Advantages and disadvantages of buying a franchise
I am thinking of buying a franchise. What do I need to know?
Franchising enables people to enter the small business sector without building a business from scratch. You work within an established business model and must meet various obligations – financial and operational – to honour your franchise agreement.
There are hundreds of franchises currently listed for sale throughout Australia—many of them here on the Gold Coast – and they cover a range of enterprises. Food and coffee outlets, cleaning, gardening, handyman/handywoman services, couriers, grocery, pet care, finance and insurance brokerages are just a few examples of franchises operating today.
Ballantyne Law Group is based on the Gold Coast and specialises in commercial law, including all legal services around franchising.
How does a franchise work?
While buying a franchise means you are indeed running your own business, you are bound by a business system that governs every outlet in the franchise network. Whether in Perth, Alice Springs, Hobart or on the Gold Coast, the business operation and customer expectation are anticipated always to be the same. In franchising, conformity and uniformity are key elements. It also pays to remember that your franchisor has authority over the renewal or ending of your franchise agreement.
What are the advantages of buying a franchise?
1 – Being part of an established network should provide access to invaluable experience, guidance and support.
2 – Operating within a set business system mitigates some of the challenges and uncertainty that people face when starting their own businesses.
3 – Buying a franchise generally costs less than starting your own business.
4 – Community familiarity with a franchise brings immediate customer recognition.
5 – You benefit from regional and national promotions conducted by the overall franchise.
And what are the disadvantages?
1 – If you have all manner of creative ideas for your business, then buying a franchise is probably not for you. An established business model leaves little room for innovation.
2 – Being tied to a franchisor carries significant financial obligations and may affect renewal of your agreement.
3 – As recent media reports have shown, incidents of unscrupulous activity have harmed the reputation and appeal of some franchises.
4 – Other franchisees may not have the same pride in performance as you, thereby hurting the reputation of the overall brand and, in turn, your individual business.
What protections do I have when it comes to franchising?
In Australia, franchisees are protected by the Franchising Code of Conduct. It is a mandatory code and your franchisor should provide you with a copy of it and other important documentation pertaining to full disclosure about the franchise, your rights and obligations, and more.
As with any business, it is advisable to do your homework before signing a contract or agreement. This includes determining all costs for which you are/will be liable, including the cost of the franchise itself, wages, stock, promotion, royalties and other payments. You might also consult with past and present franchise owners for their insights. Other considerations include the location of your prospective franchise and the proximity of competitors.
OK, I understand. Do I still need a lawyer?
Just because a franchise has the appeal and apparent stability of an established brand, it is always advisable to consult a lawyer before entering into a franchise agreement. The commercial law team at Ballantyne Law Group on the Gold Coast can help you with advice around all the legal, financial and business implications of franchising. Feel free to contact us at 07 5606 7332 or [email protected]
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