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Buying a franchise is an alternative to starting your own business or buying an existing business that you might not have considered.
A franchise is a business structure where the buyer (the franchisee) pays a licensing fee to trade using the branding, trademarks, products, suppliers and systems of an established business (the franchisor).
You will need to consider if a franchise is the right business option for you by assessing:
Franchises are not available in all industries and some might not suit your style of business, so understanding the advantages and disadvantages will help you make an informed choice.
Being aware of market trends, purchasing options and the components of the Franchising Code of Conduct is also useful.
Common franchising terms to be aware of include:
Franchises involve the authorisation, through the franchise agreement, of the use of a company’s products, services and marketing to an individual or group.
Franchisors commonly provide:
Franchises cover various industries but not all. Common examples include:
Franchises can have many advantages over starting a new business, but they also have risks and restrictions and are not guaranteed to be successful. And there are time commitments to consider—the initial franchise terms are usually based on a 5-year agreement.
Review the advantages and disadvantages listed for different aspects of franchising to help you decide if buying a franchise is right for you.
Advantage – buying an established, well-known brand
Disadvantage – potentially too many franchisors in the market with the same products and services
To learn more, read the IBIS World report on franchising in Australia, which is free through State Library of Queensland membership.
Advantages – tried and tested, from a larger established business
Disadvantages – cannot set up your own systems
Advantages – franchisor helps identify the location and fit-out of retail premises
Disadvantages – franchisor chooses a location or fit-out that may not suit you
Advantages – chosen and established, meaning less time researching and finding products and suppliers
Disadvantages – limited to what you are permitted to sell and able to buy from other suppliers
Advantages – training material already in place and does not need to be developed
Disadvantages – may be limited and not satisfactory for your needs
Advantages – purchase covers all that is needed to run the business (e.g. the business model, marketing system, suppliers, policies and procedures)
Disadvantages – initial set-up costs and ongoing costs may be expensive
Advantages – franchisor owns the business model and controls the direction of the business
Disadvantages – unable to direct the business and the franchisor might not make the best decisions
Advantages – franchise brand will assist with business growth
Disadvantages – franchisor may develop a poor reputation and you could suffer the consequences
For your franchise to run smoothly, you will need to have various business skills for day-to-day operations, for example:
To help you decide that franchising is right for you, see the following:
Choosing the right franchise requires due diligence. You should explore franchises that interest you, but you should also investigate the franchisor and all aspects of the franchise to make sure you are fully informed. The help of independent business advisers can make this a manageable task.
Successful franchises have:
It is important to understand the industry you intend to operate within and monitor current market trends and movements.
For example, purchasing in non-essential markets—such as leisure activities, entertainment and high-end apparel—can fluctuate as essential household expenses increase, such as food and petrol. This leads consumers to be concerned about repaying household debt and could cause irregular cashflow for your business.
Franchisors must not give franchisees information that is misleading or deceptive and must follow the code of conduct.
Due diligence on your part will also include other documents around leases and contracts.
You can find franchises available to buy at:
The ACCC manages the Franchising Code of Conduct and provides education for people intending to buy a franchise. The ACCC also requires the franchisor to give you 5 key documents at least 14 days prior to signing a franchise agreement or making a non-refundable payment.
These 5 documents are:
If you, as the franchisee, are leasing a premise from the franchisor, they must provide:
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