Two-thirds of would-be franchisees rely on external finance: Report

Almost 70% of prospective franchisees rely on external finance, according to a new report, which shows franchisees continue to gravitate towards stable sectors such as food and beverage.

The report, titled Franchise Industry Insights, is based on a survey of more than 600 prospective franchisees. It was conducted by FranchiseBusiness.com.au, which is aligned to the Franchise Council of Australia.

Almost a third of the people surveyed have a degree, while more than half have owned their own business. In addition, 68.5% of the survey respondents are male.

A quarter of the respondents are prepared to invest between $100,000 and $250,000 in a franchise system, while 44.2% plan to invest with a spouse or partner.

Only 30% are considering a franchise in an industry where they have no prior experience.

Interestingly, 67.4% of the respondents said they will be seeking finance. According to FranchiseBusiness sales manager Raffael Fernandes, this presents a problem.

“For the past few years, one of the biggest barriers for franchisees… is they simply don’t have access to finance,” Fernandes told StartupSmart.

“There are different schools of thought. One school of thought is they say people who do have the finance are potentially more stable and will work out to be better franchisees.”

“But there’s not necessarily a correlation between having to loan someone money and them being less of a franchisee.”

Even though access to finance remains a major concern for prospective franchisees, the survey shows 70% of franchisees’ financial applications were approved.

Only 10% were declined while 20% were “unknown”.

But according to Fernandes, these figures aren’t entirely accurate because they fail to take into account the level of finance that was approved.

Meanwhile, the survey shows food and beverage is the most attractive industry for prospective franchisees, followed by fast food, coffee franchises, home-based, and business services.

Fernandes says while food and beverage franchises often require a more hands-on approach from the franchisor, and therefore longer hours, they can also offer a greater sense of achievement.

“There are definitely lifestyle benefits of having flexible working hours or being home-based or mobile,” he says.

“The other big reason is when people say lifestyle [is their main priority], it’s more about getting a sense of satisfaction… Knowing they’ve built that and created something.”

And in the current economic climate, Fernandes says food and beverage franchises are perceived to be more stable than other categories.

“[Franchisees] want to know they will get a return on investment, and some of the biggest brands are some of those big food and beverage brands, and fast food brands,” he says.

In addition to industry preferences, the survey highlights franchisees’ expectations with regard to social media.

For example, 75.9% expect to manage their own franchisee website, while 59.3% expect to manage their own franchisee social media profile.