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Buying a Franchise

 

What is a Franchise?

If you’ve ever wanted to know more about franchising and more specifically, buying a franchise, you’ve come to the right place. Let’s begin with the basics: what is a franchise? Essentially, franchising is a type of business model that allows a business to operate under the established brand of another business. It allows the business to sell its products or services for a specific period of time. The International Franchise Association defines franchising as a "continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organising training, merchandising and management in return for a consideration from the franchisee.”

Franchising is a popular route for people who want to run their own business but don’t know how or don’t want to start one completely from scratch. There are a three types of franchises out there: 

1. Business 

This is one of the most well-known types of franchises. As a franchisee of a business franchise, you have the right to use the franchisor’s intellectual property in your own business. A popular type of business franchise is a fast food restaurant.

2. Product 

A product franchise is where the franchisee sells the franchisor’s product from a retail or wholesale shop. Franchisees are given exclusive rights to sell the product/service within a specific area. A good example of a product franchise is the automotive industry.

3. Processing or manufacturing 

In this type of franchise, the franchisee works under a license to manufacture and distribute the franchisor’s product. An example would be the soft drink industry.

So now that you know what a franchise is and the different types of franchises available, let’s go a bit further and look at everything else you need to know and how to get started!

 

What’s on this page:

 

Benefits of Buying a Franchise

Things to Consider When Buying a Franchise

Which is The Best Franchise to Buy?

Questions to Ask Before Buying a Franchise

Buying a Franchise Checklist

Buying a Franchise in Australia

Buying a Franchise in New Zealand

 

Benefits of Buying a Franchise

Many aspiring entrepreneurs dream about building their own company from the ground up. However, the reality is that creating a startup isn’t always a realistic goal. More often than not, it’s a risky path to success. That’s why a large amount of entrepreneurs opt to buy into a proven business model with good growth potential. Aspiring business owners can do this in three ways: buy an established independent business, buy an established franchise location or thirdly, buy a new franchise location.

The fact of the matter is that buying a franchise – at either a new or already existing location – has greater benefits than buying an independent small business. Below is just a few of them.

 

1. A proven track record of success

A good franchise company will have created a way of conducting business that actually works and produces successful results. When you’re considering buying a franchise, franchisors are required to provide you with information about their success record and allow you to talk with existing franchisees to verify these results before you make your final decision.

2. A known brand name

A great benefit of buying a franchise is that the company you’re buying into already has a well-known name. This makes your target customers much more likely to do business with you.

3. Ongoing support

Good franchise companies have staff that are dedicated to providing franchisees with ongoing assistance. This means when building your business, you’re never alone and can always ask for the support of experienced people.

4. A comprehensive training program

Many franchise companies have training programs that are put into place in order to bring franchisees up to speed on the best methods to run the business. Good franchises will also provide you with reference material to help you overcome any challenges that might pop up while running your business.

5. Marketing help

The franchise company will provide you with plenty of tools, resources and strategies for marketing your business. Often, they will have dedicated staff to help you develop marketing plans and budgets, as well as help with the ongoing marketing of your business.

6. Less risk

This is perhaps the biggest draw card and benefit of buying a franchise. Starting a new business from scratch is incredibly risky, yet when you buy into a franchise, the risk is greatly reduced. This is because the brand your investing already has a proven success formula.

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Things to Consider When Buying a Franchise

Before buying a franchise, there are a few things you need to consider. Below we look at some of the most important things.

 

Demand

It’s important before you buy into any franchise that you figure out the sort of demand there is for the product or service you’ll be offering. Never jump into any opportunity – no matter how good it sounds – before doing your research.

Track Record

When buying a franchise, you should ideally only be looking at companies that have proven themselves successful when it comes to franchising their business. Ask the company to speak to current franchisees so you can find out about their experiences. This will give you a clear picture of whether the franchise has a good track record and is worth investing in.

Investment Fees

Often one of the biggest impediments to buying a franchise is that a large amount of your initial capital goes to the franchisor to pay for training fees, equipment and licensing rights. Depending on the franchise you’re investing in, this number can range from a few thousand dollars to a few million. It’s important to look at what the franchise company will be offering you in exchange for the franchise fees, and also consider the time it will take you to earn back your upfront costs. This will help you to determine if the franchise is a worthwhile investment.

Restrictions

It’s quite common for franchisors to put in place certain restrictions on how their franchises should be run. Franchisors often require franchisees to follow guidelines and standards, which may include things like pricing, operational hours, store layout etc. So while you are technically the boss, the franchisor generally has the control. Before buying a franchise, consider if this is something you’re comfortable with.

Competition

If the franchise you’re looking at buying into is a well-known brand, there is likely to be other franchisees operating in the same area as you, and this doesn’t include rival companies! You firstly need to consider whether the franchise and industry you’re buying into is a strategic business to move into as it will most likely be hard at first to establish yourself if there is a lot of competition in that particular market.

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Which is The Best Franchise to Buy?

You might be wondering which is the best franchise to buy? There are plenty of franchises to choose from in Australia and New Zealand, and they’re all vying for your partnership, tempting you with their shiny new models and unique systems of operation. So how do you decide which is the best franchise to buy? There are a few things that make a great franchise system. 

As an entrepreneur, you’re going into business to make a decent amount of money, right? It would make sense then that a franchise that brings in a nice profit is a good starting point. However, there are additional aspects you should consider. A model that offers the right return on investment is vital. The market’s potential and the brand’s reputation is also a good way to determine if the franchise is worthy of buying. Lastly, the level of support and the sort of lifestyle offered should also be considered.

