It's about more than just the contractual obligations and commission split, writes Resolve Finance's Maria Robinson
You’ve made a bit of progress in your decision-making to become a finance broker. You’ve decided that you want to join a brand; you want to be part of a community; you don’t want to hold your own credit licence; and ongoing support is important to you. You’ve decided to go with a franchise system… but which one and how do you decide? What elements do you need to take into consideration?
Support framework: Compliance, PD, marketing, leads, field support
The first element to consider is the support framework. This incorporates a number of items:
1. Compliance – Yes, the ‘C’ word, the word that is on everyone’s lips, the growth aspect of our industry. By operating under your franchisor’s ACL, the franchisor is responsible for the compliance framework. They build it, you follow it. This allows you to invest your capital and energy into other areas of your business, namely looking after your clients and growing your business.
2. Professional Development – You need to continue to invest in yourself both as a broker and as a business owner. What does the franchisor offer in this regard?
3. Marketing – A portal with pre-approved marketing collateral, branded merchandise and marketing ideas is helpful for ease of execution of a local area marketing and lead generation strategy. What do the franchise systems you are considering offer in this regard?
4. Leads – Do you want leads from your franchisor or are you confident you can generate your own leads? If you want leads how will your franchisor generate the leads, what quality do you think they will be and how many do you think you might receive?
5. Field support – Your field manager (Regional Manager, Area Manager, Franchise Business Consultant, State Manager – there are many different titles used for this role) should be one of the most important people for your business. They are your business coach, they will challenge you, they will support you. It is helpful to understand what their role is within each of the franchise systems you are considering – do they help you with lead generation, do they help with staff recruitment, are they pro-active or reactive, how many franchisees do they support, do they have lending capability, do they assist you with business strategy and structure, are they hands on or removed?
The support structure you require, including all elements above and any others you deem important, will evolve over time. The support you need from your franchisor will change over time as your business matures and moves through its many phases.
Territory
Do you want a territory? What benefits does it offer or is it restrictive? There is no right or wrong – you need to decide what your preference is. Franchise territories in finance broking franchises are what we call non-exclusive. You can write loans anywhere you like without restriction (within lender requirements) but the territory is generally the geography within which you can conduct marketing activity and/or your franchisor will allocate leads should they offer leads.
Marketing Obligations
Your marketing obligations will be outlined in the Franchise Agreement and Operations Manual. Your obligation may be as simple as “to market your business and the brand” or it may require you to spend a certain dollar value on marketing or it may require you to contribute a certain amount to a marketing fund.
Premises
This item has a significant impact on how much capital you will need to invest into the business. The options are generally – work from a home office, set up an office or set up retail premises. Home office is clearly the cheapest option – no rent, no reception staff, no opening hours, no fitout. Office space is next in the realm of cost – you have rent and a fitout cost but your franchisor may not impose opening hours hence the office may not need to be staffed during business hours. Retail premises are costly. Franchisors will have location criteria – and their criteria will have an impact on the rental amount. You will also need to abide by the franchisor’s fitout requirements. The fitout requirements will determine the size of the site, signage, layout and so on. These requirements may result in a $30K fitout cost or $120K fitout cost.
Commission split
You need to be comfortable with the commission split between franchisor and franchisee. The commission split you are happy with will be impacted on by the value you perceive in the support services offered by your franchisor. If you do not see value in the services offered by the franchisor, the franchise system you are considering may not be the right choice for you or perhaps franchising isn’t the right business model.
Lender panel
Consider your client base and the needs they are likely to have. Are you likely to require access to a wide panel of personal loans, commercial loans and equipment finance or do you think home loans will be your bread and butter? Ensure the lender panel matches the needs of your client base.
Conclusion
Making a decision in regard to the business model that best meets your needs (current and future) can be a daunting task. Speak to as many people in the field as possible to get a wide perspective and then match the strengths and weaknesses of each option against your needs.
Maria Robinson is the Victorian State Manager for Resolve Finance. She has 22 years of leadership experience in both the banking and non-banking sectors at Rams Home Loans, Aussie Home Loans, as a manager at Westpac, a national capability development manager at ANZ and as a state manager for Victoria and Tasmania at Bank of Queensland.
