14 min read
Stephen Haarsma
:
Updated on August 8, 2026
Franchising can offer significant advantages whether you are buying a franchise or considering franchising your own business. For franchisees, the benefits can include an established brand, proven systems, training and ongoing support, while the disadvantages can include fees, reduced control and contractual restrictions. For business owners, franchising can provide a way to expand using franchisee investment and motivated owner-operators, but it also brings additional legal obligations, management responsibilities and risks.
I have been involved in franchising businesses since the early 1980's. At that time, franchising as a business growth strategy in Australia was in its infancy. Now, we are one of the biggest adopters of franchising in the world.
This guide examines the advantages and disadvantages of franchising from both the franchisor and the franchisee perspective, helping prospective franchisees and business owners understand the key commercial and legal considerations before deciding whether franchising is the right option.
Advantages of Franchising Your Business
Disadvantages of Franchising Your Business
Advantages of Buying A Franchise
Disadvantages of Buying A Franchise
FAQ's
Franchising offers a way for you to grow your business while sharing risk. There are many advantages of franchising your business, including capital infusion, risk sharing, operational efficiency, scalability and economies of scale.
Overall, having advised franchisors since the 1980's, in my view, franchising can be an excellent business growth strategy, as long as the business has good branding, good systems and good compliance.
One of the primary (and most cited) advantages of franchising, is that the franchisee invests the capital or resources (including human resources) required to open an outlet, or provides the manpower required to provide the service.
When a franchisee commits to providing the funds required to open a franchise outlet, it substantially reduces the financial risk for the franchisor. If you expand your business organically, you must invest the capital required to open each outlet. Obviously, this increases your business risk.
By opting for franchising, you can expand your brand without incurring additional debt or elevating the cost of equity. Franchisees are responsible for investing the necessary capital, which includes expenses such as fit-out costs, an initial franchise fee (which is paid directly to you), and the working capital needed to get each franchise location up and running. This financial model is particularly advantageous if your business strategy includes opening multiple outlets across various locations.
In addition to the benefits of franchising from a risk-sharing perspective, franchisees often have a higher level of motivation and commitment, which typically leads them to outperform managers in various aspects of the business. This performance advantage is evident in areas such as generating turnover and diligently monitoring expenses.
For instance, in my experience, franchisees tend to manage labour costs more effectively than managers. They are often more cautious with wages and scheduling, ensuring that staffing aligns precisely with business needs to avoid unnecessary expenditures. Although, franchisors should ensure that franchisees pay their employees in accordance with the relevant award. There are numerous examples of Australian franchisees underpaying staff, and the relevant franchisor being penalised under the Fair Work Act. [Franchisor Liability and the Fair Work Act]
Related to the franchisee having a stake in the success of the franchise business, a further benefit of franchising is that the franchisee is responsible for the day to day operation of the franchise business. As Greg Nathan put it, running a business is a huge ask. When you franchise your business, while you need to retain enough oversight of the franchise network to protect your brand, you are not responsible for the day to day operation of each franchise outlet.
When managed correctly, this division of responsibility allows you to focus on strategic growth and innovation, while also allowing franchisees to bring local knowledge and customer insight to each outlet. Successful franchise systems establish clear boundaries between franchisor responsibilities and franchisee responsibilities through the operations manual and a well drafted franchise agreement.
It's important to get the balance right between franchisor responsibility and franchisee responsibility in the franchise agreement. Template and AI produced franchise agreements, often won't apply to your specific business needs.
The advantages of franchising for business scalability and brand extension are substantial. Franchising generally enables you to scale and grow your brand more quickly because you are not constrained by either financial or personal resources, which can often limit the speed and scope of expansion.
Imagine you have a business goal to open 10 new locations within the next 12 months. Each location is estimated to require an investment of $300,000.00. Without the option of franchising or licensing, you would need to secure a staggering $3,000,000.00 in addition to the necessary working capital to support such growth. This financial burden can be daunting, especially for businesses that may not have access to such funds readily. Moreover, the challenge doesn’t end with securing capital; you would also need to recruit and manage a workforce capable of operating and overseeing these new locations, which adds another layer of complexity and responsibility.
