Pros and Cons of Buying a Franchise in Australia
In the Article (Quick Access)
Before considering a Franchise for your Australian business, you as a small business owner need to understand the pros and cons of buying a franchise in Australia.
Buying a franchise involves proper consultations with franchise lawyers and other concerned personnel as regards the legal elements, agreement and code of conduct must be made.
It is better to take time in selection than to have a basket full of regrets and losses at the end of the day.
You must also consider the advantages and disadvantages, either as the franchisee or the franchisor.
Before we take you into the detailed list of the advantages and disadvantages of franchising, let’s first look at Australia’s Franchise sector.
Franchise Industry in Australia:
Starting in the early 1970s with American chains such as KFC, Pizza Hut and McDonald’s, the franchise industry has shown tremendous growth.
Today, Australia has the second largest number (just behind New Zealand) of franchise outlets per capita in the world.
Because there are no prohibitions on international ownership in Australia, a lot of foreign franchises have grown over the years.
As of 2022, there are over 1,100 franchisors, 65,000 franchise units and 8,000 corporately-owned units in the country. This shows an increase of about 0.7% from 2021. (Global Franchise)
Also – about 90% of these outlets are being developed locally by locally-based franchise consultants. These consultants help and supervise inbound franchisors in all issues regarding the legal process because they have the experience and know the ins and outs. (International Trade Administration)
Franchised businesses play a major role in the Australian economy by acting as catalysts for the growth of many of the ‘Australian-made’ franchise brands such as F45 Training, The Coffee Club, and Poolwerx globally.
The industry is said to provide job opportunities to more than 500,000 people and generates an average of $181.8bn in revenue- a highly accepted improvement promoted by the Australian government in every way. (Global Franchise)
The most popular franchise opportunity being the non-food retail industry is said to account for over 25% of franchise systems.
We are confident that you understand by now the outlook of the Franchise Industry in Australia.
Let’s jump to the blog now to look at the top positives and negatives of owning a franchise.
Pros of buying a Franchise in Australia:
1. Owning a Franchise means Reducing the Risk of Starting a Business
It is common knowledge that 8 out of 10 businesses fail.
However, you can reduce the risk of failing by owning a franchise.
One of the main advantages of franchising is the low level of risk involved.
When you buy a franchise, you’re investing in a business that has a proven track record.
This means that the chances of success are much higher than starting a new business from scratch.
Franchises also tend to have a lower failure rate than independent businesses.
Also, if you plan to test a particular business to avoid wasting time, capital and resources, you can opt for franchising.
This is done with businesses that don’t show much potential, but it still requires a reasonable amount of capital.
2. Getting a Franchise Gives You Access to Ready to Use Business Plans
In addition to reducing the risk of starting your own business, a franchise also provides you with access to pre-made business plans.
A business plan is an essential part of starting any business.
When you purchase a franchise, you have access to pre-made business plans that can speed up the process of starting your franchise.
These plans cover everything from marketing strategies to supplier relationships.
By using a plan, you can avoid making costly mistakes and get your business up and running as quickly as possible.
A ready-made business plan will save you a lot of time spent on research, processing and documentation.
Also, this is extremely beneficial, especially if you’re not familiar with the franchisor’s business model.
Franchisors are usually very helpful and willing to provide guidance and support. This guarantees that your venture proceeds smoothly from start to finish.
3. Franchising gives you Access to Ongoing Business Support
Franchising also provides you with access to ongoing business support.
This support comes in the form of guidance and support from the franchisor, as well as access to resources that can help you grow your business.
This can be a life-saver if you’re not familiar with the franchisor’s business model.
There are also Frequently Asked Questions (FAQ) sections on most franchise websites that can help you get started quickly.
If you ever have any questions or issues with your franchise, you can always turn to your franchisor for help.
This is a huge benefit, especially if you’re not familiar with the franchisor’s business model.
4. With Franchising, it's easier to Raise Capital
One of the main benefits of franchising is that it makes it easier to raise capital.
When you’re looking for investors, they’ll feel more comfortable putting money into a proven business model.
This is because they understand the risks and rewards associated with franchising.
Franchisors also have access to capital that can be used to help you get your franchise up and running.
Additionally, banks and other financial institutions are more likely to lend money to a franchise than a start-up business.
Franchising also has the advantage of helping you raise capital. When you purchase a franchise, the franchisor usually provides you with a percentage of the total investment.
