From petrol stations to hotels, to hair salons and fast-food chains and more, franchises are a common sight across almost every industry sector. With varying levels of complexity and market share, creating employment and prosperity for the nation, franchises are a business structure that you may want to consider investigating.
As a sector, Australian franchises make a major contribution to the economy, worth $184 billion dollars per year. Franchises can range from small, family-run businesses to larger businesses, and can provide Australian businesses with the opportunity to branch out into international markets.
Franchising is a business model where one company (the franchisor) owns a brand and offers a license to others (franchisees) so that they can sell the products or services under that brand for a defined period of time. As a business structure, franchising offers would-be business owners the ability to be their own boss with the support and reputation of an established and proven brand.
There are four business models that are generally used in franchising.
In this business model, a franchisee enters into an agreement to sell the franchisor’s product directly to the public. It’s most commonly seen in businesses such as new car dealerships.
In this specific business model, a franchisee is given a license to manufacture and distribute the franchisor’s product. It’s commonly used by soft drink companies for bottling their products.
Through the wholesaler-retailer model, franchisee retailers buy the products from a wholesale franchiser and then sell them under license at retail.
This is the most commonly known and used franchise business model (also known as a ‘business format franchising model’). In this type of franchising agreement, the franchisor markets its products through a network of franchisees. Each franchisee must use a common name and a standard set of systems and processes and are obligated to protect the brand integrity of the franchisor by following the agreement guidelines. This may involve placing constraints on specifics to ensure the quality of the product or service is maintained, such as:
- Where the franchise can be located
- The image of the business
- The quality of the goods and services
- How the business is operated
Before choosing to buy into a franchise, it is critical that you conduct your own research on the subject. With so many options available, and so many choices to make, it may seem overwhelming. It’s best to ensure that you are choosing the right fit for you and what you’re looking to bring into the business.
Talk To Existing Franchisees
As buying a franchise business is a significant financial investment on your part, you should learn as much as you can about it beforehand. Any professional franchisor will encourage you to speak with their existing franchisees to get a sense of how they are run, and whether or not they may be the right fit for you. It allows you to gain an insight into the inner workings of the business and what it’s really like to own a business with that particular brand.
Research The Location
Some franchise opportunities will work better in particular locations, be it a result of the demographic, the demand or the actual physical location. For example, a franchised petrol station might work better in an area with higher traffic than in a residential area with little traffic. Research the competition in the area to determine whether or not you have a chance of success in your chosen venture, with the current customer base.
Be Aware Of The Workload
A franchise is just as much a start-up as any other. You are going to have to work hard on and in the business to make sure that things are progressing as planned. By putting yourself into the business as an owner-operator, you’ll be able to see what’s happening with your team, apply solutions to problems as they arise and be actively responsive to situations that may come up.
As with any business venture, it’s important to ensure that you, ahead of time, are adequately prepared to begin with the information you need.
You can speak with us for assistance with business planning, development, questions about your financial situation prior to investing and more. Come see us today.