Avoiding these pitfalls

1. Have the non-negotiables sorted

This means ensuring you have strong cash flow and a solid market position, as well as appropriate senior management resources.

2. Understand and select the right business model

This includes understanding the roles and responsibilities in the chain, right down to understanding, in each market, how the customer wants to buy.

Stafford adds: “Also ensure that for each of those markets, there is sufficient profitability for each partner. It’s incumbent upon the franchiser to understand that there is sufficient profitability for the single unit franchise holder, for the master franchise holder and for the franchiser. You must make sure the business is viable.”

3. Pick your countries based on success characteristics

Look for countries that exhibit similar characteristics to those that make your domestic market attractive.

4. Apply the 80/20 rule

Understand you need to retain 80 percent of your usual way of doing business, regardless of where you export the business. The idea prevails that if you must jettison more than 20 percent of the way you do business, then you have a different business. Stafford comments: “If I change the business too much it ceases to be a business I understand and it becomes a business I have to learn about, not one I know how to run.”

5. Ensure the correct business governance models are in place

• Ensure you have the capital base necessary for expansion.
• Ensure all intellectual property is correctly protected.
• Ensure you put into place a corporate structure that allows for the most efficient movement of money back to the franchiser; note that in tax havens it can be difficult to repatriate money from overseas.

And above all, get good advice—and look before you leap.

Helpful sources

AusIndustry: www.ausindustry.gov.au
DC Strategy: www.dcstrategy.com
Franchise Council of Australia: www.franchise.org.au
International Franchise Association: www.franchise.org
IP Australia: www.ipaustralia.gov.au
World Franchise Council: www.worldfranchisecouncil.org

Funding your franchise

Before looking to take your franchise overseas, assess how much working capital is required. Under-capitalisation when funding a franchise is an easy and potentially terminal mistake. Franchisees should aim to build strong financial foundations in their first site by establishing a solid customer base and growing profits in order to use the equity from the first site for the acquisition of additional franchise sites.

In calculating the amount of working capital required, all costs of the operation need to be considered. It is prudent to review the cost outlay involved in setting up the first franchise site, what earnings can be taken, and also what additional costs need to be considered. These may include costs for new equipment, site rental or even additional staffing.

From a bank’s perspective it’s critical to get an understanding of the amount of funding required to fund another site at the outset. Generally, multi-site franchisees pose less risk in loan applications as they’re able to provide pre-existing business performance indicators. However, this does not mean banks will be any less stringent in their approach to the loan application. Primarily, banks will look for operational strength, sufficient working capital projections, business capacity to meet loan repayments, and security for the loan.

The financial groundwork isn’t over once the initial funding is secured either. When expansion to the second and third sites begins, there are some further financial considerations that will help keep all sites on the right track.

—Rod Nuttall, national executive manager of Commonwealth Bank’s franchising division

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