Buying a Franchise

Ben Wood, Saturday, June 14, 2014

A franchise business is a great way to own your own business with the benefit of support and security from a larger business network.

Is a franchise right for you? 

To help you determine whether buying a franchise is the way to go, consider the following

  • Your wants and needs? 
  • Your strengths and limitations?
  • Your skills and passions?
  • Your ultimate goal?

Knowing these things will help you decide whether a franchise will suit your character and circumstances and enable you to reach your goals.

Some advantages

A major advantage of buying a franchise is the knowledge that the products and services have been tried, tested and refined. Everything to do with establishing systems and procedures has been done by the franchisor – you just need to learn the ropes.

Branding and trademarks that come with the franchise business give you immediate recognition, so the effort and energy that goes into promoting an unknown name is eliminated. Customers who see your business already know your products and services and know what they’re buying. 

To get your business up and running smoothly, franchisors generally provide assistance and training at the outset and usually support along the way to help you keep going.

On the downside

One disadvantage of buying a franchise can be the substantial costs involved.  Costs vary from one franchise to another depending on location and other things, but the total initial outlay is usually quite high. In addition, there are monthly royalty payments and ongoing fees to factor in. The fees may either be a fixed monthly amount or a percentage of turnover.

Also, you lose much of your independence when it comes to creating your own ideas or experimenting with new concepts. Franchise systems are typically strict about procedures and appearance.

Though not common, it’s worth mentioning that future profitability of your business and even your reputation could be threatened by the detrimental actions of another franchisee or an unfavourable business move by the franchisor.

Franchising Code of Conduct

“The Franchising Code of Conduct is a mandatory industry code of conduct that has the force of law under the Trade Practices Act 1974. The Franchising Code regulates the conduct of franchisees and franchisors, with the aim of ensuring that franchisees are sufficiently informed about a franchise before entering into it.

The code also provides a cost-effective dispute resolution scheme for franchisees and franchisors to resolve any disputes. The Australian Competition and Consumer Commission (ACCC) ensures compliance with the code and the Act by informing franchisors and franchisees of their rights and obligations under the code and enforcing it where necessary.” (Source:  Overview of the Franchising Code of Conduct – www.accc.gov.au)

In Conclusion

Purchasing a franchise does not guarantee success. Do your research first.  Make sure you carefully assess the advantages and disadvantages of a franchise before entering into any contracts or agreements. Make sure you also understand your responsibilities as a franchisee.

If you decide on a franchise business, you will need to obtain the franchisor’s disclosure document at least 14 days before you sign any agreement or contract. Carefully read and understand the disclosure document which will set out the costs, background of the business, any restrictions and what training and support will be provided. Ask questions if you don’t fully understand any portion of the document.

For more information, read The Franchisee Manual available at www.accc.gov.au under ‘Publications’

YOUR ACTION PLAN

£  Know yourself – your wants and needs – to determine if a franchise is right for you and your circumstances.

£  Assess the credibility of the franchisor, the business itself and what you get for your money.

£  Read the franchisor’s disclosure document and ask other franchisees for their comments and advice.

Contact Wood Accounting team today on

1300 098 852

for assistance with this Action Plan!