So what are the benefits of purchasing a franchise, as opposed to “going it alone”?
Here are some of the main ones. Obviously these do not hold true for every franchise, but they certainly apply to all reputable franchises.
Lower Failure Rate: One of the great risks with owning and operating any business, particularly in the early years, is the possibility of its failure. Estimates vary widely, with some being as high as around a 60% failure rate for new businesses in the first five years. This is one of the areas where franchising can be advantageous for people entering small business.
According to the Franchising Australia survey, “Fewer than 2% of franchised units ceased to operate, supporting the notion that franchising failure rates are low. In addition, franchisees remain in the system for an average of seven years, indicating that their businesses are operating profitably”.
Help with Start Up and Beyond: because the franchisor has an interest in ensuring your business is a success, you will get a lot of help starting your business and running it afterwards. Many franchises are “turnkey operations”: when you buy a franchise you get all the equipment, supplies and instruction or training required to start the business. In many cases you also get ongoing training and help with management and marketing.
Buying Power: your franchise will benefit from the collective buying power of the parent company as the franchisor can afford to buy in bulk and pass the savings on to franchisees.
Brand equity: many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers. Branding, logos, marketing and advertising materials will already have been developed by the franchisor so there is no need for the franchisee to spend their time and money on this activity.
Reputation: next to advertising and branding, a franchisee enjoys the protected reputation of the Franchisor. There are usually designated legal departments to take care of inevitable issues such as lawsuits, accidents and difficulties with employees. This is hard to replicate as an independent business owner.
So what should you be looking for when buying a franchise? Amongst other things:
A reputable franchisor with experience in your market. Buying a franchise from a well-established franchisor with a good track record should enable you to avoid some of the pitfalls associated with setting up your own business. If your franchisor has solid experience in you industry, it’s likely that they will already have experience in dealing with any issue you might encounter, and will be able to help you
A franchisor who is a member of the Franchise Council of Australia. Membership of the FCA involves a rigorous assessment of a number of factors including: the financial books and records of the franchisor, the standard legal franchise agreement, offer information and references from existing franchisees. The objective of the review is to confirm that the franchise programme is
- Viable: the product is saleable at a level of profit that will sustain a franchise network
- Transferable: know-how can be transferred to new franchisees at arm’s length
- Ethical: structured and operated in accordance with the ethical principles set out in the European Code of Ethics for
- Franchising which covers matters of advertising, recruiting, selecting and dealing with franchisees
- Disclosed: all information on the business that is material to the franchise proposition and contract is disclosed without ambiguity to prospective franchisees. A full list of FCA members can be found at: www.franchise.org.au
A franchisor who is happy to share details of all of their existing franchisees so that you can speak to whoever you choose before making a decision as to whether to take on a franchise or not. Be wary of franchisors who provide you with a “selected list” and not a comprehensive list of all franchisees
A franchisor who has run a successful pilot themselves. If they have not, then how are they expecting YOU to be able to do so?
A franchisor who does not have an excessive number of “failed franchisees”. Most franchise networks have the odd franchisee for whom the business does not work out. Franchisors should be prepared to share this information with you, with details as to why.