Buying a Franchise in Australia

Pursuing a franchise opportunity can be an immensely satisfying and rewarding experience. But when you buy a franchise business, it’s not the same as buying an independent, small business. There are quite a few differences that buyers need to consider — as well as pros and cons to buying a franchise that don’t apply to buying a small business.

We’ll discuss:

• What a franchise is.
• How it differs from a business.
• What you should consider before purchasing one.
• The franchise agreement - one of the most vital aspects of buying a franchise and
• How you can get started with your own franchise.

What is a Franchise, and How Does it Differ From an Independent Business?

A franchise is best described as a license that gives you, the prospective franchisee, a preexisting foundation for a business. When you buy a franchise, you’re purchasing the right to use the franchise brand’s trademarks, business model, processes and knowledge while you run it. McDonald’s, Best Buy and 7-Eleven are all examples of franchises. When you purchase a franchise license, you’ll be set up to run your own location and become a part of the franchise system.

What to Consider Before Buying a Franchise

Buying a franchise means having a preexisting foundation before opening your doors. All franchises generally follow the same rules among all of their branches — a “winning formula,” if you will. You don’t necessarily need business or industry experience to run a franchise (though it helps when applying to be a franchisee; more on that later); you’ll be trained by the franchisor on every aspect of running the business. Expect to learn standard operating procedures (SOPs), help with marketing and the ins and outs of established business software.

People on the street know what to expect from a franchise. Whatever sort of business you’re running, it’s done in a uniform fashion, meaning you’ll get extra help with your marketing strategy when attracting people to walk in, sign up for your services or buy from you.

You’ll also likely have an easier time with financing. Because the franchise already has an established reputation and cash flow, lenders consider it less of a risk.

Of course, maybe you don’t want to follow someone else’s rules, in which case an independent business might be a better fit for you. You’ll have absolute freedom to run your own business any way you please. However, with that added freedom comes extra responsibility and risk.

It’s ultimately up to you. The bottom line is that you’ll have a lot of extra support if you buy a franchise over running your own independent business, but with that comes less freedom.

Choosing a franchise

It’s important to choose a franchise that’s right for you. This means matching your values with the brand’s. Your personality, skills and goals should be carefully considered before deciding.

Here’s some important qualities to consider in a franchise:

• Reputation of the franchisor: What do you think of when you think of the brand? Do you have a positive association with it? Your franchise should have credibility and a good reputation so consumers immediately place their trust in you.
• Public perception of its leaders: Leaders across franchises tend to be public figures, meaning they have their own reputations. Consider whether you agree with not just their vision for the company, but also their personal values. Be especially aware of any controversial comments a business leader might have made in the past, as these can be enough to destroy their reputation — along with the brand’s.
• Ensure mutuality: The franchisor expects something out of you, and so you should expect something out of them too. Know exactly what you want out of a deal and be prepared to negotiate the terms. If those terms don’t seem mutually beneficial to you, then you’re probably better off with a different franchisor.

This is just a sample of the research you should do ahead of purchasing a franchise. There’s much more to consider, from making sure the franchise has a successful financial track record to deciding whether you want the franchisor to do your marketing for you.

The Franchise Agreement

A franchise agreement is a contract between the franchisor and potential franchisee that lays out the terms and conditions in exchange for the right to run the location.

Franchises are more or less uniform, and the franchise agreement ensures the franchisee completely understands what is expected of them when they purchase it. The features of the contract generally revolve around the franchisee’s responsibilities in taking on the operational procedures, services, marketing and products. The franchisee must follow the franchise law and rules as laid out in the franchise agreement.

The different types of franchise agreements

Sometimes referred to as a franchising code, there are different types of franchise agreements depending on the needs of both parties. These are:

Master franchise agreement

This type of franchise agreement helps a franchisor expand to new regions. It effectively allows a franchisee to have similar rights to a franchisor, including the right to hand out franchise licenses and help run the franchise network. If you sign a master franchise agreement, you’re agreeing to take on the responsibility of granting basic franchise agreements to new franchisees.

Basic franchise agreement

This is also referred to as a single-unit agreement. Expect this to include:

• The rights of the business.
• The franchise fee or payments involved.
• The goods or services offered under a specified system.
• The franchise disclosure document.

The agreement will also contain any trademark, licences, or commercial symbols you’re permitted to use while running the location.

Area developer agreement

This is a subtype of the master franchise agreement with certain restrictions on region and timeframe. The agreement will typically contain measures of performance for the area developer.

Area representative agreement (or master agent agreement)

This is a special type of franchise agreement meant for third-party agents who train and recruit franchisees. The agent also oversees other franchisees. This can be useful when a franchisor wants to rapidly expand with the help of a partner.

Franchising: How to Get Started

Like all potential franchisees, you’ll need to prepare a pitch for a franchisor so they’ll agree to let you become a franchisee before you can start. The position of a franchisee is often sought after by many, and differentiating yourself from other franchisees is key.

Keep these key points in mind when applying to be a franchisee:

• Tell the story of why you want to be a franchisee. The more compelling the story, the more you’ll stand out.
• Offer a new idea for the business. This demonstrates that you’re committed and business-savvy.
• Explain what you’ve learned from recent market trends. Show that you follow the market and can apply what you know.
• Align yourself with the brand’s values. For example, McDonald’s appreciates people who volunteer or have been involved in charitable causes.
• Share your aspirations. Franchisors like franchisees who aim for the top. Convincing the franchisor that you want to be the best franchisee or own more than one franchise will appeal to the franchisor.

If you succeed, congratulations. You’re now the proud owner of a franchise.

Tying it All Together

If you choose to buy a franchise, you’ll be responsible for it just like you would be for a small business. The primary difference between a small business and a franchise is independence. A franchisor will have specific rules set in place that you’re required to follow in exchange for the use of their brand assets and business model. You’re expected to follow their formula when you run the business.

If this sounds like a positive thing for you, then running a franchise might be a sound decision. You don’t get the freedom of a small business — but you do get extra security, and that might be something you’re looking for.

If you have further questions about franchising, refer to our FAQ.

If Buying a Franchise Sounds Like a Good Idea, Enquire with Us

Buying a franchise requires careful consideration and planning before jumping in. There are unique responsibilities for the franchisee that don’t exist for owners of personal businesses, as well as distinct opportunities.

If you’re interested in buying your own franchise, we have the best place to find them. Search our extensive database of franchise opportunities and find the right one for you today.