This can be a big help when you’re starting and don’t have a lot of capital.
5. Franchising provides you with templates for future success
By having a template for success, you can avoid making costly mistakes and get your business up and running as quickly as possible.
These plans cover everything from marketing strategies to supplier relationships.
By using a plan, you can avoid making costly mistakes and get your business up and running quickly.
This allows for timely decision-making and proper planning for the future.
6. Franchising in Australia is covered by Franchising Code of Conduct
Australia boasts of a good Franchising Code of Conduct, which, unlike in many countries, is the law and must be followed.
The code of conduct covers both the franchisor and franchisee, their responsibilities, mediation requirements and other legislation.
To make sure that your franchise is operated in a fair and legal manner, all franchisors must adhere to a code of conduct.
This code of conduct outlines the standards that a franchisor must adhere to to operate their business legally and ethically.
Also, this code of conduct is a set of guidelines that all franchisors must follow.
Depending on the state in which the franchisor is operating, certain provisions of the code of conduct may be more stringent than others.
A proper code of conduct reduces the chances of franchised business owners signing up to own a business with unfair terms.
Cons of buying a Franchise in Australia:
1. Owning a Franchise requires a high initial investment
One of the main disadvantages of franchising is the high initial investment required.
When you purchase a franchise, you not only have to pay the franchisor for the right to use their name and business model, but also pay for things like equipment, inventory, and initial advertising.
There are extra costs incurred along the way for refurbishments like a name change or upgrades and other running costs.
Trust me, it’s a lot of money.
You’ll have to do a cost comparison and decide if the returns will be worth getting one.
This high initial investment can be a barrier for some people who are interested in franchising.
Additionally, it can take several months or even years to see a return on your investment, so you need to be patient and have faith in the business model.
2. Franchising (at times) can lead to Limited Level of Growth
In contrast to stand-alone businesses, the level of growth that can be reached for a company under a franchise is usually restricted.
Depending on the franchise agreement, there may be limitations imposed on you on where to operate, how to operate, your working hours, holidays, pricing, advertising and marketing e.t.c.
Although these restrictions are placed to maintain uniformity between the different outlets and the overall brand, they can feel limiting for the franchisee.
For example, if you’re not careful, franchising can lead to limited growth.
This is because the franchisor owns a majority of the business and can make decisions without consulting with you.
This can limit your ability to grow the business and take advantage of opportunities.
3. Owning a Franchise also means 'Lack of Control'
With a franchise, you have fewer opportunities for innovation and personalisation of your businesses.
You have to abide by the rules of the franchisor and keep to the terms of the licensing agreement.
You may not be allowed to make personalised decisions like the appearance of your store, your products, or even staff uniforms.
Technically doesn’t sound like your business anymore… I mean, what could go wrong with picking a couple of uniforms yourself?
4. Franchising process can be Time Consuming
Getting a franchise can take a lot of time, especially when initially setting up the franchise model.
You have to ensure you attract the right franchisees and do the proper documentation.
And although there isn’t an exact number of how long documentation takes, you should expect to devote at least 6 to 12 months to the process.
Also, depending on the code of conduct, there must be a cooling-off period of seven days for a prospective franchisee entering into a new agreement.
5. With Franchising you rely on the reputation of the Franchisor which is out of your control
Since franchisees benefit from the recognition of the company or brand whose franchise they buy, they become vulnerable if the public turns against that brand.
Your company will depend on the current state of the larger company. The same goes for reputation.
Corporate scandals might become transferable.
This makes it difficult to manage your reputation with your own business and leaves patronage from customers vulnerable.
6. Franchising can lead to messy legal disputes where you as a small business owner will face a battery of lawyers representing Franchisor
Franchising can lead to messy legal disputes where you as a small business owner will face a battery of lawyers representing Franchisor, and if you’re lucky, the court system.
These disputes could be over anything from how you’re running the business, to the franchisor going out of business, or even something as simple as not renewing your contract.
It’s important to have a lawyer familiar with franchise law to protect your interests, but even then the odds are stacked against you.
Legal disputes usually cost time and money when resolved in court and this reduces the chances of the franchise being successful.
Franchising can be a good idea for some people or businesses and bad for others.
However, if you’re resolved on taking up a franchise opportunity, there’s a chance you’ll find one that nearly suits your needs, if not perfectly, since different franchisors offer relatively different terms and conditions.