That doesn't mean that you cannot grow a brand without franchising. Yo-Chi is a great example of an Australian brand that has scaled rapidly without using the franchise model.
In addition, just because you franchise your business does not mean that the business will automatically grow. You need to offer a product that prospective franchisees want to invest in.
Franchising enables you to take full advantage of economies of scale, a critical factor for business growth and sustainability. As your franchise network expands, you not only gain a larger customer base but also significantly enhance your bargaining power with suppliers.
Furthermore, with a larger franchise network, suppliers are more inclined to prioritise your business needs, offering you access to higher-quality products or even exclusive offers that may not be available to smaller businesses. This prioritisation can greatly enhance the quality of goods and services you provide, reinforcing the reputation and reliability of your brand.
In addition to the enhanced bargaining power, the expansion of your franchise network also provides the opportunity to tailor your products or services to better align with the diverse needs and preferences of your growing customer base (Guzman y Gomez is a good example of such customisation). For instance, if you own a coffee franchise, the growth of your network allows you to engage more deeply with suppliers to create and develop your own unique blend of coffee.
Franchising can be an effective way to grow an established business, but expansion comes with trade-offs. As a franchisor, you give up a degree of control over how individual businesses operate while taking on responsibility for supporting franchisees, protecting the brand and maintaining a compliant franchise system
A major disadvantage to franchising your business is the loss of control. The flip side to the franchisee being responsible for the day to day operation of the franchise business is that you do not have control of the day to day operation of the franchise business. Consequently, you may encounter brand control issues and quality control issues.
I am often involved in getting franchisees to offer only products approved by the franchisor, or getting franchisees to use suppliers approved by the franchisor. Once a franchisee is running a business, they may have their own ideas about what products should be offered, or how the business should operate.
In order to maintain consistency in the quality of your product or service, it is essential that your systems and processes are clearly documented and that your franchise documents adequately support franchisee compliance. Adequate training for franchisees and their employees will also assist to maintain consistency and quality across the franchise network.
Our article Disadvantages of Franchising - Loss of Control explores the topic of loss of control in more detail.
Another disadvantage of franchising your business is the resources required for training and continued support and management of franchisees.
Developing and implementing a comprehensive training program for franchisees requires time and resources. It also involves different skills to running a business. A common complaint made by franchisees is that their initial training was very basic and that they commenced operating the franchise business without really knowing what to do.
Franchisees also require ongoing support and management. This support and management may include various aspects such as marketing assistance, operational guidance, and continuous communication. To provide effective ongoing support to franchisees, you may need to allocate additional resources and employ specialised staff.
Perhaps one of the greatest challenges for a franchisor is managing poorly performing franchisees.
Often a franchisee is “locked in” to their franchise, due to financial investment and may be forced to continue to operate the franchise business when they are no longer motivated to do so.
If a franchisee is not performing and is unhappy, they can be difficult to move on and they can damage your brand.
Our article The Challenges of Poorly Performing Franchisees explores this topic in more detail.
Legal and regulatory issues are a further challenge of franchising. Franchising in Australia is heavily regulated. You need to ensure that you comply with the Franchising Code of Conduct and the Australian Consumer Law. In addition, you need to ensure that franchisees are complying with relevant laws such as the Privacy Act 1988 (Cth) and the Fair Work Act 2009 (Cth) (the Fair Work Act).
The Franchising Code of Conduct (the Franchising Code) is a set of regulations that governs the relationship between franchisors and franchisees in Australia [What is the Franchising Code of Conduct?]. Franchisors can face heavy penalties if they do not comply with the provisions of the Franchising Code.
Under the Franchising Code, franchisors are required to:
In addition to the Franchising Code, franchisors also need to comply with the Australian Consumer Law (the ACL). The ACL deals with franchising issues such as:
The Fair Work Act sets out the minimum employment standards for all Australian workers, including those employed by franchisors and franchisees. It covers areas such as wages, working hours, leave entitlements, and workplace health and safety.
In 2017 “franchisor liability” laws were introduced which included franchisor accessorial liability for serious contraventions of the Fair Work Act by franchisees.
