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
If you're considering purchasing a franchise, it's important to understand that there will be specific controls and limitations set by the franchisor. These can cover a range of critical areas such as products, pricing, employees, policies, territory, marketing, and work hours. Essentially, you won't have complete freedom to run the business as you see fit. Additionally, if you plan to sell or transfer the franchise later on, be aware that there may be restrictions or obligations in place.
Guilt by Association
If the franchisor or other franchises associated with the franchise system receive unfavorable press or have a negative public perception, it could have a negative impact on your business. Though there are many commendable franchisors in Australia, some franchises may not be well-established or effectively managed. As such, it is crucial to conduct in-depth research on the franchisor and only engage in franchise systems with a proven and reputable track record in the industry.
Limited Growth Potential
When it comes to franchised ventures, growth potential may not be as unlimited as in standalone businesses. Franchisors typically set specific territories for operation, with strict penalties for breaching those boundaries.
Restrictive Franchise Agreements
Franchise agreements heavily favour the franchisor and can result in severe penalties if certain clauses are breached. This may include termination of the franchise agreement and monetary compensation sought by the franchisor.
Regardless of the franchise's reputation, seeking independent legal advice is imperative before entering into any agreement.
