How do franchises work?
Franchising is one of the favorite avenues, not only of Australians but also of business-minded individuals worldwide, in getting the chance to partly own and run a business. Australia houses numerous franchised businesses, both homegrown and international brands, which is evident enough to show how aware individuals are of the particulars of franchising.
How does it work?
Franchising works either by registering as the franchisee or by acting as the franchisor for your business.
Franchisees basically buy the license to operate an existing business, allowing them to sell the franchisors products and/or services for a set period of time as detailed in the contract. Usually, a lump sum is paid to the franchisor as part of the initial payment and the franchisee may be given a starter pack to help set the business up and begin running it. Some franchisors charge operating fees annually, while some take part of the profit on each turnover.
- It’s easier to set up compared to starting your own business. The franchisor already has a working business model and marketing strategy which you just need to adopt.
- Most franchisors provide assistance in assessing your chosen location of operation. Franchisors have working experience in gauging the profitability of a specific area and this, in turn, minimizes the risk of the franchise not being successful once established.
- Training and support are continuously provided by the franchisor so you can rest assured you won’t be left out of updates.
- You get to buy products in bulk and at a lower price.
- You benefit indirectly from ads of other franchisees.
- You may not be able to do what you want with the business since you have to follow the rules and regulations imposed by the franchisor for their brand.
- Some terms of agreement may be taxing
- You can get affected by the negative image of either the franchisor or other franchisees.
- You have to shell out quite an amount to pay for one-time and ongoing franchising fees. This may prove to be difficult especially during the first few months of operation.
As a business owner, franchising is an option you can’t ignore if you want to expand your business. But before you can introduce your business to franchising, it should display the following values: credibility, profitability, uniqueness, transferability, affordability, and the ability to provide ongoing training and support to franchise partners.
- You get to build your brand by reaching bigger audiences, allowing you to expand the business exponentially. As your brand becomes more popular, more franchisees will seek you out for business opportunities.
- You’ll have lower overhead because you won’t need to hire people to run your branches; they’ll come to you instead and even pay you (not the other way around) for the franchising fee.
- Franchisees also help maximize your profits because they have no other option but to make a profit since sales will also affect their income. Franchisees also have high motivation because they risked their capital to become part of your business venture.
- Since franchisees pay you regularly for the franchising fee and other supplies, you’ll get a regular stream of income.
- Although overhead may be lower, gearing your business for franchising may require a large sum to set everything up. There are numerous fees, regulations to follow, conditions to meet, and an ample amount of paperwork to complete before you see any acceptable return on investment.
- Quality control may be difficult to observe, especially as your business grows larger and reaches wider networks. A single mistake from a franchisee can ruin the brand you’ve worked so hard to build over the years.
- You have to make sure you’re getting the right franchisees because your business’ name depends on their performance.
Laws and regulating bodies
Just like in any business, investing in franchising a business entails risks. To protect both franchisees and franchisors, the Franchising Council of Australia (FCA) released several guidelines, publications, and research materials to aid both parties in fully understanding the risk and benefits involved before they embark in this business model.
The FCA has released a document discussing an overview of franchising. They also have a comprehensive directory of a thousand registered franchise systems in the country. You can find stories of franchisees who have succeeded in the business which you can use as a guide to improve your business’ performance. You can also seek assistance from professional business advisers you can find in the directory.
Whether you’re a franchisee or a franchisor, success (and failure) works both ways. Both entities have to fully cooperate with each other since they’re actually business partners and are working towards the same goal.
The most important thing to remember is to make sure you’ve thoroughly research everything you need before diving into the franchising business.