Franchise Fit Outs

Following is a guest post on the topic of Franchise Fit Outs by Peter McLaughlin, who is a lawyer experienced in franchising, and a member of FAN. One of the advantages of buying into a franchise is the ability for a franchisee to leverage from an established and successful business. In order to maximise the effect of the franchise system, those franchises that operate from retail premises such as a shop should have the same look and feel across all stores, highlighting the replication of a singular brand and product.

The Franchise Agreement will usually contain a provision as to whether the franchisor or the franchisee will fit out the shop to achieve this cohesive, predetermined look.

Fit Out by Franchisee

Where the franchisee is required to coordinate the fit out of their own shop, they must ensure that this is carried out in accordance with the franchisor’s specifications. A Fit Out Manual will usually exist outlining the franchisor’s precise requirements. Often a franchisor will also advise of an approved shopfitter that knows the brand and business and is recommended to carry out the work.

The final fit out must usually obtain the franchisor’s approval and pass a final inspection prior to commencing operation of the franchise. Franchisees are recommended to read the Franchise Agreement carefully to understand what is required of them in this process.

Fit Out by Franchisor

Alternatively, the franchisor may assert that they will co-ordinate the fit out on the franchisee’s behalf. In this circumstance franchisees should ensure that they are involved in the process and check that the quotes of the shopfitter are reasonable.

It is also common for franchisors to supply a “turnkey” package. This is when the franchisor grants the franchise, supplies a fully fitted out shop and turns over the keys to the franchisee to operate, all in return for the payment of a fixed amount.

What Happens in the Event of Relocation?

Most site-based Franchise Agreements allow for a franchisee to conduct business only at a specified location. The agreement should however make provision for the situation where the premises are destroyed, rendered unfit or if the lease expires or is terminated without fault on the part of the franchisee. The agreement would usually allow a franchisee to relocate, but will also impose conditions on that relocation.

What Should I Do?

Whether you are a franchisor or a franchisee, the key to benefiting both parties and getting the shop fit out right is clear communication.

Franchisees should ensure you read your Franchise Agreement thoroughly and understand what is required of you in regards to your shop’s fit out.

Franchisors should be open and very clear in regards to your fit out standards to avoid any confusion or misrepresentation of your brand.

For any assistance regarding the drafting or reading of Franchise Agreements please contact Peter McLaughlin on 3852 5055 or at peterm@redchip.com.au.

Why choose a franchise accountant?

The Franchising Code of Conduct states prospective franchisees must be advised to obtain independent accounting and business advice. But is it really necessary? Who should you get advice from, and what should you ask? Let’s take a look… As a franchisee, your income will depend on the financial results of the business, you’ll be investing your own money and probably taking on debt. Therefore, it’s wise to carefully consider the financial implications.

Franchise Disclosure Documents contain important financial information that (when used and understood properly) can help you make an informed decision. However, it’s not always easy to make sense of – especially for people who are unfamiliar with franchising and financial matters. That’s why it makes sense to consult an accountant who understands franchising.

The right accountant can be a great help in your franchise journey. They can help prepare financial forecasts, identify risks and bring an independent perspective. But when it comes to franchising matters, all accountants are not the same!

It’s important to understand there are different types of accountant. Some focus on personal income tax - you might have used one to do your own tax return. Others mainly work with established businesses. A few specialise in franchising; they understand the special features of a franchise that don’t apply in other businesses.

Once you’ve found an accountant, what advice are you looking for? An important part of their role is to help you understand the financial aspects of the business. They should be able to help you answer these three questions:

1. How much will it cost to start the business?
2. What will it cost to run the business day-to-day?
3. What sales are needed to cover the costs?

Your franchise accountant should also highlight the main financial risks relevant to your circumstances.

The financial side of buying a franchise is really important and needs to have your attention. That’s why the Franchising Code recommends you get advice on this aspect, and it’s best to choose an accountant who understands franchising issues.

