There are varying levels of complexity and cost across franchise systems. Different things appeal to different people, and some businesses will suit more than others. Indeed, some people should not consider going into business at all. It is not easy being in business, as typically the hours are long and there are personal and financial stresses that are different from working in a job.
Before entering the franchising sector, people need to ensure they have completed every aspect of due diligence to ensure they are ready to enter the most successful small business format. There are many things to consider, such as:
- Are you suited to running a business?
- Why do you want to own a franchise business? And are your reasons good reasons?
- What are the implications for your lifestyle and income?
- How much can you afford to pay?
- Do you have the support of your partner and family?
- What sort of franchise opportunity best suits your skills and resources?
- Do you understand the franchise relationship?
- Do you really like people? Most franchises involve substantial customer contact, and the best franchisees typically have great people skills and also good sales skills.
Once you have answered these preliminary questions you are ready to start your evaluation.
Frequently asked franchising questions
1. Where do I start?
You can start almost anywhere – the newspaper, the internet, a stroll through a major shopping centre or by attending a Franchise Expo. You may also wish to consider Franchise Business, the FCA’s official franchise directory, which is a comprehensive web-based listing of franchise systems in Australia. The directory is cross-referenced by category and includes an alphabetical index, so finding a particular franchise or type of business is quick and easy.
Online and print publications including Franchising magazine, Business Franchise and The Franchise Review have the latest news on the sector in Australia, and franchising around the world.
From an information perspective the Franchise Council of Australia website has a wealth of information, and the FCA’s Franchisee’s Guide is an ideal reference book for potential franchisees. It contains all the questions to ask yourself – and the potential franchisor – before purchasing a business.
2. What exactly is a franchise?
A franchise is the right to carry on business under a brand owned by the franchisor using the franchisor’s systems and procedures in accordance with the requirements of a franchise agreement. The franchise will typically be for a defined period, usually around 10 years or so, and the franchisee will be required to pay the franchisor certain amounts for the rights granted by the franchise. Some examples are set out below, but the terms, fees and other commercial terms vary greatly between franchise systems.
The franchise agreements sets out the terms of the franchise, and the disclosure document that the franchisor must provide to you will provide a lot of the additional information you will need in order to decide whether to take on the franchise.
You should read it carefully, and seek advice from experts experienced in franchising.
3. Are there any laws to regulate franchising?
Franchising in Australia has been regulated by the Franchising Code of Conduct (the Code) since 1 July 1998. The Code is administered by the Australian Competition and Consumer Commission (ACCC) and provides for a number of franchisee protection mechanisms, including:
- a requirement for the franchisor to provide the franchisee with a comprehensive disclosure document containing:
- extensive information about the franchisor including financial details, directors’ interests, franchisee list and litigation information to potential franchisees
- details about the nature of the franchise, and some of the important provisions in the franchise agreement, and
- specific information about the cost of establishing and operating the franchise
- a comprehensive disclosure process that includes a 14 day time frame from disclosure to signing that prevents high-pressure selling tactics and enables franchisees to obtain advice
- a seven-day cooling off period for franchisees after signing the franchisee agreement
- recourse to mediation in the event of a dispute
- various other protections relating to termination, transfer and renewal of the franchise.
A prospective franchisee should read the Code prior to buying a franchise in order to understand their rights.
The general prohibitions on misleading or deceptive conduct and unconscionable conduct contained in the Competition and Consumer Act also provide protection for franchisees.
