Should I buy a Franchise Business

There are many ways to start a business. Some businesses are handed down or an offshoot of an established family enterprise. Most small businesses I’ve worked with as a bookkeeper in Brisbane started as a hobby.  A guy who loves cars would eventually open a car dealership, or a car parts shop, or a high-end car import service firm. A girl who loves to make clothes and fashion would try sketching designs and wear it, until somebody asks her to create something for a fee, thus starting another designer’s empire. And then there’s franchising.

If you don’t have a hobby that can earn you money, or a family business to go into, you can always consider franchising.

What is franchising?

Franchising is buying rights to operate a business using the franchisor’s established brands, formulas, procedures, and name, while staying independent and a separate entity. The mother company is called the franchisor, while the buyers are referred to as franchisee. A franchise transaction would need a franchisor, a franchisee, and the franchise agreement which binds the two parties into contract. The terms of franchise will indicate the duties and responsibilities of each party, which may include some or all of the following;

Duties of the Franchisee

Ø  Pay franchise and annual fees

Ø  Commitment to maintain the standards set by the franchisor

Ø  Reflect proper branding

Ø  Communication and full business disclosure

Duties of the Franchisor

Ø  Provide training

Ø  Startup and operational assistance

Ø  Commitment to adequate supply of business materials

Ø  Promote the brand

When the franchisee pays the needed fees, the franchisor is obligated to help the franchisee setup the business. The franchisor will help plan and build the business establishment, hire the staff, and oversee test operations. Raw materials and product supplies are often provided through the franchisor. If the franchise is a food business, the franchisor will disclose the recipes; train the chefs, service staff, and overall management.

Franchise fees usually consist of an initial franchise fee paid on the signing of the agreement. This is a significant amount that would normally cover initial stocks. There is also the annual franchise fee that is either a fixed amount agreed upon, or a percentage of the sales or profit of the franchise.

Franchising is very common in restaurants, convenience stores, gyms, bookstores, and service outlets like beauty parlors, spas, and car repair shops. Some Brisbane bookkeeping and accounting firms are also franchises.

Advantages of Franchising

There are many advantages in franchising. First is the already established brand name. This gives you a ready market and following who already know and trust the product or service. You will not have to suffer the early days of operation losses due to lack of customers. Another advantage is the already tested and proven business system of procedures. The franchisor will provide the franchisee a business plan that includes the suppliers, logistics, operations, and management. Businessmen don’t need to start from scratch, looking for the best suppliers and experimenting on procedures. All is laid out in detail.

Franchises enjoy national advertising and promotions. Getting a franchise also means getting the best deals for your raw materials. As the franchisor will be dealing for the entire company including the franchises, the economics of scale can afford you the lowest prices and priority delivery of suppliers.

Drawbacks of Taking out a Franchise

Franchising may not be for all entrepreneurs. Some of the drawbacks of getting a franchised business is the inability of the owner to change, innovate, or tamper anything in the store. You cannot change the chicken gravy, have your staff wear a different uniform, or give out extras to your customers. You have to be consistent with all other franchisees. Customers will also expect to receive the same product or service, regardless if they got it from different stores. Business expansion might also be limited as you will need to adhere to the franchise agreement.

Aside from the large amount of money required to buy the franchise, franchisees are also required to pay a portion of their sales or profit. Managers are often hired by the mother company, thus also limiting your control of the business.

Many businessmen find franchising as the most secure way of establishing a business. And it is. However, some people would still prefer doing it their own way despite the risks. Working as a bookkeeper in Brisbane and knowing many franchised businesses, I can vouch for franchising feasibility and security. I would recommend it to first time business operators, and to those who do not have concrete ideas of what business to put up. However, proper diligence is still required. Before you go into a franchise agreement, make sure to thoroughly review the agreement, and the suitability, stability, and reputation of the franchising company.