Is Franchising an Investment in Your Future?
Is Franchising an Investment in Your Future?
Want wealth and lifestyle balance? Invest in your future by selecting a high-growth franchise, setting your sights on multiple ownership and learning how to work on the business.
When we think of wealth creation strategies, the two most common vehicles that come to mind are property and shares. More people are now realising that franchising offers some unique opportunities for building their financial future.
There are many tax advantages to business owners in Australia. A husband and wife working in a business can income split to minimise income tax. Car, telephone, and computer payments can be made by the business with pre-tax dollars, provided these items are used to generate income for the business.
Most franchisees structure themselves in a way that the businesses are owned by a company. The company then has family members as directors. Company tax rates are 30 per cent compared to up to 48 per cent for PAYG employees.
We all know that running a business can give you a high return on your invested capital (ROI), but the risk of going into business can also be high. Franchising lowers the risk considerably.
Is franchising for you?
To test your suitability as a franchisee, ask yourself the following questions:
Are you a solid performer in your workplace?
Can you follow a system of operation accurately and methodically?
Do you have the desire to create a better life for yourself and your family?
Are you willing to take a calculated risk to improve your life?
If you can answer ‘Yes’ to these questions, chances are you could be a very successful franchise business owner. So how do you go about finding the best investment proposition?
A recommended plan is to choose a franchise that is growing – and aim to own around three outlets within the next five years. The overall goal is to create time flexibility so you can concentrate on working ‘on’ your business rather than ‘in’ your business – and keep increasing your cash flow along the way.
This is reinforced in business publications such as Rich Dad, Poor Dad by Robert Kiyosaki, and The E-Myth by Michael Gerber. Often the most difficult part of this whole process is deciding which franchise model you are most compatible with. One solution is to approach a professional that specialises in managing the franchisee selection process on behalf of various franchise companies. These people are specialists in matching you to the right franchise – their focus is on finding a business that can help you achieve your goals. By outlining your skill base and future goals, you can create a profile of your ideal franchise, using their franchising knowledge.
The ‘business under management’ myth
Many people are mistaken in their belief that a business under management virtually provides a passive financial return to the owner. This is very rarely the case. The goal of operating your business under management should be to allow you to focus on growing the business. If you are ‘locked in’ to the business and don’t have the time to work on business improvement and development, you’ve bought yourself a job. You need time flexibility so you can work ‘on’ your business. This way you can add value to the asset.
Working ‘on’ your business
Working ‘on’ your business means you are creating and implementing growth strategies. Here are some areas successful franchisees concentrate on when they work ‘on’ their franchises:
Local area marketing
Perfecting the implementation of the operational systems
Delivering outstanding customer service
Measuring their KPIs daily, weekly, and monthly
Retaining quality staff
Investing excess cashflow into income-producing assets
Studying the market they operate within
Building repeat trade
Increasing the average sale
Increasing the conversion rate
Increasing the number of transactions
Once you have multiple stores, you should be in a position where you are rarely required to work ‘in’ the business unless you choose to. You are not locked into any specific hours and with this flexibility, your lifestyle may extend to lunches with your spouse, picking the kids up from school, golf or fishing, and regular overseas and interstate business trips. Overall you may spend half your time enjoying life, and half your time overseeing your businesses – creating and implementing strategies to continue to grow your turnover and cash flow.
Tips for achieving your goals
Make a firm decision that you are prepared to make a change to improve your life.
Seek professional advice in choosing the franchise model that suits you best.
Educate yourself on the fundamentals of working ‘on’ your business.
Grow the sales and profit of your franchise businesses as much as possible. This increases the value of the goodwill you have ‘created’. Franchise businesses generally sell for about two to three times their net returns.
Use the excess cash generated by your businesses to fund investments – not your lifestyle. Your business should fund your investments, and your investments should fund your lifestyle.
When the businesses have reached their peak – sell them. Repeat the process with another brand and a new system. This way you’re also continually challenged in your business.
Use your time flexibility to live the lifestyle you choose
This article appeared in the Sept/Oct 2003 edition of specialist magazine Franchising