Buying a franchise can be the best — or worst — investment you’ll ever make

IT IS possible to make a fortune with a franchise. You just need to know what to look out for — and what to avoid at all costs.

WHY would anyone buy a franchise?

For some, the appeal is obvious — you get all the benefits of owning a business, minus the hard work of building up a name and client base.

But in reality, investing in a franchise can be disastrous.

Franchisees need to pay the franchisor to buy the business in the first place, followed by a share in the takings and other fees.

Many end up bankrupt or get caught up in legal battles with their franchisor.

But despite the risks involved, there are some serious success stories.

Take Gold Coast businessman Athanasi Comino, for example.

After scraping together some savings with his siblings in 2010, Mr Comino bought into the Snap Fitness chain.

Today, the siblings have expanded their portfolio with six businesses across Victoria and Queensland now under their belts.

Mr Comino said all of the businesses were delivering around a 30 per cent return on investment with no signs of slowing down.

“I was a personal trainer in the United Kingdom for 10 years and when I came back to Australia, the next step was either to continue working for someone else, or get into a gym business,” he said.

“I decided with my brother and sister to pool our money and get ourselves into the game.

“We went with a franchise purely because we didn’t have the funds to do our own branding. We looked at franchises because it meant we had all the knowledge at our fingertips and we could do what we wanted within reason.”

Snap Fitness owner Athanasi Comino has had a good experience owning a franchise.

According to the latest IBISWorld figures, gyms and fitness centres have emerged as a surprisingly consistent success story in the often fickle franchise game.

Australia’s fitness industry is worth $2 billion, with more than 4200 fitness business operating across the country.

Most of those are franchises, with no-frills, 24/7 chains stimulating most of the sector’s growth.

“Franchises like Anytime Fitness and Jetts Fitness have undergone exceptional growth over the past five years, attracting new customers with their affordability and accessibility,” IBISWorld says.

And it predicts industry revenue to continue to grow, attributing the success of these franchises to increased awareness surrounding health and obesity.

In contrast, IBISWorld says the general franchising industry in Australia “has faced challenging trading conditions over the past five years” due to instability in financial markets and “negative consumer sentiment”.

Peter Harris, CEO of franchise marketing platform Digital Stack, said the most successful franchises usually had the highest levels of online engagement, while poor performers struggled to maintain an online presence at all let alone one that resonated with customers.

“You need to really understand the type of customers you want to deal with and you have to be passionate about it — if you don’t know why you’re getting into a business and you don’t want to make a difference, then just don’t do it,” he warned.

He said the key to buying into a successful franchise was finding one that had a healthy, active online and social media presence and which also gave franchisees the freedom to “do their own thing” at a local level.

He said brand consistency was another essential.

“If you look around and see different stores at different locations that look completely different but are part of the same brand, that’s a big warning sign — if branches at multiple locations don’t look the same, it’s a massive no-no,” he said.

He said buying into a company that operated multiple franchises under one large parent brand were often a safer investment.

Retail analyst Geoff Dart, of DGC Advisory, said people investing in a franchise should “buy today as if you are going to sell tomorrow”.

“The first thing is to do your research — a major problem in the franchise industry is the selling of dud businesses,” he said.

“If I have a business that’s not doing well I can flog it to someone else at a reasonable price, and it will still fail.

“The franchise industry allows bad businesses to be flogged on to poor consumers who think the brand is great and think it will succeed when they won’t. There needs to be more regulation around what franchises can and can’t do.”

He warned that franchises were not always assets.

“Even McDonald’s is declining worldwide and is not what it used to be as people get more health conscious and find it a bit passé,” he said.

“Do your research into the franchise’s past performance. If it’s a new store, observe other similar businesses.

“Use some commonsense and do the hard yards. Like anything you invest in, whether it’s property or a franchise, do your due diligence and if something doesn’t stack up, just walk away because the pain can be considerable if it goes wrong.”

But Mr Dart said cafe franchises were often successful provided they were located in the right position, with cafes neighbouring other similar venues usually a good sign the area attracted high levels of traffic.

He said home maintenance franchises were also often solid performers.

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