Buy A Franchise

 

Thinking of buying a franchise?

If you are thinking of buying a franchise business, you want to get it right. Mistakes can be costly.

 

Buy A Franchise Services

Franchise businesses have higher rates of success than startup businesses. Generally you will be buying an established brand with a successful business model and a developed marketing plan.

 

 

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Should I Buy A Franchise?

 

Before you buy a franchise, you will need to consider many factors including:

  • whether a franchise is the right fit for you;
  • whether the franchise you are considering is the right fit for you;
  • the length of the franchise and/or any lease;
  • any financial advice that you have obtained;
  • whether the proposed franchise system is a proven brand;
  • your legal and commercial risks.

 

Is franchising right for you?

Owning a franchise is not right for everyone.

While buying a franchise may decrease the risks involved in owning a business, you are required to operate the business in line with the policies and procedures developed by the franchisor.

 

Does this franchise suit you?

While there are many franchising opportunities, not all of them will be the right fit for you.

You should consider your own strengths and your interests, when considering buying a franchise.

You'll want to know whether operating a franchise will provide you with an adequate financial return and offer a lifestyle that suits you.

 

What is the length of the franchise or any lease?

Consider the length (or term) of the franchise and if the franchise is operated from premises, the length (or term) of the lease.

Generally, you are unable to cease operating a franchise until the end of the term of the franchise or until you sell the franchise business.

Even if you plan to sell the franchise business before the end of the term, make sure that you are in a position to operate the franchise for the full term of the franchise agreement.

Also consider whether the franchise agreement and the lease contain options for renewal.

 

Have you obtained financial advice?

Before you enter into any franchise agreement you should obtain detailed financial advice, both about your personal circumstances and the franchise business that you are considering. 

 

Is the franchise a proven brand?

While there may be advantages to "getting in early" with an unknown franchise brand, generally it is less risky to buy a franchise business in a proven brand.

Even if the initial demand for a product or brand is high, there is no guarantee that the demand will be sustained.

The life cycles of products and services may be shortened by technological advances and new competitors may enter the market.

You should consider the sustainability of the market for the product or service, underlying the franchise.

 

What are the risks?

Before you enter into any franchise agreement you should thoroughly investigate the offer and the franchise system and obtain advice from an accountant, a lawyer and a business adviser.

The disclosure document will set out the contact details of franchisees in the franchise system. You should contact both current and past franchisees and ask them about their experiences.

You should also prepare business plans and budgets.

 

 

Advantages of Buying a Franchise

 

Brand Name Recognition

Well established franchisors provide you with an identity and a system which has proven to be effective and has a market impact:

  • you may be protected from market conditions, by the experience of the franchisor and the strength of a well established brand.
  • you may gain an established recognition from customers who identify your company or service.
  • a well established franchise offers you the ability to get customers in the door from day one with almost no extra expenditure.

Advertising

You may gain the advantage of national advertising campaigns that are included in an upfront franchise fee or an ongoing monthly fee payable to the franchisor.

National advertising campaigns would be out of reach for a small business.

 

Support and Training

Well established franchisors will train you in everything from technology, to accounting, to standing behind the counter and taking money.

Training makes the franchise model a much less riskier venture than buying a stand alone business or starting a business from scratch:

  • franchisors are generally willing to help you to ensure the success of the franchisee.
  • you have the opportunity for support from other, more experienced, franchisees.

 

Marketing

A franchisor is more likely to be in touch with the market trends that trigger changes necessary to keep up with changing times:

  • a well established and proven system is more likely to be able to withstand stormy economic conditions than a newly formed business.
  • the impact of any failed efforts are greatly reduced compared to a single business owner.

 

Negotiating Power

You have better negotiating power as a member of a recognised and proven brand.

You may also have the ability to tap into the bulk purchasing power and negotiating capacity made available by the franchisor.



 

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What is Franchising?

What you need to know about franchising

 

 

Disadvantages of Buying a Franchise

 

Costs and Fees

Buying a franchise is not cheap, there is usually an up front franchise fee on top of the cost of the premises, equipment and inventory.

