Potential franchisees looking for stimulation and flexibility

A survey has found the challenge and stimulation of running a franchise is the biggest attraction for potential franchisees, just ahead of flexibility and income potential.

The second annual Potential Franchisee Survey, conducted by franchised mortgage broker Mortgage Choice, canvassed 505 Australians between 25 and 55 years of age, earning $60,000 or more a year, who are looking to move into franchising.

The survey found that potential franchisees see franchising as a lifestyle choice rather than a money-maker, with 53.5% of potential franchisees looking for stimulation, challenge and personal achievement and 50.3% looking for flexibility (the ability to control their own time and movements). The ability to earn income from a franchise ranked third, with 47.9%.

Mortgage Choice national manager corporate affairs, Warren O’Rourke, says it was interesting to see ‘income potential’ drop from first place in last year’s survey. “Perhaps people are realising that running a franchise, as with any small business, initially takes a lot of hard work, significant hours and heavy concentration.”

The reasons for people entering or not entering are also fascinating for franchisors and, not surprisingly, money is the key trigger for both decisions.

When choosing one franchise over another, potential franchisees look first at issues such as money (cost to purchase, initial cash flow, income level to be achieved) before examining brand recognition (brand reputation, quality and longevity of goods/services offered, consumer proposition, ethics, etc). The third important factor was lifestyle (business portability, flexibility of office/working hours, etc), followed by ease of business management (suitability of skills, etc) and internal franchisor aspects (transparency of franchisor, local area marketing budgets, etc).

The biggest barriers to entry for potential franchisees was money (62.4% of respondents), followed by the idea of being bound by the directions and business protocol of the franchisor (43.2%). The third barrier to entry was the power of the franchisor versus power of the franchisee (42.4%), followed by the fact that franchisees need to give some of the profit to the franchisor (35%). Another big barrier to entry involved having to meet minimum performance standards, which ranked sixth (26.5%).

Other highlights of the survey

Amount potential franchisees will spend on purchase and set up of franchise:

• Less than $50,000 – 17.2%
• $50,000 to $100,000 – 24%
• $100,000 to $150,000 – 17.4%
• $150,000 to $200,000 – 15.4%
• $200,000 to $300,000 – 12.1%
• $300,000 to $400,000 – 6.7%
• $400,000 or more – 7.1%

Amount the franchisee expects to make in the first year:

• Make a loss – 6.9%
• Break even – 29.9%
• $1000 to $20,000 – 12.8%
• $20,000 to $50,000 – 17.4%
• $50,000 to $100,000 – 21%
• $100,000 to $200,000 – 8.7%
• $200,000 to $500,000 – 2.2%
• Over $500,000 – 1%