This article was originally created for Hayes Knight (now Nexia Auckland).
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For someone with a business or corporate background wanting to operate their own business, a green-field master franchise could be the perfect opportunity to join the franchise sector. While carrying out due diligence is a standard procedure for purchasing any business, there are a few points of difference when looking at a new system in New Zealand. Here are some key areas for you to consider through the process of buying into an international franchise:
Selecting your advisors – The origin of the core franchise documentation and pre- purchase information will depend on where the system was developed. Unless you are looking at an international franchise that was founded in New Zealand, it certainly won’t be New Zealand. It is essential that your advisors specialise in franchising to ensure efficiency of time and money. Having the ability to understand the documentation and cut through the jargon to get to a “what this means for you is …” position will help give you peace of mind.
Review the legal documentation – not only is it recommended that you choose a lawyer specialising in franchises, they will also need to have a sound commercial background. Given the documentation will be written overseas, the documentation will need to be reviewed and potentially tweaked to ensure that it meets New Zealand legislation and it can be practically applied across borders.
Research the system – a key element to this is understanding who you are going into business with and how they operate. Discuss with them what training and support they will give you and how this will be delivered given the location and time zone differences you have. Consider any modifications or changes required to the documentation and/or manuals required and talk through your options. Ideally you would have the ability to discuss with other international master franchisees so you can get their perspective on how the process worked.
Know your competition – while the franchise system may be new to New Zealand, there are likely to be other businesses that operate in a similar space. Consider identifying the local competitors and undertake a SWOT analysis on what this system has to offer.
Total investment required – the up-front costs are generally clearly identified in the in the franchise documentation. You will need to consider the working capital required to help fund the new venture while it is getting started.
Right financial model – while the franchise system may be well established overseas, you need to test the assumptions from a local perspective. Consider differences such as city/regional geography and population, income levels and spending habits to ensure that it could be successful in New Zealand. Test the growth assumptions, pricing recommendations, cost structures and taxation that have been provided to you and get these reviewed and challenged by a franchise accountant.
Consider the model from a franchisees’ position – as the new master franchisee, your success will depend on the success of franchisees within your area. You would need to test the assumptions above that are applicable to franchisees within the New Zealand environment to ensure they would also have a financially viable business.
Taxation and compliance costs – cross-border transactions add a level of complexity to taxation requirements. Ensure that you get advice on what your requirements are and diarise the filing and payment dates!
Like any new venture, planning is critical to success. Ensure you have the right team beside you, reviewing and challenging the information provided to help set you on your way. Call Hayes Knight to find out how we can be part of your successful team!