Education Centre

A franchise is a business that is part of a system owned by a franchisor. Rather than building their own chain of outlets overseen by managers, a franchisor seeks franchisees to invest in their own outlet, in return for a share in the profits. 

Franchisees have the right to use the franchisor’s brand, goods and services for a fixed amount of time, in return for a fee. They are also required to comply with the franchisor’s business format and follow rules set out in a legal contract.

Franchising is hugely popular in Australia – it is worth $172 billion to the economy and employs 565,000 people in 1,100 networks and nearly 95,000 individual franchised outlets.

There are three ways to go into business. You can start your own business, buy an existing one or become part of a franchise.

If you go out on your own with an existing or new business, you’ll need to not only supply goods and services, you’ll also have to be the finance manager, HR manager, marketing manager, tech guru, and admin person. Being a franchisee means that all these aspects are already set up, and there is a head office or other franchisees to call on for support. In addition an established brand can give the business a head-start and deliver loyal customers from the moment you open your doors. There tends to be less risk, so banks are more willing to provide finance.

On the other hand being part of a franchise means you are not as free to make your own decisions – being successful depends on following the system. If you’re the kind of person who likes to make their own rules, then franchising may not be for you.

Joining a franchise can cost as little as $15,000, up to millions of dollars. Typically you are paying a premium for established brands, while it is less expensive to join a system that is new or just hitting its stride. It usually costs less to join a franchise than start a similar business from scratch.

The franchise fee may be an upfront payment to the franchisor, an ongoing fee that may be a percentage of revenue or profit, or a combination of both. In addition you will need to consider other costs such as the start-up investment and operating capital required, and ongoing extra fees for marketing. Do you need to buy capital equipment such ovens or vehicles? Or commit to particular lease arrangements? All this needs to be set out clearly in the franchise agreement.

It is crucial to thoroughly research any business opportunity, whether a franchise or not. Is there a demand for the business’ products or services in the area? Who are its competitors? How many hours a week are required? What is the growth potential?

You’ll need to conduct due diligence on any business you consider, preferably with the assistance of an accountant who specialises in franchising, and seek legal advice on any contract before you sign.

There are many organisations that can assist with your research, such as the Franchise Council of Australia, the Australian Competition & Consumer Commission (ACCC), the ATO and the Small Business Commission in your state. FranchiseED runs low-cost courses for prospective and new franchisees, and of course visiting the Franchising & Business Opportunities Expo is a must, whether you want an overview of the industry, or are seeking specific information from franchisors face to face. The Expo also offers free seminars on all aspects of franchising and insights from real-life franchisees.

Anyone considering a franchise should be familiar with the Franchising Code of Conduct, which is administered by the ACCC.

The Code of Conduct offers legal protection to franchisees and covers your minimum obligations and rights, what information franchisors must provide, aspects that every franchise agreement must include, and mediation procedures in the event of a dispute.

Remember that although the Code of Conduct sets out minimum standards of conduct and disclosure, it does not replace professional advice from a business advisor, accountant or solicitor.

It helps to have a passion, talent or skills in the industry you wish to join. Many franchises have an in-house training program to teach the skills needed, but no one can teach you the drive to succeed. 

Although you may be excited about a particular franchise opportunity, don’t let emotion drive your business decisions, keep a cool head! You’ll need to consider your expectations, if you want to work fewer hours than as an employee, remember you will need to factor in the admin required to run a business. Do you want to work weekends? Do you need a business that delivers profits immediately, or are you willing to build it up gradually? If you are planning to go into business with your spouse, think carefully about the roles each of you will have and where the boundaries between work and home will lie. 

Check out the industry directory, which includes recent Franchising Expo exhibitors to get a taste of the breadth and depth of franchises available in Australia.

Don’t be afraid to ask many, many questions before you take the leap into franchising. Good franchisors welcome questions because it shows you are serious and want to be well informed. 

It is also essential to talk to past and present franchisees and learn from their experiences. Under the Franchising Code of Conduct, franchisors are required to provide contact details of franchisees – if they have left the system ask them why. If they are current franchisees, ask them to share what is working for them and what isn’t. 

When purchasing a franchise, ask how long the franchise has been operating, how fast it is growing, and how many franchisees renew their term. Dig deep into the fee structure and also if you must purchase from preferred suppliers (and whether the franchisor received rebates from this). Also ask what marketing and lead generation support is provided, and if there are additional costs. Training is important, ask if training is ongoing or if extra training can be provided as needed. 

If the franchisor is not upfront and transparent about the business’ history, operations, costings and fees, feedback mechanisms and current performance, then walk away.

Franchising is a proven and profitable way to expand a business – instead of managers overseeing multiple outlets, there are business owners with ‘skin in the game’ and an interest in your business’ success.

First of all you will need a business that is able to be replicated, with systems and processes that have proven to be profitable. Next you need a point of difference that sets you apart from competitors, and a loyal customer base to prove it. Your financial records must be up to date and track your performance over time. 

You will need a franchise specialist to assist you with the paperwork and legalities of franchising your business and complying with the Franchise Code of Conduct. There are also free seminars at every Franchising Expo on how to successfully franchise your business.

There is plenty of information available online from industry organisations, advisors, and legal and financial professionals. Make sure you complement any online research with face to face interaction at the Franchising Expo and on-site at the franchisor’s headquarters or a sample outlet. 

Here are some links to get you started:

Franchising Expo industry directory
A comprehensive list of new and established franchisors, as well as legal, financial and business experts.
www.franchisingexpo.com.au/dir...

Franchise Council of Australia
The peak body representing franchisors in Australia.
www.franchise.org.au

Australian Competition & Consumer Commission
The regulator and administrator of the Franchising Code of Conduct
www.accc.gov.au/business/indus...

Australian Small Business & Family Enterprise Ombudsman
Established in 2016 to assist and to advocate for small businesses and family enterprises.
www.asbfeo.gov.au

business.gov.au
A whole-of-government website that provides information, services and support to help businesses succeed in Australia.
www.business.gov.au/Planning/B...