Buying a Franchise

So what’s it to be … coffee or CDs? Furniture or hardware? Pets or stationery? Whatever your choice of franchise, it’s essential to look past the lure of the neon signs and delve deeply into the fine print.

There are distinct pros and cons of being a franchisee – and no magic formula guaranteeing prosperity. That said, franchising can be spectacularly successful with the right ingredients in place.

Types of franchise
Basically, there are two kinds of franchise:

• product and trade name franchise – franchisees are granted the right to manufacture and/or distribute a product within a specified territory, generally with the use of the manufacturer's identifying name or trademark (eg cars in dealerships, soft drink bottling).
• business format franchise – franchisees are granted the right to apply a rigid business format or an entire system for conducting a business, including such elements as business planning, location, appearance and image, and quality of goods (eg retail stores, or fast food outlets). This is the most common form of franchise.

Franchising benefits
Buying a franchise often gives you the right to:

• sell an already proven product or image
• use a distinctive business name, logo or trademark
• operate a business according to a particular formula
• receive continuing assistance, support and guidance from the franchisor
• have the personal flexibility and control which comes with running your own business

They’re all significant business benefits – particularly when they go hand-in-hand with business recognition and brand awareness.

Things to consider
Like any business, the viability of a franchise must be researched thoroughly before a commitment is made. Some points to remember are:

• the franchising concept must be viable in your marketplace
• it’s likely you will not be able to deviate from a rigid blueprint of doing business
• the concept must be able to be learnt by you, in the same manner as the original owner of the business
• your relationship with the franchisor must be clearly defined and understood from the outset – get it straight in terms of fees, management assistance, training and ongoing support
• make sure it’s worth the upfront costs and ongoing royalties – what upfront benefits are you paying for?

And importantly, you must be up for it! Running any business is a tiring business – and can involve many long hours, quite a few sleepless nights and a long-term business and personal plan.

If you’re ready to make the commitment, franchising can be a rewarding, and often highly lucrative enterprise.

But before you take the decision, it’s essential to first dive into the minds of the experts – with your accountant, your solicitor and your bank.

Important information about advice
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. View our Financial Services Guide (PDF 59kb).