Franchise business.


20th January, 2022

What is a franchise? Here’s what you need to know

Whether you’re considering buying into a franchise business or scaling your existing concept into a franchising model, there are several key things you should be aware of before committing to anything.

When you decide to start your own business, there are several paths you can take. You can start your own business independently, you can buy an existing business, or you can start up a franchise business.

All options are dependant on your individual circumstances, personality, experience levels and how you want to achieve work/life balance.

So what makes buying a franchise business appealing to so many people? Let’s take a closer look at this unique way of doing business to see if it may work for you.

What is a franchise?

A franchise is a way of doing business that involves a franchisee paying for access to a franchisor’s proprietary business model, which includes business knowledge, processes and trademarks.

This means that a franchisee can sell a product or service under a business name and system already established by the franchisor.

Payment usually takes place in two stages: a start-up payment and a yearly fee.

The franchisee pays a set or ongoing fee to the franchisor, and the franchisor provides a business blueprint and ongoing support to the franchisee. The franchisee gets an established brand, a set of guidelines for business success, and ongoing support and product information.

It’s a system designed to take away a bit of the burden of starting your own business. Because it comes with a proven operating system, it can reduce the risk of failure. It still requires hard work and dedication to succeed, but you have someone there to call on and help.

As the Franchise Council of Australia says, the franchising system provides small business (the franchisee) with big business (provided by the franchisor) tools.

How does a franchise work?

The most common franchise business model is the retailer model.

In the retailer model, each franchisee uses a common name and a standard set of operating procedures and systems. The franchisee has a licence to use the franchise system’s trademarks and is obliged to maintain the product and services standards of the brand.

The best franchisors train new franchisees and their staff, and also provide other types of support.

A franchisee may have a number of operating restrictions, such as where the franchise may be located and hours of operation.

Why buy a franchise?

For some, it’s a no-brainer. For others it’s a case of ‘why would you’?

Being a successful franchisee depends on the individual needs, capabilities or desires of the person looking to start their own business. Reasons to buy a franchise include these.

1. Business support

Instead of having to figure out everything as you go, you get handed a blueprint of operations and training on how to execute the business model. Being given all the information you need appeals to people who might not have any business experience, as it supports them along the way.

2. Established brand, reputation and business model

Buying into an established brand and its reputation means that the business owner doesn’t need to build these from scratch.

These factors generally contribute to a higher success rate for new franchise businesses, as they already have a recipe for success and a well-known name, which can make consumers feel more comfortable when using their services.

3. The business costs are often cheaper

Money also plays a part in why people choose to start a franchise. While there are ongoing fees to consider in a franchise, these businesses are often cheaper to start up than stand-alone ventures, and they come with extensive and proven budgets and costings.

READ: Buying a business? Here’s how to get the best deal

Most common franchise business models

Some of the most common franchise business models in Australia are:

  • 7-Eleven stores
  • Boost Juice
  • Total Tools
  • Just Cuts
  • Hudson’s Coffee
  • Roll’d
  • RAMS

Who’s best suited to franchising?

Franchisee business owners come in all types and mindsets. However, business owners with these traits might find themselves best suited to franchising.

1. Entrepreneurial mindset

Be able to see opportunities and take calculated risks to take advantage of them

2. Hardworking and persistent

There are no guarantees you’ll make money so you have to hustle

3. Savvy and pragmatic

Be able to appreciate a proven business model over an original one

4. Happy to be in charge

But be supported with systems, marketing campaigns and promotional activities

Why do people become franchisees?

Reasons that people become franchisees may include:

  • Not having to start from scratch with creating a business model
  • Taking advantage of a proven formula
  • Being your own boss while being part of a community of other franchisees
  • Customers have a higher probability of already knowing the brand, product and service
  • Lower costs with group purchasing networks
  • Ongoing business support
  • Financing may be easier to secure

Things to consider when buying a franchise

If you’re interested in buying a franchise business, it’s essential to do your research.

1. Be aware of the fees involved

Always make sure you are aware of the fees involved, at both the start-up level and the ongoing level. Are there any other costs to be considered? What may pop up and surprise you a couple of years down the track? Talk to several existing franchisees and find out their experiences.

2. Rights and responsibilities

What’s included? What do you get access to? Is there anything you may need that isn’t covered? Ask a lot of questions.

What are the obligations and responsibilities that you will have as a franchisee?

Franchise businesses should be as transparent as possible, so no query should seem too ridiculous or too small to be answered by the franchise company. Speak to existing franchisees and support staff to ask all those ‘what if’ questions you might have.

3. Legal and accounting matters

Don’t limit your questions and enquiries to the franchise. Consider seeking legal and accounting advice from professionals that have experience with franchises.

It’s also vital you understand what you are committing to when you start up a franchise. You will be required to work within an established franchise structure, so you should be comfortable with and understand your requirements.

The more information and support you have when you start, the more likely you are to succeed as a business owner.