Our article Franchisor Liability and The Fair Work Act considers this issue in more detail.
While the advantages of franchising for scalability and brand extension are significant, one major disadvantage of “fast growth” is ensuring that your new business as a “franchisor” has the necessary resources to adequately manage the expanding franchise network. Rapid growth can put a strain on existing resources, requiring careful planning and investment to maintain operational stability and brand consistency across all locations.
The business of franchising and being a franchisor is distinctly different from operating the core business that you have franchised. It necessitates a shift in focus from direct management of business operations to overseeing and supporting a network of franchisees. This involves ensuring that you have not only the right number of staff but also the right calibre of personnel who are skilled in franchise management. In addition, robust systems and processes must be in place to support the growing needs of a franchise network, including comprehensive training programs, effective communication channels, and efficient supply chain management.
There are ongoing challenges with franchising as the franchise grows. These include navigating the complexities of franchisee conflict, which can arise from disagreements over business operations or financial issues. Additionally, reputational risk can become a concern; any negative incidents at one franchise location can impact the entire brand. Franchisors can often feel overwhelmed by these challenges if they do not have the appropriate processes and staff in place to assist. This can include dedicated teams to handle franchisee relations, legal compliance, and quality assurance, as well as investing in technology to streamline operations.
There are many advantages of buying a franchise including working with an established brand and proven business model, being provided with training and support, having access to developed marketing and advertising campaigns and regulatory protections.
These advantages combine to provide a lower failure rate for franchises as compared to independent start ups.
Jump to Disadvantages of Buying a Franchise at a Glance
The main advantage of buying a franchise is brand name recognition.
The franchisor has already done the work to establish the brand, which means that you do not have to put in the time and resources to build the brand from scratch.
Well established franchisors provide you with an identity and a system which has proven to be effective and has a market impact. This brand recognition not only helps you stand out in a competitive market but also provides a sense of security. By aligning yourself with a well-known brand, you may be protected from market conditions, thanks to the experience of the franchisor and the strength of the established brand.
Buying a franchise also gives you the opportunity to benefit from the established recognition that customers have for the brand. Customers who are familiar with the brand are more likely to trust and choose your company or service, giving you a head start in attracting customers and generating revenue. This built-in customer base can significantly reduce the time and effort required to establish your business and start making profits.
In addition to brand name recognition, another advantage of buying a franchise, is the possibility of purchasing a turnkey business.
Purchasing a turnkey business simplifies the start-up process. With a turnkey franchise, you are provided with a fully equipped and operational business, ready to run from day one. This not only saves you time and effort in setting up the business, but also reduces the risks associated with starting a new venture.
However, not all franchisors offer a turnkey business. When undertaking due diligence about the franchise system you should ask questions about fit-out and equipment. If the franchisor does not offer a turnkey fit-out, you should ensure that they have used the fit-out contractors before and that all necessary licences and permissions have been obtained. In addition, you should ensure that any fit-out contract offers a fixed fee, so that the fit-out costs don't become unmanageable. In my experience, fit-out costs can exceed what was originally represented by the franchisor.
Another advantage of franchising is training and support. Well established franchisors may train you in everything from technology, to accounting, to standing behind the counter and taking money.
Training and support make the franchise model a much less riskier venture than buying a stand alone business or starting a business from scratch as:
Although, not all franchisors offer adequate training and support and you should ask current franchisees whether they are happy with the level of training and support provided by the franchisor.
In addition to the other advantages of buying a franchise, a major benefit of franchising is the opportunity to take advantage of national advertising campaigns. These campaigns may be included in the upfront franchise fee or an ongoing monthly fee that you pay to the franchisor.
National advertising campaigns can have a significant impact on your business. They can help to raise brand awareness and attract customers on a larger scale. The frequency and scope of these campaigns are often beyond what a small business would be able to afford on its own. By participating in these campaigns, you can tap into a wider customer base and gain exposure that would otherwise be difficult to achieve.
Although a negative aspect to national marketing campaigns is that they may not benefit you as an individual franchisee. Monies that you pay to the national advertising fund may be better spent on local advertising, including targeted online local media campaigns.
