A franchise allows individuals to run their own business under the guidelines and the banner of a bigger, proven business.
Investing in a franchise should provide a competitive advantage to the franchisee.
How does a franchise work?
The franchisor (the bigger business which owns the brand, the intellectual property, processes, marketing and training systems) grants a license to the franchisee (who could be an individual, a couple, business partners, family members) the right to run the business or to distribute goods and/or services using the franchisor’s business name and systems for an agreed period of time, in return for a fee.
This franchise fee could be an initial cost paid upfront to the franchisor by the franchisee; alternatively it could be an agreed percentage of revenue or profit paid to the franchisor on an ongoing basis. In many cases the franchise fee includes both upfront and ongoing payments.
Franchising’s success is dependent on both franchisors and franchisees working together to build the business.
In today’s marketplace, Australian franchise brands provide a significant contribution to the country’s economy – the everyday business format franchises stack up to a value of $146bn – that’s $172bn when the automotove dealerships and fuel businesses are incorporated.
Why do business owners decide to franchise?
Business owners can choose a franchise network as a means of doing business for a variety of reasons:
- A belief in empowering individuals to own their own businesses
- The desire to tap into the ambition and initiative of other business owners who will be committed to the brand
- The need to secure competitive advantage through swift expansion using external capital
What’s essential for success is the existence of good operating systems and structures, sufficient appropriate training for franchisees, good marketing and ongoing business support, and a commitment to act in good faith with franchisees.
Why buy a franchise?
There are many reasons why someone invests in a franchise. For example:
- It can be easier, and cheaper, than starting up a solo business
- Training is provided
- There are clear guidelines on how to operate the business
- There are competitive advantages such as branding or buying power
- The Franchising Code of Conduct provides legal protections to franchisees
How a franchise can work for you
Fundamental to a franchise is a set of rules and guidelines that shape and direct the business and its operations. Franchisees rely on each other’s compliance to these directives to keep the chain of individually-owned businesses, and the brand, performing to a high level.
Working to the operations manual and other guidelines gives you a head start in establishing your business if it’s a brand new site, and in maintaining or improving the product and service quality if you purchase an existing business.
For new locations, the franchisor may help you source a viable site and negotiate a good lease agreement with the landlord.
When you set-up your business you’ll have help from the franchisor team – in retail it’s common for support teams to be on hand over the first few days of operation.
As a franchisee you’ll be trained how to operate the business, and in many franchise chains you can gain financial and business knowledge through in-house training sessions as well.
There’s a back-up team at franchise headquarters you can call for ongoing support, often including customer service, IT advice, marketing, administration.
Most franchises have area managers or business development managers who will your go-to for advice on improving your business performance or overcoming challenging situations.
If you choose an established brand you’ll benefit from customer awareness – and expectations – from the start.
You may be able to tap into supplier agreements or buying groups that deliver products at competitive prices.
Access to marketing campaigns means you won’t need to spend days creating your own advertising message – it’s all done for you.
Some service-based franchise systems will direct customers through a call-centre and provide each franchisee with business leads.
Other franchisees in the network are an immensely valuable source of advice and insights that it is worth accessing as you start out and build your business. Some franchise models have a formal mentoring program.
You can gain more knowledge, expertise and develop strong relationships with other franchisees at the brand’s regional workshops or national conference. The road to business ownership can be a lonely one, it’s invaluable to have support along the way.
And when you’re ready to expand, if you’ve chosen a system that supports multi-units, there will be franchisor assistance to guide you through the process.