Top tips for successful franchises

Kiwi franchisors must be more fussy when recruiting franchisees if they wish to survive and grow in today's tough economic environment, say the authors of a recent survey on the state of franchising in New Zealand..

The 2012 Franchising New Zealand Survey found that though the franchising sector contributed $20 billion to the Kiwi economy, about a quarter of businesses surveyed reported a drop in profit margins with about 20 per cent making no profit at all.

The survey, jointly conducted by Massey University and Brisbane's Griffith Business School, reported that "franchisors continue to base their recruitment decisions on value judgements involving estimations of honesty and integrity or a perception at interview of passion and enthusiasm".

"It seems almost incredulous that despite concerns over franchisee business ability expressed in 2003, poor franchisee performance in 2010, the trials of the current environment, and the continuation of recruitment problems both now and into the future, more accurately quantifiable traits still receive scant attention in the recruitment process. There is some evidence that franchisors take the franchisee's educational level into account but it is not clear how relevant this education is to the franchisee task," the report said.

Survey author Dr Susan Flint-Hartle of Massey University school of economics and finance said franchisors should be looking far more closely at the business experience and knowledge of potential franchisees.

"We found that at the interview stage most franchisors were looking for things like integrity and whether the people 'really wanted' to be a part of the business. But obviously those business skills are vitally important," she said.

"I think franchisors could be a little more caring in their approach to recruitment."

Ninety per cent of survey respondents indicated they offered business management training to franchisees once they were on board, but Flint-Hartle said there are still gaps in franchisee knowledge and experience that can be missed.

Given that new immigrants are often drawn to the franchise model there could be language or cultural difficulties which may interfere with the effectiveness of training.

And she added, management training isn't just about the financial side of things. "There also things like the ability to manage staff."

Franchisees also have a responsibility to make sure they are buying into a business they are qualified for and suited to, Flint-Hartle said.

The other hurdles to franchise growth uncovered in the survey were unwillingness to embrace new technologies and opportunities such as social media, and resistance to making businesses more environmentally sustainable.

"There is still a degree of fear in approaching social media. A fairly high number of franchisees tend to be middle-aged – of that generation when things like social media are still a little bit foreign," she said.

"Overall the biggest hurdle in growing a franchise is still the current economic conditions, but there are things franchisors and franchisees could be doing, in the areas of recruitment, social media and sustainability that would help."

Flint Hartle offers four tips for buying a franchise

1. Always talk to other franchisees within the brand you are considering. They will give you a realistic picture of what is involved and what you need to know.

2. Look for a recognised brand.

3. Consider your market and your competition. Remember if, for example, you're buying a taco franchise your competition isn't just other fast food chains, it's also the local fish and chip shop.

4. Get good independent advice.