Is a Franchise Right For Me?

Posted in: Platinum Business Inspiration


It is a commonly known fact that most small businesses fail within 18 months of starting, with one small business failing every two minutes and around 50% of sole traders fail within the first three years. It is a sad fact that even a person with a large amount of experience and knowledge in a particular industry can come unstuck so quickly after starting their own business. Many an electrician has come to learn this.

Factors behind high failure rates

The fact is, there is much more to a business than knowledge and experience as any banker will tell you. In fact many banks are reluctant to provide start-up funds for any business that doesn’t have a solid business plan backed up by cash reserves, marketing plans, and a detailed analysis of experience and expertise that can be used in the business.

Advantages of franchises

Even when these things are in place, there is no guarantee of success, so the decision to start a business needs to be taken only after very careful consideration. One of the things which ought to be considered is a franchise because these opportunities come with proven management systems and support tools that are vital to long-term success. Because a proven business model is already in place, franchises could have far lower failure rates compared with other types of small businesses. With an established franchise, you have instant name recognition, a solid foundation for launch, and ongoing support and training.

Initial investment

Franchises require an initial upfront investment. Generally franchises can cost anywhere from $10,000 to $1 million and more. The average cost of buying into a franchise is $31,500 for a retail franchise and $28,000 for a non-retail franchise, not including plant and equipment, inventory, leases, or shop fitouts. However, your investment could vary significantly depending on your industry and the type of franchise you’re buying into. Your initial investment could give you access to a support system, already-established business and supplier relationships, and lower risk of failure.

Choosing the right franchise

But how do you choose a franchise that will suit your skills, abilities and desires? Here are some pointers to start you thinking.

1. Research franchises

Let’s say you are an electrician looking to start up your own business. In the first place you should investigate the franchises that are available and if possible talk to a franchising expert to get their perspective on the industry and on the franchise itself.

You’re buying into an existing business so you have a specific advantage: you can research how the franchisees are doing and get a clear picture on the viability of each specific franchise.

You’ll want to carry out detailed research on each franchisor. Talk to other franchisees and get a feel for their experience with the franchise. Consider the quality of corporate staff, what the franchisor has in place as a support system, and what they’re willing do to support your success. Check their financial disclosure documents, including financial performance data. Get input from your accountant and financial advisor.

2. Understand the franchisee’s role

Become acutely aware of your own limitations and abilities. You will be called upon to perform a huge variety of tasks including administration, accounting and general business management not to mention the specific skills you need to get the job done. You will also be expected to continually update your skills by attending workshops whether they be in your trade or profession as well as management and accounting.

You’ll be applying someone else’s system and following their business formulas, operating standards, and guidelines on things like products, pricing, branding, and design. This is part of the solid foundation and support you get as a franchisee, but if you’re expecting to set these yourself, you could end up disappointed. As a franchisee, you should expect to receive advice and criticism from the franchisor team. Sometimes you might need to do things differently for the benefit of the franchise network rather than your operations alone.

3. Do a financial audit

Make sure your finances are in a sound position and that you have sufficient cash reserves to call upon when business is slow. In the early years of any start-up operation you’re likely to suffer from cash flow constraints and cash reserves will be called upon to keep your head above water. You also need a fallback position so that in the event of a catastrophic business failure you are still sufficiently well resourced financially.

4. Shortlist franchises

After you have examined all the franchise possibilities, make a shortlist of no more than 3. If possible rank of these in order of preference and make sure you are compatible with the franchisor requirements as well.

5. Do due diligence

Once you have made an initial decision, it is time to do your due diligence and investigate the ins and outs of the franchise with your accountant and business analyst. This means going over the financial details you will have considered during the initial research stage – but now in more detail – as well as reviewing your own finances to make sure it’s feasible for you to invest in your chosen franchise.

If you follow these five simple steps you’ll be in a better position to more accurately assess whether the electrician franchise you are interested in is really appropriate for you. The most important thing is to make a decision with your head rather than your heart.

Platinum Electricians is a multi-award-winning franchise with a proven success model to fast track you to the growth and profit you desire. Click here to find out more about Platinum Electricians and why you should become one of our happy and successful franchisees.