This article was first published on www.franchiseaccounantsnetwork.com

Buying a franchise: 5 financial conversations

To have the best chance of success in a franchise it's important to thoroughly assess the financial aspects of starting and running a business. Based on our experience there are 5 financial conversations you must have when you assess a franchise opportunity. These conversations will help you build a solid foundation for success and reduce the risk of financial problems once your business is open.

Here are our suggestions for who to talk to and what to discuss.

1. Personal and family finance

Your new business will be a huge part of your life, so it’s important to consider how it will fit in your life.

Start off by considering your goals and family life. What do you want from the next few years of your life? What sort of lifestyle do you want? Consider financial and non-financial aspects. Discuss this with your spouse  or partner, if you have one.

Also, it’s helpful to talk to a few franchise owners and ask them about the impact of business on their family and personal life. For example, what was it like at the start? How have things changed throughout their business ownership?

Once you’ve thought through all this it’s a good idea to write down your goals. Your business will form part of how you achieve them

Next, think through the financial aspects of the franchise you're considering and assess how it might affect your financial situation.

Early on in the franchise evaluation process you should obtain financial information from the franchisor. This will be included in the Disclosure Document, which all franchisors are required to provide. If you're considering buying into an existing business, there will also be figures from the vendor. At the very start you'll need to get a sense of how much revenue and profit the business can make and how long it takes to become profitable. Also, find out how much it costs to set up the business.

You can find some suggestions for financial questions in this article.

 2. Talk to an accountant

Part of the process of investigating a franchise or business opportunity is getting advice from an accountant experienced in franchise matters.

This is not just about help to set up a business structure or tax advice. The idea is to find someone who can work through the financial side of starting a franchise so you understand the implications and can make an informed decision.

With your accountant, work out detailed financial goals and produce a budget and cashflow for the business. This lets you see if the business will generate enough money for you to have the life you pictured.

To work out the budgets, use information about sales and costs from the franchisor. Also your own research regarding customer numbers, rent and other costs.

With your budget, consider what happens to the results at high, low and mid range sales, and also what the figures look like if costs increase. It’s important to do this so you can work out how you’d cope financially under different circumstances.

Now you have detailed figures, again consider your family situation. How do these insights change things?

3. Talk to a small business banker

Another financial conversation you’ll need to have is with a banker. Running your business finance is different from personal so talk to a small business specialist to get the right type of advice, proper business loans and bank facilities.

Your banker should be able to give you advice on financing options and also account types, credit cards and merchant facilities so customers can pay you. They can also help with superannuation and insurance if needed.

Many of the banks have specialist franchise bankers who understand the franchise industry, so make sure you ask for them.

The bank will want to see evidence of how you’ll be able to repay loans. So be prepared to show them that. It means having a business and personal budget, and also being able to demonstrate your plan and commitment. So, be prepared with a business plan.

4. Talk to a financial adviser

Even if you don’t have a financial adviser at the moment, it can be a good idea to get advice from a financial planer who can review your savings, investments and superannuation.

Taking on a business can be a big change in your life and it’s a good idea to take a look at any changes needed to your financial plans.  The adviser can also give you advice on what insurance to consider, for example life and sickness or disability cover.

Your accountant should be able to recommend a financial planner and work with them if needed.

5. Talk to a lawyer

Really? Financial conversations with lawyers? Yes, absolutely!

When getting advice on the legal aspects of becoming a franchisee, make sure you get an explanation of the financial implications of the arrangements you’re making and contracts you’ll sign.

If you’re in a relationship, it’s a very good idea to get individual legal advice on the financial aspects of business ownership, not just the franchise aspects. This allows both partners to ask their own questions about the risks and responsibilities – and to do so individually. Then you should talk through things as a couple.

Owning a business can be a fantastic opportunity to build wealth and achieve family goals. But don't neglect the financial conversations.

(A version of this article was originally published by Business Franchise Magazine in March 2013)

This article was originally published at www.smartfranchise.com.au. It was written by Peter Knight and Kate Groom, co-founders of the Franchise Accountants Network.