I recently read an article about the Boy Scout movement and their famous motto “Be Prepared”. The motto was coined at the height of the military tensions between empires prior to the outbreak of the First World War, and was loosely intended to prepare to defend the homeland in the event of an attack.  

While the military origins of the Scouts has faded into history, the “Be Prepared” motto is perhaps one that has universal appeal, and particularly in the world of franchising for both franchisors and franchisees. 

But rather than preparing for the prospect of war, franchise businesses and aspiring entrants should be preparing themselves more adequately for the business journey they have started, or are about to undertake. In simple terms, this preparation should consist of accessing appropriate, timely and useful education about franchising and business management practices. 

Education for Franchisees prior to buying a Franchise 

A recent online poll conducted by the Franchise Advisory Centre posed the question “Should business and franchise education be compulsory before buying a franchise?”. Respondents were primarily franchisor personnel and the result was a unanimous YES.  

The Federal Government’s recent review of the disclosure provisions of the Franchising Code of Conduct even fielded a recommendation along similar lines – that education should be mandatory for franchisees prior to buying a franchise. 

But why would a sector which touts among its principal advantages as the provision of training, support and know-how, consider that franchisees need even more training? The answer is that franchise systems are generally very good at providing the technical, detailed operational training about the type of business to be run by the franchisee, but are not as good at providing general training and education about franchising and business in general. 

Indeed it would be out of place for franchisors to provide some of this education as part of their induction training because by then it will be too late. General franchise and business knowledge will be useful at all times, but particularly when a prospective franchisee is assessing a business opportunity prior to purchase.  

In our experience, it takes a prospective franchisee anywhere between three months and three years to commit to the notion of self-employment, and to identify the business in which to invest. It is during this search process that basic education for franchisees is most valuable, and programs such as the Franchise Advisory Centre’s Introduction to Franchising are most useful. 

The idea of pre-entry education for franchisees is not new, and in a wider small business context has been touted by many as a way of reducing the failure rates among small business start-ups. A 2002 study by noted Australian franchising academic Lorelle Frazer into causes of franchisee failure found that a lack of pre-entry education along with a lack of adequate capital and little or no selection criteria were the main contributors to franchisee failure. By educating potential franchisees before buying a franchise, it may actually assist them to: 

1. Better understand the obligations and responsibilities of self-employment through franchising, and in doing so, establish a realistic set of expectations among potential franchisees, who in some cases, may realize that running their own business is not for them;
2. Identify the need for adequate working capital and allow for this in their business planning, or alternatively modify their business search to buy within their means;
3. Alert prospective franchisees to the attributes of successful business operators as well as the selection criteria and processes of reputable franchisors so that they can discern well-developed franchise systems from those which are more interested in selling franchises than establishing mutually beneficial business relationships.

 In this way, aspiring franchisees can both increase their chances of long-term business success and ensure a smoother transition into the world of self-employment. 

Education for Businesses prior to Franchising 

Australia has a proliferation of franchise brands for a relatively small population base unmatched by any other country in the world. Griffith University’s Franchising Australia 2006 survey indicated that 960 systems are currently operating here. Without a legislative requirement for all franchisors to be registered, it is impossible to accurately determine just how many franchise systems exist, with some sector observers commenting that there could be even more than the survey figure of 960.  

However in looking at this survey, most systems are relatively new (less than 10 years old) and are relatively small with an average of 26 outlets each. For many of these brands, the rapid growth made available to them by franchising has raced ahead of the development of their internal controls and business systems. This leads to the franchisors and their personnel coming under pressure to catch up by learning along the way, rather than learning in advance of their growth. 

The result can be potentially disastrous. Separate studies in both the United Kingdom and the United States have indicated that failure rates for start-up franchisors may be as high as 75% in the first 10 years. This astonishing statistic has not been verified by detailed research in the Australian market, however a preliminary study has shown that failure rates of start-up franchisors here could be at least 30% for the same period. 

Again, education has a significant role to play in improving survivability among aspiring franchisors – and by extension, the long-term success of their franchisees - in much the same way that education can directly assist prospective franchisees and independent small business operators. In other words, education can help aspiring franchisors: 

1. To understand franchising as a distribution method and its appropriateness for their business model;
2. To understand the attributes of successful franchise brands including sustainability of concept, profitability, and robust systems for the transfer of knowledge and operational expertise;
3. To understand and comply with the Franchising Code of Conduct, and operate in accordance with franchising best practice. 
4. To understand the capital requirements to fund the development and growth of a franchise chain, in addition to the growth costs of the original business.

 Education programs for franchisors are highly specialized and delivered by relatively few organizations in Australia. In addition to education programs offered by the Franchise Advisory Centre, mainly the Franchise Council of Australia and a handful of universities – of which the most notable is Griffith University – include franchise education in their services. 

A critical factor for anyone assessing education programs delivered by these or any other organisation is the quality of the content, the experience of the presenters, and the value for money. All Franchise Advisory Centre programs are developed in consultation with existing practitioners and presented by recognised and published franchise experts with at least 10 years work experience in the sector, and who in most cases also have postgraduate tertiary qualifications.  

Costs to attend education programs vary. Most Franchise Advisory Centre events cost around $300 per day for one or two-day programs, up to $2,500 for niche and highly specialized five-day courses. In a perfect world, businesses planning to grow through franchising will undertake as many franchise education programs as possible prior to granting its first franchise. In reality, many new franchisors attend their first significant franchise education activity only after they have already granted one, or several franchises. 

Education for franchisors or franchisees is a necessity to improve their prospects for long-term business survival and prosperity. It should be considered an important investment in the business, not as an expense, and has the potential to pay handsome dividends through improved profitability and business practices. Both franchisors and franchisees are encouraged to fully educate themselves prior to franchising, and then to maintain their skill and knowledge levels through an ongoing commitment to education and training thereafter.  

Education delivers constant improvement, and constant improvement is the key to business survival.  

Jason Gehrke is a director of the Franchise Advisory Centre, which specializes in franchise consulting, training and advice for new and established franchisors and franchisees. Jason is a past Franchisor of the Year winner, a committee member of the Franchise Council of Australia and member of the Australian Competition and Consumer Commission’s Franchise Consultative Panel. Jason can be contacted on 07 3716 0400 or by email at .  

Copyright © Jason Gehrke 2007