Franchising in Australia is heavily regulated which adds a further level of security and structure to the franchising model.
Franchisors must comply with the Franchising Code of Conduct and the Australian Consumer Law.
Before you enter into a franchise agreement, franchisors must follow the disclosure obligations required under the Franchising Code. Disclosure obligations include:
While there are numerous advantages of buying a franchise, there are also disadvantages to buying a franchise including high initial investment, ongoing fees and royalties, limited autonomy, strict renewal terms, market saturation and negative brand publicity.
One of the disadvantages of franchising is the high initial investment. Buying a franchise is not cheap, you will usually need to pay
In addition to the fees listed above you will need to pay the cost of the fit-out of the premises, equipment and inventory.
A further disadvantage is the ongoing royalty and other fees. In addition to the initial franchise fees, ongoing fees are payable by you to the franchisor. You need to be aware of the ongoing fees.
However, the flip side of this is that an established brand name should provide you with recognition and revenue. There are numerous examples of franchisees who "de-badged" to avoid paying ongoing royalties, only to find that their revenue substantially decreased without the established name.
Another disadvantage of franchising is lack of independence or limited autonomy. The controls and limitations imposed by the franchisor can include limitations on products, pricing, employees, territory, marketing, working hours and other areas.
There may be little freedom of scope for you to be creative; almost every aspect of operating the business will be regulated.
Further 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.
Our article on Franchise Autonomy considers this issue in more detail.
A further disadvantage of franchising associated with brand name recognition is reputational risk. If a franchisor or other franchisees are receiving bad publicity or suffering from poor public perception (such as receiving poor Google reviews) then you may 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.
A disadvantage that we discuss in our article Starting Your Own Business vs Buying a Franchise is that the growth potential of buying a franchise is limited. Franchisors typically impose territorial limits on franchisees, which dictate where you can operate, where you can market your business or where you get your leads from. These limits are put in place to protect the brand and prevent franchisees from encroaching on each other's territories. However, this can restrict expansion opportunities for franchisees who may want to explore new markets or expand their operations beyond the designated area.
In addition, franchise agreements only allow you to operate the franchise business for a specified term. While you may be able to renew the franchise agreement at the end of the term, you will not necessarily be offered a renewal and there may be reasons why you are not able to renew (there are usually further fees and costs which are required to be paid to the franchisor on renewal).
At the end of the term of the franchise agreement your right to continue to operate the franchise business ends, and it is unlikely that you will be paid compensation for the business.
Generally (although not always) a franchise agreement will contain a clause which provides that the goodwill in the franchise business is owned by the franchisor.
A well drafted franchise agreement should clearly set out the rights and obligations of the franchisee and the franchisor, however another disadvantage of franchising is that franchise agreements tend to be drafted to advantage the franchisor.
Restrictions on franchisees include the products and services that are offered in the business, the suppliers who supply the products and services, where and how you can market the business, how you can operate the business and what you can do after the business ends.
If you breach the franchise agreement, in certain circumstances the franchisor may have the ability to terminate the franchise agreement and 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.
In franchising, the brand is usually already established, which means customers recognise and trust the brand even before the new franchised location opens. This existing brand recognition helps in attracting customers and ensures a certain level of expected service and quality.
Franchisees often receive significant operational support, ranging from a comprehensive turnkey setup in some cases, to extensive advice and guidance on running the business effectively in others, which helps ease the management of daily operations and reduces the learning curve.
Franchises tend to have a lower failure rate compared to independent businesses due to the established systems, support, and existing customer base provided by the franchise model.
Franchising is governed by the Franchising Code of Conduct, and franchisors are required to provide a Disclosure Document, which helps franchisees to be informed about the franchise.
Franchisors face the challenge of maintaining consistent service and product quality across all of the franchised outlets. This can be difficult, especially if franchisees want to introduce local services or products. If certain franchisees fail to uphold the brand's standards, it can lead to negative customer experiences and negative customer reviews, and damage the brand's reputation.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
*Disclaimer: This information is based on material published by the relevant franchisor on the Franchise Disclosure Register. This information does not negate the need to undertake necessary due diligence including seeking independent professional advice if considering entering into a franchise agreement.
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