Owning a franchise can be profitable and provide faster business growth than starting from scratch for many business owners. Franchisees benefit from the use of an established brand, retail fit out, marketing materials, and market research. It's important to do thorough research about franchising and the specific business proposal before you invest.
Franchisors often receive a favorable ruling if there is any business matter involving loss that goes to court. Franchisees need to invest wisely after assessing the level of flexibility they will be working with and applicable laws. You should carefully review the financial details regarding hiring, relevant accounting practices, vacation and medical leave laws, and more. Here are important questions for every potential franchisee that will help them prepare well and make a smart choice.
What Type of Franchise Is It?
Every country and localised area will have markets that are better suited for certain types of franchises. Look closely at the business licensing paperwork for any franchise you might invest in and compare it to competitors. Many well-established franchises offer cleaning, food, gym memberships, retail goods, spa services, beauty services, and more. You should note the specifics of the industry, the size of the storefront, expected sales volume, and how your franchise separates itself. Consider the response in your area to both the business concept and model and look at your ability to adapt to the local environment. Franchise owners may have fewer options for making changes if they ever determine that the market ever warrants an adjustment to their business model.
Potential investors could ask about customer satisfaction for other franchises in the area and review sales trends.
It could be helpful to look at how long different franchises have been in the area and relevant memberships, products, services, and specials. This can help investors gain more insight about how the business climate may evolve and if the franchise is a good fit. The business should meet a real need in the community, have sustainable growth potential, and work well with local hiring regulations.
What Is Their Reputation in the Industry?
Investors should find out how long a franchise has operated in Australia and research the history of any relevant business licenses. Government or economic research center records will help you find out who started the brand and how it has evolved. Ask detailed questions regarding the current employment and tax laws versus those in place when the franchise opened.
Conversations with people in the franchise's business network are an important source of information regarding the franchisee experience. Investors could look through financial publications in official library records, newspaper collections, and legal databases. These records often provide unique insight about the impact of development, legislation, trade, and other historical data that will affect a franchisee's experience.
Use these records and the advice of publicity, marketing, and legal experts to evaluate the history of the brand's publicity. It is important to be prepared for risks inherent in the business structure and unexpected events. One common example is the hot food and drink liability legal for food franchises and the corresponding insurance responsibilities for owners.
What Responsibilities Will Fall on You as the New Owner?
Franchisees will assume some of the hiring, financial, and management responsibilities when they purchase or lease the new business. Each franchise will have some branding, fit out, hiring, management, and insurance taken care of by the franchisor. The new owner will be responsible for maintaining the branding and management contract that has been approved for local use.
Consider the insurance liabilities you would expect to incur as well as any additional costs that might come up in extreme cases. This might include litigation or individual lawsuits related to management and hiring law, brand history, building damage, and operations. Pay extra attention to the fine print regarding costs covered by the franchisor in extreme cases and within your local area. Upcoming legislation and changes to importing or trade law will significantly impact your profits and business viability. Many franchises require franchisees to purchase supplies and goods through approved vendors and manage all the logistics of local legislation on their own.
What Is the Franchise Agreement Like?
The franchise agreement will have many stipulations about how long the franchisee's contract will run. Whether you lease or purchase, you will need to navigate the duration of your contract and any costs associated with exiting. You should analyse local business competition and the brand history and consult with a lawyer at this stage. If you encounter too much competition or a branding issue from businesses with more flexibility, you may lose profits early.
What Marketing Support Is Available?
Many franchisees pay franchisors money for marketing every year, and they are entitled to statements with correct information. Australian law regulates the amount of money collected for marketing and what the money may be spent on in these cases.
Consult with a lawyer to be sure you understand your agreement and how much freedom you will have to run your own marketing campaigns. These are subject to brand guidelines, and many franchisees are required to participate in certain promotions. Australia has official codes governing disclosure, transparency, and due process regarding franchise agreements and marketing restrictions.
Many Australian businesses use software and experienced marketing teams who understand the complexities of working with a corporate marketing team. Franchisees across the country take advantage of all kinds of social media strategies, print campaigns, and integrated media advertising. Franchisors must publish and register the business with several key pieces of information as part of a formal disclosure. Investors may find it helpful to consult official disclosure registries to find out more about marketing support and policies.
