Back to Previous

How does franchising work?

Sarah Stowe

For many Australians owning a business is a long-held dream. And franchising is an opportunity for anyone to grasp the chance of business ownership.

So what exactly is franchising? Franchising is a way of growing a business without the business owner investing in new outlets or business units. Instead the business owner or franchisor increases their brand presence by licensing to franchisees the right to operate a business or distribute goods or services for a specific period.

In return, the franchisees pay the franchisor a fee. That might be an initial payment, it may be an ongoing cost (either a flat rate of a percentage of turnover), it can be a mix of the two. Some franchisors make their money through the sales of essential items to the franchisee.

The franchisor provides an existing business model, brand, marketing strategy, initial and ongoing training. There might be site selection and lease negotiation, mentoring through the network of existing franchisees.

One of the advantages of the franchising method is the incentive provided for franchisor and franchisee – both share in the success of the franchise.

But investing in any business is a risk, and franchising is no different. However the sector is regulated by the Franchising Code of Conduct, which is administered by the ACCC. This means there is some legal protection for franchisees.

As part of the research and buying process, a franchisor must provide an information statement and a disclosure document to the franchisee. If the franchisee decides to go ahead with the business investment, they will sign a franchise agreement, a legal contract between the franchisor and franchisee, which outlines the obligations. Franchisees are entitled to a seven day cooling-off period.

At the end of the agreed period, the franchisee may have the opportunity to renew the franchise agreement for a further term.

What does it take to be a successful franchisee?

  • Commitment
  • Passion
  • Resources
  • Hard work
  • Compliance

What makes a good franchise?

  • A proven system
  • Training
  • Business support
  • Marketing
  • Operations manuals
  • A positive, collaborative culture
  • A shared vision
  • Profitability

Franchising works when everyone in the partnership is making a profit.

title