Australian Survey of Prospective Franchisees

The annual national survey of potential franchisees commissioned by Australia’s largest independently-owned mortgage broker, Mortgage Choice, found the GFC influenced purchase decisions for 53% of respondents. Each of the 500 surveyed in total planned to buy a franchise in the next three years.

When the GFC-swayed respondents were asked exactly what effect the crisis had on their decisions, the most popular response was ‘I now believe I will be better paid if I am the boss rather than someone else’, for 35%. In second was ‘I can now see potential in a franchise system that has been positively affected by the GFC’, for 30%, and third was ‘I had to delay my purchase’, for 26%.

When comparing the answer ‘I had to delay my purchase’ across genders, generations and states, males were most likely to have delayed it (15%) as were SA residents (24%) and Gen Ys (16%).

Looking at all respondents, the top three reasons for wanting to run their own business were:

1. Job satisfaction – looking for stimulation, challenge and personal achievement (50%)
2. Flexibility ie. ability to control own time, movements, etc (47%)
3. Income potential (45%)

Interestingly, income potential had dropped two places from top position in last year’s survey while job satisfaction and flexibility each moved up one place. WA respondents rated income most highly (52%) while it was least important for those in NSW (40%). Gender and generation-wise, it was an even split.

Mortgage Choice spokesperson Kristy Sheppard said, “Potential for income as a key motivation for purchasing a franchise is less important now than in 2009, perhaps due to Australians rethinking their priorities during the recent economic uncertainty. The proportion listing it as the chief reason to buy dropped by nine percentage points year on year. Has the ‘work to live’ mantra become stronger due to a wakeup call?”

When asked to describe which type of franchise buyer they were, the highest proportion (34%) related to: ‘Already a solid income earner, you want to continue earning decent dollars but are searching for the right kind of lifestyle that comes with running your own show, whether in the form of a home office by the ocean or a multi franchise operation with outlets in each state. For you, it is about work life balance.’

The top five most appealing factors for buying into a franchise system were:

1. Established franchisor brand recognition
2. Established business model for franchisees to follow
3. Higher likelihood of success in comparison to operating a small business
4. Level of support provided by the franchisor
5. Supplier relationship already established

The most common purchase and set-up spend was $50-100K (22%). 19% said under $50K, 17% said $100-150K, 15% said $200-300K, 13% said $150-200K, 7% said $300-400K and 7% said over $400K. This was a higher total spend than in the 2009 survey, perhaps indicating greater confidence amongst potential franchisees, more funds at their disposal and/or a willingness to put money on the table. Queenslanders were the most likely to spend over $400K (9%), as were males (7%) and Gen Xs (8%).

As per last year, food related retail franchises were most popular. 53% of respondents listed ‘retail - food/restaurants/cafes’ as their chosen industry. This was in front by a long way, with ‘retail - other’ next (20%) then ‘tourism, leisure and accommodation’ (19%), ‘retail - fashion and accessories’ (19%) and ‘business and professional services’ at number five (18%). ‘Health, beauty and personal services’ (18%) followed, before ‘domestic/cleaning services’ (14%). ‘Education and training services’ and ‘information technology’ tied for ninth place at 13% each while ‘pet care’ (11%) rounded out the top ten.

It was a fairly even split between buying a new or existing franchise, with the latter marginally in front at 51% of respondents. This was an increase on 48% in last year’s survey. Interestingly, females were more likely to purchase an existing one (55%), as were NSW residents (55%) and Gen Xs (53%).

When asked about their biggest hurdles for the first 12 months of operation, respondents’ top five were:

1. Cash flow (55%)
2. Ability to make a profit (38%)
3. Hiring the right staff (26%)
4. Work/life balance (25%)
5. Establishing myself in the community as a trustworthy business (24%)

Comparing this year’s responses to last year’s showed a lift in confidence around initial earnings, though the most popular response for ‘How much profit do you expect to earn in your first year?’ was still ‘break even’, at 23%. This was followed by $50-100K (22%), $20-50K (20%), $1-20K (17%), $100-200K (9%), ‘make a loss’ (5%), $200-500K (2%) and an optimistic 2% expected to earn over $500K.

QLD respondents were most confident about making a figure over $100K in the first year (19%), while NSW had the highest proportion expecting a loss (8%) and SA had the least (0%). Males were more confident of bringing in some kind of income (75%), as were Baby Boomers (84%).

The proportion of potential franchisees buying alone increased to 23% from 18% in last year’s survey. 53% will buy with a spouse/partner and 9% with a business partner, while 8% had a family member as co-contributor and 7% were unsure. NSW respondents were much more likely to buy solo (28%), as were males (27%) and Gen Ys (28%).

In terms of the best resource for franchise purchasing advice, these were the top to bottom rankings:

1. Current franchise owners
2. Professional advisors excluding business brokers, eg. accountants, lawyers, financial planners
3. Internet/social media
4. Franchise expos
5. Franchisors
6. Family and/or friends
7. Business brokers
8. Business media outlets excluding newspapers, eg. magazines, radio, television
9. Newspapers

“In good news for job hunting Australians, 88% of our respondents said they would hire staff in their first year of operations. 34% will hire between one and two, 33% planned on between three and five, 13% said six to 10 and the remaining 8% were looking at an even higher number,” Ms Sheppard said.

Call Mortgage Choice customer service on 13 MORTGAGE. Or, visit www.mortgagechoice.com.au, www.facebook.com/MortgageChoice or http://twitter.com/MortgageChoice.