The number #1 rule when Buying a franchise of any type is, always take advice and do your research. Ignore this at your peril.
The following is a frank and robust view of business franchising based on 30 yrs of business experience, including as a franchisee [4 franchises owned] and once in the role as a franchisor.
Business advice has been provided to a large number of franchisees across a wide range of franchises. Enough experience to say there remains a substantial room for improvement required with many franchise business systems.
Franchising in Australia has yet to come of age. The franchising sector has yet to earn credibility, as providers of ethical and successful win-win turnkey business models. This will be only be demonstrated when franchisors provide a warranty for their system and include a guaranteed buyback of the franchise, that rewards the franchisee for their endeavours and investment in using the franchise system.
Buying a good quality and proven franchise can be a solution to getting started in business for yourself and this often appeals to first-time business owners.
The concept of franchising is an excellent one and the most successful small businesses in the world are franchise systems, of which McDonald’s would be one of the best-known examples.
Best practice franchises are businesses to which an exacting process has been applied to define a business format system – a unique way of doing business. This may be referred to as turn-key business system and the success or otherwise of the business franchise will be totally dependent on this and the franchisee’s relationship with the franchisor. This is true for both the franchisor and franchisee.
A franchisor provides a small business owner/franchisee with many tools, systems, and procedures, as often used by successful big business, that mostly would not be affordable by a small business owner.
A franchise agreement provides a licence to use the entire system of doing business – the business format – as created by the vendor and proven to be a successful business model. Ask for evidence!
The business format system should include marketing strategy and plan, operational standards, systems and formats, to training, quality control and ongoing assistance, guidance and supervision.
The hallmark of a good franchise system is that it will be tightly defined and controlled providing standards, consistency and uniformity across all aspects of doing business.
Franchise Business Format System
A franchise system is intended to create a win-win relationship for both franchisor and franchisee but rarely does.
A franchise system does enable:
- the franchisor to expand their business without the demands of capital which would be required to do so
- a franchisee to use established business systems, at lower risk, than non franchised businesses
To quote the Franchise Council of Australia [FCA]:
” By nature of the relationship, the franchise agreement will be imbalanced in favour of the franchisor, as the franchisor must at all times remain in control over certain standards critical to the ongoing success of the business format.”
At this, point your alarm bells should be ringing, and even more so if you have no previous business experience!
What potential franchisees are NOT told
Much is made of the great benefits of being part of a franchise system and this is used to seduce people to buy a franchise.
Little is provided that would alert a franchise buyer to the many shortcomings of franchise systems, which often can be poor, and of little or no value.
The franchising code of conduct and the Act are both woefully inadequate in protecting franchisees from being poorly treated and misled by franchise opportunities, that are nothing of the sort.
Franchising is a great concept that is very poorly delivered in Australia and the franchise sector has demonstrated very low business ethics over a long period.
Obviously, there are exceptions and good franchise systems exist however in the small business sector and amongst the lower cost franchises there are many that are not of a merchantable quality!
Franchise Buyer Beware
The very brief summary above contains a great deal of ‘devil in its detail’ that any intending franchise buyer MUST be aware of before signing anything!
There are a substantial number of ex-franchisees who will attest to the many shortcomings across a whole range of franchises being sold in Australia.
In many cases, these people have lost a fortune and endured considerable personal stress. Had these people been made fully aware of the business risk profile they were entering into, the real financial commitment required and the integrity of the franchise system they were buying, they would not [and should not of] entered into any agreement.
Entering into a franchise agreement has a requirement that independent legal and business advice be taken. Many avoid this out of concern for the cost involved. And so they fall at the first hurdle.
Trusted advice on buying a franchise
We strongly recommend seeking professional advice when evaluating whether a franchise business opportunity is right for you or not.
Suugeste advise you should seek:
- How to evaluate a franchise opportunity
- How to value a business franchise
- How to grow a franchised business
- How to avoid common mistakes with franchises
- How to exit a franchise agreement
- Where to get legal advice on franchise agreements
- Where to get business advice on franchise opportunities