Buying A Franchise
One of the best ways to have your own business is through purchasing a franchise. This business system provides you with the support and security from a larger company, with an already established business network.
Is purchasing a franchise best for you?
Ask yourself the following questions to know whether purchasing a franchise is the right choice for you:
- What are your needs and wants?
- What are your abilities and passions?
- What are your strengths and weaknesses?
- What is your ultimate goal or purpose?
Identifying and understanding these things will help you in making a decision on whether a franchise business would fit your circumstances and character and enable you to achieve your goals.
A franchise increases your chances of business success because you are associating with proven products and methods. The franchisor (owner of the franchise) has already established the pool of support that you will need and you just have to learn through trainings provided by them the skills in operating the business.
You can use a recognised brand name and trademark. You also benefit from any advertising or promotion by the franchisor thus you can do away with the burden of promoting an unknown product or service in the market. Customers are already knowledgeable about your product or service. They already know what they are paying for.
The franchisor gives you assistance and support – usually as a complete package including training, help in setting up the business, a manual telling you how to run the business and ongoing advice.
Costs may be higher than you expect. In addition to the usually high initial franchise fee, franchisees must pay ongoing royalties and advertising fees. These fees may either be fixed in amount or a percentage based on earnings.
The franchisee is not completely independent. Franchisees are required to run their businesses according to the procedures and restrictions expressed by the franchisor in the franchisee agreement.
Moreover, a damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem which could affect the profitability of your business.
Franchising Code of Conduct
“The Franchising Code of Conduct is a mandatory industry code of conduct that has the force of law under the Trade Practices Act 1974. The Franchising Code regulates the conduct of franchisees and franchisors, with the aim of ensuring that franchisees are sufficiently informed about a franchise before entering into it.
The code also provides a cost-effective dispute resolution scheme for franchisees and franchisors to resolve any disputes. The Australian Competition and Consumer Commission (ACCC) ensures compliance with the code and the Act by informing franchisors and franchisees of their rights and obligations under the code and enforcing it where necessary.” (Source: Overview of the Franchising Code of Conduct – www.accc.gov.au)
There is no guarantee for success in buying a franchise. It is essential that first, you do your own research. Consider the benefits and downsides of a franchise business before entering into any agreements or contracts. Also, be aware of the responsibilities of a franchisee.
If you decide on buying a franchise, you will have to obtain the franchisor’s disclosure agreement at least 14 days before you sign any contract or agreement. Mindfully read and understand the disclosure agreement which will provide you the details on the costs, business background, restrictions, trainings and support. If there are unclear areas, do not hesitate to ask.
For more information, read The Franchisee Manual available at www.accc.gov.au under ‘Publications’.
- Understand your needs and wants and decide whether a franchise is suitable for you and your circumstances.
- Evaluate the franchisor and the business’ credibility. Assess also the profitability of the franchise business.
Read and understand the franchisor’s disclosure document. Ask questions and seek advice from other franchisees.
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James HuyVuong is a CPA and the owner of Your Accounting Partners. Partnering with businesses from start to scale thru to sale.