :-

• Fathers have no rights regarding their children !
• The Wife gets 70% of the property!
• It costs too much to go to court !
• I can’t afford a Lawyer!

For more information on the Myths surrounding going to Court see our Blog called “Don’t want to go to Court”.

How do you get this information? We understand that you will find it helpful to have some complete information about :-

• The law and the rights and entitlements of all the Parties in the dispute including the grandparents of the children and any other significant carers. Children are the parties with the rights in any dispute about parenting. The Parents have responsibilities. The Children have the right to maintain a relationship with both their parents and any and all extended family who may have become significant in their lives.
• The way the system works to resolve disputes regarding both children and property. There is in place a system that requires negotiation prior to Court action, particularly related to children.”No” the police cannot assist one party or the other to get their children (without a specific court order and a Warrant); And “NO “ neither party has the ability to go to Court and get an order that does what they want unless the Court agree’s that order is in the best interests of the children and the Court has heard from all interested parties on the subject. Getting a Court order is just not a unilateral process.
• How the Court actually works – what the Courts responsibility is ?

All this information is important on two levels :

1. It helps you defend your self from frivolous and inaccurate threats ;
2. Enables you to make choices about what sort of and how much help you might need at this time.

What we do to address all your questions is we run a no obligation initial Fixed Fee consultation which is really a One on One education session just for you. Yes there is a Fee but it’s “Fixed”. There has to be a Fee because we know from our experience the session will take at least an hour and half. We know for instance that as we give you information this will give rise to at least two new questions? I’ll bet you know what the first two questions are right now?

We know each family is different. And that gives rise to special considerations for you. That’s why the session is not done in a group.

We promise you we’ll take the time you need to answer all your questions and fee for that remains fixed. If it’s information you need consider one of our Fixed Fee consultations. Give me a call and we can discuss your particular needs.

Warren Tegg

FAMILY LAW BLOG - “Don’t want to go to Court”

We manage a community help line here at Bennett Carroll taking calls from distressed people from all walks of life. Over the last Eight (8) years I’ve been dealing with those calls I’ve noted that nearly everyone looking for advice ”Doesn’t want to go to Court” – most people want a negotiated and non confrontational outcome. It is without doubt the single most often made statement I get.

The fact that so many people say it indicates to me that there is a widely held fear of going to court perhaps based in an incorrect notion of what that statement means. BUT I’d like to make a point first :

• We do not advocate going to court and neither do most of the practitioners working regularly in Family Law unless that is the only remaining avenue of resolution open to a client. I (Warren Tegg) have been Practicing in Family Law for over 30 years. In all that time a single Family Law statistic has remained pretty constant. That is that over 95% (now 97%) of all Family law matters filed in the Court settle out of Court. Just to fill that out a little it is significant that even if a separating couple has there deal agreed they’ll have to file an application at Court to get the deal sealed and that application is one of the 55,000 odd filed annually around Australia.

What that demonstrates though is that less than 3% of cases actually “Go to Court” that is wind up in a Court room for a Trial. The greater proportion, that is, 97% do in fact settle without the need for that Court room conflict.

This is great news! The reality is that most cases settle and the Lawyers working consistently in this field are practiced at negotiating deals and helping their client’s avoid “Going to court”.

The Court however is sometimes a useful and effective tool in getting to that settlement. What the above statistics tell us is that even though an Application is filed in the Court that does not mean you are “going to Court” in the widely accepted sense.

Each Family is different in their own way and so each Case is somewhat different.

We are negotiators and our initial goal in any matter is to understand your Family dynamic so that we can chart a course to a settlement that suits you.

Check out our information on Fixed fee consulting on your road to understanding how you can resolve your current dispute.

Warren Tegg

Domestic and Child Violence Epidemic

DOMESTIC AND CHILD VIOLENCE EPIDEMIC

The media is currently filled with horrific stories of violence involving children and families.

There is a whole web of interacting responsibilities and authorities designed to intervene and short circuit these situations. Often they fail, but it does not mean that they are not there.

Police

Police will attend any incident of domestic violence to which they are alerted. It can be a neighbour, a passerby or an occupant. Police will attend as soon as resources permit. The first decision that police officers make when arriving at the scene is "who is the threat?" This is an attempt to diffuse the situation and create a circuit breaker. It is not always the first step to Domestic Violence Orders.

Police will have to make a value judgment as to what intervention, if any, is appropriate. There are times when intervening to remove a party will provoke a violent response from the other against police.

If an intervention decision is made, police have the authority to remove any person from a domestic violence scene, and incarcerate them before they can be brought before a Magistrate.

This does not always improve the situation, but is an instantaneous decision that police have to make when arriving at a scene.

When next a Court can deal with the matter, if police intend to proceed with Domestic Violence Orders, an interim order may be made. It is quite common for a party who was not removed from the scene to be the subject of a cross-application for a Domestic Violence Restraining Order.

The matter will then go through the Court process.