Buyer Beware
Many people looking at buying a franchise are surprised
to discover that there is no specific legislation governing franchising in New Zealand. Given that when you buy a franchise you may be investing not just a considerable sum of money but your own time, labour and career, this may seem odd.
The reason is that while houses, investments and cars
are regarded as business-to-consumer transactions, buying the right to operate a franchise is a business-to-business transaction and is governed by normal commercial law. Potential franchisees are therefore expected to act as business people and conduct proper 'due diligence' on any proposition. If you don't do this, and you don't hire the services of a franchise-experienced lawyer or accountant to assist you in the due diligence process, you may only have yourself to blame if something goes wrong.
So is franchising full of scam artists offering dodgy deals?
Well, no: franchising is hugely successful in this country. It has given many small businesses the chance to become big businesses, and many local operators the chance to compete against the corporates. In practice, of the many hundreds of franchisors operating in New Zealand over the last 20 years, you could probably count the number of downright crooked ones on the fingers of two hands, if not one. But that's not to say that every new franchise launched has been a success, either. Creating a franchise is an incredibly complex process. Not only do you need to start off with a
"Good people with good businesses and only good intentions can still create bad franchises."
successful business but you have to create systems to document every process, prove that it can be replicated in other locations, create workable franchise territories, set initial and ongoing fees that allow everyone involved to make a fair return on their investment and, above all, attract, select and train people who have the necessary skills to succeed as franchisees. That requires a lot of investment and it's just for starters: managing and developing the franchise on an ongoing basis requires more skills, such as leadership, management, persuasion, diplomacy and enforcement. This complexity means that even good people with good businesses and only good intentions can still create bad franchises. The problem is that, by the time they realise their mistakes, they have probably already attracted their first franchisees – and unwittingly involved more people in their problem. That's why you should always remember 'buyer beware'
when considering franchising. Good advice is available from franchise-experienced bankers, lawyers and accountants, and if you are considering franchising your own business, from franchise consultants. One further word of warning, though: like franchises themselves, all advisors are not equal. Make sure you check them out before appointing anyone to help you – there's more advice on this at the Franchise New Zealand website at www.franchise.co.nz.
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