Truthfully, there is no one-size-fits-all approach to knowing which franchise is best for you. That’s because everyone is unique and has a different idea of what they want out of buying a franchise. However, here are a few things to look out for when it comes to buying a good franchise:

  • Network management and support
  • Business planning and system development
  • Organisational structures and staff
  • Policies, procedures and legalities
  • Public relations/communications/marketing

Really, the ideal franchise depends on what you consider important. Just make sure you do some solid research and consider all of the options. And as always, you get out what you put in.

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Questions to Ask Before Buying a Franchise

Before any documents are signed, it’s vital you get as much information as possible about the franchise, so you can make an informed decision. To help you determine if a franchise is right for you, here are a few important questions you should ask before signing on the dotted line.

 

1. Can I have a disclosure document?

The Franchising Code of Conduct in Australia and the Franchising Code of Practice in New Zealand requires all franchisors to provide potential franchisees a disclosure document. This document should contain most of the key information about the franchise like the payments you’re required to make, if you’ll have exclusive territory rights and what happens when the agreement ends. This document should also provide you with the contact details of all current and past franchisees.

2. How much will I earn?

While a franchisor can’t give you an exact number, they should still be able to give you a rough figure of potential earnings. Franchisors by law don’t need to give you these figures, but you can and should still ask for it.

3. What are my upfront and ongoing costs?

As a franchisee, you will be required to make a large upfront payment and then some ongoing fees to the franchisor. However, you might also be required to pay outlays you might not have expected, which is why it’s important to gather as much information as possible about any additional costs that might come up.

4. What happens if the franchisor fails?

As with any business, it’s possible for the franchisor to fail. Before buying a franchise, you should ask the franchisor what your rights and obligations are if the franchisor fails. These can be hard questions to ask but they are important if you want to make an informed decision about buying a franchise.

5. What sets you apart from your competition? 

The market for certain brands is competitive and saturated, but there are also other brands that are more innovative and unique. It’s important to gauge where the franchise you’re looking to buy falls on the spectrum. What is the level of competition in the market and who is at the top? Ask the franchisor about their unique selling points and what they deem sets them apart from the competition.

Try not to think of these questions as negative but rather realistic and practical. It’s very easy to be optimistic and excited when buying a new franchise so try not to fall in love with an idea before you truly understand its upsides and downsides.

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Buying a Franchise Checklist

Once you’ve found a franchise you feel confident about buying, you might be ready to sign on the dotted line. However, how can you really tell if this seemingly ideal franchise is the right one for you? Here are 22 yes or no questions to tick off the list before you commit to buying a franchise. If you answer no or are unsure about any of the questions, it would be a good idea to do some deeper investigation of the franchise to determine if it is the right franchise for you.

 

The Franchise Organisation

  • Does the franchisor have a successful track record?

  • Do the people running the franchise have industry skills and knowledge?

  • Is the franchisor financially secure?

  • Does the franchisor screen its potential franchisees?

  • Is the franchise profitable?

The Product/Service

  • Is there a high demand for the product/service?

  • Are general sales across the industry strong?

  • Does the franchise’s product/service stand strong against what competitors are offering?

  • Is the product/service priced competitively?

  • Is there growth in the industry?

The Market

  • Does the franchise offer exclusive territories?

  • Does your territory have any sales potential?

  • Is the competition fierce in your particular territory?

  • Are the other franchises in or near your territory successful?

The Contract

  • Are the fees associated with buying the franchise acceptable?

  • Are the renewal, termination and transfer conditions acceptable?

  • If it is a condition of the franchise to meet annual sales quotas – are those quotas acceptable?

Support from the Franchisor

  • Will the franchisor offer initial and ongoing training?

  • Does the franchisor offer any financing?

  • Will the franchisor offer any marketing/public relations assistance?

  • Will the franchisor help you with leasing a store, store layout

    and

    design?

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Buying a Franchise in Australia

There are over 80,000 franchises operating in Australia so if you’re looking to buy, there is certainly no shortage. It all comes down to what kind of franchise you want to buy and in what industry. When considering buying a franchising in Australia, it’s also important you work out how much you can afford to invest, whether you want to employ people, how much profit you want to make and the kind of lifestyle you want. The good news is it’s very likely there’s a franchise out there for you that ticks most – if not all ­­– of your boxes.

From cleaning franchises to coffee franchises, eco-friendly franchises to pet care franchises, travel and tourism franchises to business services franchises, the one thing all franchise opportunities have in common is that they reward hard work. Although you have essentially bought all the tools to run a successful business, the only way to actually be successful is for you to use those tools and put in the hard yards.

Check out Franchise Business for more information about buying a franchise in Australia.

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Buying a Franchise in New Zealand

When buying a franchise in New Zealand, just like in Australia, there are a variety of types of franchises and industries you can buy into. It really all comes down to personal choice. Before buying a franchise in New Zealand, you’ll want to also look at its goodwill and assets. The goodwill is essentially the health of the business. It should have a strong customer base, good reputation and high turnover. When determining a franchise’s assets, it’s a good idea to get a professional evaluator to tally the assets. If the franchisor is asking for an inflated price for the assets, check to see if this correlates to the business’s goodwill. If not, it’s not an ideal franchise to buy.

Check out Franchise New Zealand for more information about buying a franchise in New Zealand and for a list of franchises available to buy.

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