Income Resource Club > Business > Franchising

 

Franchising

 

Are you thinking of becoming a franchisee?

A quick overview of franchising in Australia:

Over 950 business format franchise systems, of which 93% are Australian based.*   The statistics are imposing, but are not a guarantee of success.  Not all of these franchises are successful.  Before making any decision and commitment, potential franchisees should obtain as much information as possible on the following:

There are a number of information sources for franchising some of which are listed below:

All franchise businesses are required by law to comply with the provisions of Franchising Code of Conduct.

A copy of the Code may be downloaded from the ACCC website www.accc.gov.au.

Franchising

Another useful publication is: ”Franchising and own your own business magazine”. It has informative articles and franchise management tips for both franchisors and franchisees; advertisements for franchise opportunities and current news and trends in the franchise sector. 

For further information on franchising, please visit:

Franchising

 

It is important to seek professional advice before making a commitment. Gather together the franchisor’s disclosure document, the franchise opportunity, your feasibility study and your business plan. These will assist in the evaluation when dealing with the relevant professional.

Speak to all franchisees in the franchise system and who have left the system contact details shuold be provided by the franchisor. Evaluate their experience.  Make sure that you receive the franchisor's statement of solvency and an auditor’s report if financial statements are not provided, as required under the Code.

Take time to make a really informed decision. As with purchasing any business, seek professional advice before making a commitment.

Note:

Franchising is a long-term relationship between franchisor and franchisee.  The franchisor sells, not a business but the right, or franchise, to the use of intellectual property, usually a trade mark, tradename and business system, usually for a fixed period of time.  At the end of the term, the business reverts to the franchisor.

 

Thinking of franchising your business?

If you are considering franchising as a form of expanding an existing business, you will need assistance from a team of professionals, including your accountant, solicitor, banker and franchise consultant.  The successful franchising of any business requires careful planning.   The cost and time involved in the process of franchising depends on the complexity of the business, the proposed system and the current position.  The process is likely to include:

Then if you decide to proceed:

Consider also alternate ways of business expansion: franchising may not be appropriate for your business.

 

 

If you would like to download the Audio interview with Entrepreneur and Business Guru Richard Branson plus 4 other gifts valued at over $147, click here.

To gain access to more ebooks, book summaries, audio and video interviews on trading, try our $1 membership test drive offer.

 

Advantages

For Franchisors

Expansion:

There are not many ways to access investment capital without the need to give up control in the process in a business, franchising is one of them. Appropriately implemented with a well designed brand and formula, franchisors are able to expand rapidly across states, territories, countries and even continents using the capital and resources of their franchisees, and can earn profits proportionate with their contribution to those market places.

An additional benefit is the ability to leverage the franchisee in building a distribution network.

Legal Considerations:

Many of the everyday tasks necessary to start a new outlet can be left to the franchisee, such as acquiring the necessary permits and licences. Some often difficult to obtain permits such as alcohol licenses are more easily attained by locally based, owner-operator type applicants while companies based outside the jurisdiction (and especially if they originate in another country) find it difficult if not impossible to get such licences issued to them directly. It is for this reason; many hotel and restaurant chains that sell alcohol often have no feasible option but to franchise if they wish to expand to another state or province.

Operational considerations:

By having a direct stake in the business operation, franchisees are said to have a greater motivation than direct employees to operate their businesses successfully. This in turn allows the franchisors freedom of time as they do not have to closely inspect the day to day operations of franchisees compared to that of directly-owned outlets.

 

For franchisees

Quick start:

Franchising offers franchisees many advantages of starting up a new business, it can be done quickly, is based on a proven trademark and formula compared to having to build a new business and brand from scratch. A well run franchise operation offers a turnkey business: from training, mentoring, site selection, lease negotiation and ongoing support.

Expansion:

The know-how afforded by the franchisors allows the franchisees to develop their business to a level which they may not have been able to without the expert assistance and support of their franchisors.

Training:

In many cases franchisors offer franchisees a comprehensive training, which is neither available nor free to persons starting their own business. While training is not necessarily free for franchisees, it is both maintained through the traditional franchise fee that the franchisor collects and customised to the business that is being started.

 

Disadvantages

For franchisors

Limited pool of viable franchisees:

In any one location or area there will be only a limited pool of people who have both the resources and the aspiration to set up a franchise in a certain industry, compared to the pool of individuals who would be able to proficiently manage a directly-owned outlet.

Control:

Potential franchisor’s need to be additionally careful with the process of evaluating the limited number of potential franchisees compared to that required to hire a direct employee. An incompetent manager of a directly-owned outlet can easily be replaced, while regardless of the local laws and agreements in place removing an incompetent franchisee is much more difficult. Inept franchisees can easily damage the public's amity towards the franchisor's brand by providing substandard goods and services. If a franchisee is cited for legal violations, (s)he will probably face the legal consequences alone but the franchisor's reputation could still be damaged.

 

For franchisees

Control:

The main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, marketing, the franchisee is required to follow the system and get approval for changes from the franchisor. It is for these reasons; franchisees and entrepreneurs are quite different.

Price:

Franchise businesses incur expenses during the start-up and operating phases. In deciding to implement the standards set by the franchisor, the franchisee regularly has no further choice as to signage, shop fitting, uniforms etc. The franchisee may not be permitted to source less expensive alternatives. Additionally there may be an ongoing franchise fee, royalties and advertising contributions.

Conflicts:

The relationship between the franchisor and franchisee can undoubtedly set off conflict if either side is incompetent or not fulfilling their signed obligations. Incompetent franchisor’s can ruin its franchisees by not successfully promoting the brand or by pressing too forcefully for profits. Franchise agreements and contract terms in general are weighted towards the franchisor when there is a conflict. Additionally, the legal publishing website Nolo.com listed the "Lack of Legal Recourse" as one of Ten Good Reasons Not to Buy a Franchise.

 

 

If you would like to download the Audio interview with Entrepreneur and Business Guru Richard Branson plus 4 other gifts valued at over $147, click here.

To gain access to more ebooks, book summaries, audio and video interviews on trading, try our $1 membership test drive offer.