Some franchise systems are publicly owned companies with shareholders to answer to and, by their nature, are established businesses with a track record of success. Publicly listed companies are only successful if they can attract institutional investor interest. Institutional interest means attention from brokers and as a result of this attention reports on their performance and potential for potential shareholders.

Institutional interest also makes it easier for the listed company to raise capital if they need it to expand. Institutional interest generally only occurs when listed companies get to the $10m profit level or certainly show that it is possible for them to quickly get to this level and more.

Listing has a number of pros and cons. For instance, one positive element is that generally listed companies are better governed because the ASX and investors require them to be. Listed companies tend to attract good calibre people, financial reporting is more robust, and the continuous disclosure requirements of the ASX mean that the companies have to be quite transparent so an incoming franchisee can find out more about the franchisor.

There will be a focus on avoiding adverse publicity, so a strong emphasis on good franchisor/franchisee relationships.

These companies will be larger franchise systems with stronger brands, and because listed entities must continue to grow profitability, management is focused on improvement. Set against these benefits are the high annual costs of being listed (ASX fees, audits, company secretarial costs, calibre of finance personnel required for reporting) and the fine balance between making long term decisions and investments versus short term share price.

An incoming franchisee should understand whether the listed franchisor fits the profile of a listed company or will listing just cause non value adding costs to the business which in turn may inhibit its ability to fund the costs of franchise support functions?

What does an incoming franchisee need to know?
An incoming franchisee should consider the return shareholders have generated and what the share price has been doing (including the volume of shares traded i.e. is the share price being maintained through small trading volume?) versus the rest of the market as a gauge of business success.