How Does the Franchise Handle Competition?
Franchisors must act in good faith and abide by a cooling-off period regulation outlined by the official code. The Australian Small Business and Family Enterprise Ombudsman’s Office mediates and supports business owners in the event of a dispute. There are many measures in place to make it easier for all parties to settle out of court whenever possible in Australia.
Some franchising agreements include exclusive rights within a certain geographical location, but you should always consult with a lawyer. Your agreement may have additional stipulations regarding business volume, local development, changes to supply lines, and more.
What Is the Financial Performance of Existing Franchises?
Some of this information may be available from public tax records, or you may be able to get financial paperwork from the franchisor. Be sure to have a qualified accountant, business expert, and legal advisor review and verify any information you get.
Financial performance evaluations and comparisons depend heavily on business environments and franchise size. Make sure to ask the franchisor about how much expansion they expect and evaluate changes in prices and promotions. Many business owners measure these things and more against projections for wages, certain or overall living costs, and specific types of economic growth.
These are important factors for people evaluating potential income, return on investment, profit margins, and expected timeframes.
Ask about royalties, fees, and mandatory purchases specified by your franchise contract that may affect margins, growth, and profits. Many fees and royalties are mandatory for franchisees, and it is not uncommon for franchisors to require payment up front.
Are There Opportunities for Growth and Expansion?
You may find that your franchise can only operate within a specific shopping area under certain conditions. Many franchises are part of or near a mall, town square, shopping center, or other busy retail area. You should ask a business development expert about special licensing, regulation issues, and economic conditions that could impact growth. Accessible delivery zones, sufficient foot traffic, parking availability, practical floor plans, and more impact growth and expansion options.
Projected long-term road work and construction may be planned or in the planning stages and should be a major consideration. Franchises with things like tanning beds, spa chemicals, perishables, and games might deal with extra regulations regarding supplies, health codes, and large amounts of electricity. You will also have to make decisions based on current and future hiring, tax, labor, wage, and insurance laws. Businesses with delivery drivers, cleaners, employees, or contractors who may claim mileage or need extra insurance might encounter special difficulties.
What Training and Onboarding Will Be Provided?
Franchises offer a unique opportunity for investors to expand their hiring options in a new or more familiar type of business. Each franchisor will need to provide some initial training that includes operations procedures. The Australian government provides some additional self-guided training material that may help you become familiar with the operations and logistics of a new franchise.
Franchisors in Australia must provide an operations manual to franchisees and usually have to provide ongoing support training. Consult with a lawyer and other legal experts before you begin training to make sure you understand contract details and time commitments. Some training sessions may take place prior to purchase and are more like an interview than anything else. These types of training may not guarantee you ownership or anything else or help you become a manager in every case. Some advanced positions at a franchise may include:
- Marketing Director
- Operations Manager
- Hiring Manager
- Shift Supervisor
- Accounting Manager
Review your franchise agreement to find out what positions may become available at a local franchise and which ones are corporate positions.
What Are the Industry Trends?
Become familiar with business trends in your area as you network with reliable sources and advisors. Some trends appear for a short time and are more or less unique, while others may have an effect seasonally, quarterly, or each decade. Knowing how to use trend data takes practice, and every franchise may not have promotions and products that fit well with the trends you will deal with.
Ask your franchisor about the adaptability they believe the franchise can offer and how much they think the business depends on working with trends. Get additional opinions from other experts. Also, be sure to consider the age of your local store while you decide. Some franchises may develop better adaptability after they have been open for five to ten years, so consider the promotional and marketing rules as well.
Many people look at the economic forecast and compare key data elements related to the type of business and licensing requirements. People often choose to invest in service-based businesses if they expect a reasonable amount of expendable income and a fairly stable population. They might look at more practical franchises if they anticipate a turbulent real estate market or a high saturation of businesses in recreation and entertainment.
Final Questions
Consider the ability of your franchise to scale when it comes to hiring, product offerings, services, and volume relative to economic expectations. If there is seasonal tourism, will you be able to hire and train the right help in time? Do you have a variety of products and services at different price points that will appeal to customers if the economy changes? Will your brand remain relevant if the local economy supports either a boom or a smaller number of stable businesses?
Answering these questions thoroughly and with business counseling will help inform your decision to buy a franchise.