You need to be aware of the ongoing fees. In addition to the initial franchise fees, ongoing fees are payable by you to the franchisor.

You also need to be aware that some franchisors will require you to refurbish franchisee stores to keep up with a changing image or theme. These possible refurbishments can cost in excess of $150,000.00.

 

Lack of Independence

The controls and limitations imposed by the franchisor can include limitations on products, pricing, employees, policies, territory, marketing, working hours and other areas deemed critically important to the success of the franchisor and the franchised business as a whole.

There is little freedom of scope for you to be creative; almost every aspect of operating the business will be regulated.

Your ability to sell or transfer the franchise business is likely to be limited. Most franchised systems have some restrictions or obligations regarding the sale or transfer of a franchised business.

 

Guilt by Association

If a franchisor or other franchisees are receiving bad press or suffering from poor public perception then you will ultimately suffer.

While there are many excellent franchisors in Australia, not all franchise systems are soundly based or well run.

You should conduct comprehensive research on the franchisor and only enter into franchise systems which have a time tested and solid reputation within the industry.

 

Limited Growth Potential

Unlike in stand alone businesses the growth potential of a franchised venture is limited.

Franchisors will almost always impose territorial limits on you which dictate where you can operate. There are often harsh penalties if you step over this mark.

 

Restrictive Franchise Agreements

Franchise agreements tend to be to the advantage of the franchisor.

Franchise agreements can contain heavy penalties if you breach certain clauses, including the ability for the franchisor to terminate the franchisee and to seek monetary compensation from you.

You should always seek your own legal advice before you enter into a franchise agreement no matter how reputable the franchisor is.

 

The Buying Process

 

We have set out below the stages that are usually involved in buying a franchise business.

 

Receive an information pack from one or more franchisors

You should carefully read through the information pack provided to you.

If you have any meetings with the franchisor or its representatives you should make clear notes of those meetings and what is represented to you about the franchise system.

Explore what the business' core product of service is and consider whether the business has a unique selling proposition.

Look at the business' competitors and consider whether any competitive advantage the business has is sustainable.

 

Apply to the franchisor

 

During this stage you can expect to sign a confidentiality agreement and pay a fully refundable deposit.

A franchisor can only take a non-refundable payment or deposit when:

  1. you have been provided with a current disclosure document of the franchisor (Disclosure Document), the franchise agreement in the form in which it is to be signed (the Franchise Agreement) and the Franchising Code of Conduct (the Franchising Code).
  2. you have been given 14 days to read, understand and take advice about the Disclosure Document, the Franchise Agreement and the Franchising Code.
  3. you have given the franchisor a written statement saying that you received, read and had a reasonable opportunity to understand the Disclosure Document and the Franchising Code.

 

Receive your Documentation

You should receive from the franchisor:

  • an Information Statement;
  • a current disclosure document for the franchisor;
  • a franchise agreement in the form of the agreement which is to be signed;
  • a copy of the Franchising Code of Conduct.

 

Conduct Due Diligence and Get Advice

Before you enter into any agreement you should thoroughly investigate the offer and the franchise system and obtain advice from an accountant, a lawyer and a business adviser.

The disclosure document will set out the contact details of franchisees in the franchise system. You should contact both current and past franchisees and ask them about their experiences. You should also prepare business plans and budgets.

 

Negotiate any amendments

As a result of the advice that you obtain or the information that you gather when investigating the franchise system, you may want to negotiate either the offer being made by the franchisor or the documents that the franchisor proposes that you sign.

 

Sign the Franchise Agreement and any associated documents

You can only sign the franchise agreement after

  1. you have been given 14 days to read, understand and take advice about the disclosure document, the franchise agreement and the Franchising Code;
  2. you have given the franchisor the written statements required by the Franchising Code.

Once you have signed the franchise agreement you have seven days during which you can cool off and terminate the Franchise Agreement (there are generally costs involved in terminating the Franchise Agreement at this stage).

 

Commence operation of the Franchise Business

Once you have signed the franchise agreement and any other relevant documents you can commence operation of the franchise business.

 

The information set out in this page is subject to our terms and conditions.

Want to know more

What is a franchise agreement?