Franchise businesses are a popular model in Australia, offering entrepreneurs an opportunity to start their own business while benefiting from the support and structure of an established brand. But what exactly is a franchise business, and how does it work? Let’s explore the concept and how it applies in Australia.
Understanding the Franchise Model
A franchise is a business arrangement where the franchisor (the owner of a brand or business) grants the franchisee (an independent operator) the right to operate a business under the franchisor’s name, using its systems, processes, and intellectual property. In return, the franchisee pays fees, which typically include an initial franchise fee and ongoing royalties (which are typically a percentage of sales).
Franchises operate under a legally binding agreement that outlines the rights and obligations of both parties. This model allows franchisees to leverage the established reputation, marketing strategies, and operational systems of the franchisor while running their own business.
Key Features of a Franchise Business in Australia
- Brand Recognition: Franchisees operate under a well-known brand, benefiting from its established reputation and customer base.
- Training and Support: Franchisors often provide comprehensive training and ongoing support, helping franchisees navigate operations, marketing, and compliance.
- Standardised Operations: Franchisees follow the franchisor’s proven business model, ensuring consistency across all outlets.
- Shared Costs: Some marketing and operational costs are shared among franchisees, reducing individual financial burdens.
Types of Franchises
In Australia, a business franchise can span various industries, including:
- Food and Beverage: Chains like McDonald’s, Subway, and Boost Juice.
- Retail: Brands like 7-Eleven, Clark Rubber, Mister Minit and Endota.
- Services: Businesses such as Jim’s Group and Snap-on Tools.
- Fitness and Wellness: Gyms like Anytime Fitness and F45 Training.
Legal Framework for a Business Franchise in Australia
The Franchising Code of Conduct, regulated by the Australian Competition and Consumer Commission (ACCC), governs franchise businesses in Australia. The code ensures fairness and transparency by outlining:
- Disclosure Obligations: Franchisors must provide a disclosure document with detailed information about the franchise, helping potential franchisees make informed decisions.
- Good Faith: Both parties are required to act in good faith during negotiations and throughout the franchise relationship.
- Dispute Resolution: The code provides mechanisms for resolving disputes between franchisors and franchisees.
Pros and Cons of a Business Franchise
Pros:
- Established Brand: Reduces the challenges of building brand awareness from scratch.
- Support Network: Access to training, marketing, and operational support.
- Proven Model: Reduces risks associated with starting a new business.
Cons:
- Fees: Initial and ongoing costs can be significant.
- Limited Flexibility: Franchisees must adhere to the franchisor’s systems and processes.
- Dependency: The success of the franchisee’s business can be tied to the franchisor’s reputation and performance.
Steps to Starting a Business Franchise in Australia
- Research: Explore industries and franchisors to find what you like.
- Seek Professional Advice: Consult with a lawyer or an accountant Melbourne experienced in franchising, such as Nobel Thomas, to understand the financial and legal implications.
- Review the Franchise Agreement: Carefully read the agreement and disclosure document.
- Prepare a Budget: Use the help of an accountant Melbourne to help you prepare a budget to ascertain whether the business will be profitable and whether you will earn what you desire.
- Secure Financing: Ensure you have the funds required for the initial investment and ongoing fees. Banks are often happy to lend to franchisees of well known brands – contact us for further information.
- Undertake Training: Complete the training provided by the franchisor to prepare for operations.
Conclusion
Franchise businesses offer an exciting opportunity for individuals looking to own their own business while leveraging the resources and reputation of an established brand. However, it’s essential to thoroughly research and understand the obligations and risks before entering into a franchise agreement. We strongly recommend that you contact us, or your preferred accountant Melbourne, to review all information provided by the franchisor to help you decide whether to proceed with the franchisor. It is very important to undertake the due diligence before jumping in. Nobel Thomas has extensive experience dealing with franchisees and not all opportunities are worth entering. Contact us with any questions.
