Franchising as a concept is not a business itself, but a methodology of doing business. It can be defined by the relationship between the franchisor, who is the owner of the business and intellectual property, and the franchisee who buys the rights to market and distribute the franchisor’s goods or service, for a fixed period of time.
In Australia, franchising is one of the fastest-growing business sectors worth an estimated $80 billion a year. There are thousands of different franchises with more than 60,000 outlets. Franchising is often presented as a mechanism for independence and financial security; however it is imperative that as a potential buyer you are informed of all aspects and possible downfalls of the second largest purchase you are likely to make. The following points will help assist you when deciding whether a franchise is right for you.
Benefits of a Franchise
Quick Start– Franchising offers franchisees the main advantage of starting up a new business quickly. This is based on the fact that you are buying into an established network with an established name and established systems to guide you, as opposed to having to build a new business and brand from scratch.
Success rate– Franchised businesses have a higher success rate than most small businesses and are typically more profitable from the beginning.
Owning your own business– The franchise system allows franchisees the benefits of owning your own business with the natural benefits that self ownership entails.
Economies of Scale– Being part of a larger group allows you to benefit from a strong brand and economies of scale, meaning that you will get better deals because of the bulk buying power of the collective.
Expansion– Assuming the brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents
Training– Franchisors often offer franchisees significant training as part of their start up package.
Intellectual property– As a franchisee you have the advantage of using a recognised brand or business system as the franchisor will assign their rights to patents, trademarks, copyrights, trade secrets, formulas and processes.
Territory– A franchisor will generally define a territory of operation which has the advantage of protecting a franchisee from competition especially in lucrative retail type franchises.
Disadvantages of a Franchise
Control– For franchisees, the main disadvantage of franchising is a loss of control. You will have a contractual obligation to follow the system, procedures, trademarks, assistance, training, and marketing, laid down by the franchising organisation. Even if you discover you disagree with these systems, you are required to follow the system and get approval for changes from the franchisor.
Price– The set up costs are often high due to standards set by the franchisor such as; signage, shop fitting, uniforms, etc.,
Competitive restrictions– In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on “formula businesses”. Competitive restrictions on price, type of product sold or service offered and the area in which you can operate
Conflicts– Another problem is that the franchisor/franchisee relationship can easily cause conflict if either side is incompetent (or not acting in good faith).
Limitations– Generally franchise contracts will limit the ability of the franchisee to sell, assign or transfer the franchise business to another party without the approval of the franchisor.
Risk– Risk that the franchise might fail.
Here at The Quinn Group our experienced team of lawyers and accountants can assist you with starting up your own business or franchise. For more information on Franchises you can visit our dedicated website All Franchising Solutions or submit an online enquiry. For assistance with your business needs please call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.
