Buy a Franchise - the Pros and Cons

There has been a boom in franchising in recent years – you can find a franchise for sale in almost every industry. Unlike setting up your own business, when you buy a franchise the franchisor owns the brand, intellectual property and associated operating systems. As a franchisee, you are given the right to use these business elements for a limited period.

Franchises come in various formats, sizes and fee structures with differing lengths agreements and terms and conditions. Most franchises (over 50%) are in retail, accommodation and food industries - familiar sectors that many people feel they understand intuitively. However, it is important to shop around when looking for a franchise for sale and get expert advice from people who understand franchising to assist you. A good business broker plus legal and financial professionals (lawyer, accountant) can help you to determine what suits you best and if you are getting a fair deal.

Before you buy a franchise you should:

• learn about franchising and what is involved
• understand the Franchising Code of Conduct (the Code)
• understand your rights and responsibilities under the Code

Buy a franchise – the pros

• Benefit from a well-known brand, typically with a long history and a good reputation.
• Established business model – get access to refined procedures, operating manuals, stock control systems, financial systems and more.
• Get assistance with lease negotiations, site development, premises fit out and more.
• Initial training and ongoing support - learn from the franchisor’s experience.
• Support with marketing/advertising. A broad strategy is typically implemented by the wider group.
• Strength in numbers including better purchasing power.
• Excellent model for first time business owners.

Ultimately a franchise system can only be successful if its franchisees succeed, so the franchisor has a vested interest in your success.

Buy a franchise – the cons

• No real control of what direction the business or the brand takes.
• Less autonomy and more operational restrictions – you are required to follow rules, purchase from specific suppliers etc. Franchising is a team game, so make sure you are happy to follow team rules even if you don’t necessarily agree with them.
• Operations are restricted to a specific location.
• Some models take flat fees and some a percentage so be warned that with some models the more you earn the more a franchisor can take.
• Less control if you decide to sell your franchise; you will be required to follow certain procedures, including having your buyer approved by the franchisor. There are also sometimes penalties for exiting the network.

There are arguably lower risks involved when you buy a franchise compared to starting your own business. But, like any business there are still risks with owning a franchise. Just like other businesses, franchised businesses (and whole franchise networks) can fail. Despite having a known brand and proof of concept, they can fail for the same reasons other businesses fail – lack of capital, economic downturn, changed customer preferences, increased competition, lack of management skills of the operator, poor customer service skills etc.

If you do want to buy a franchise, make sure you fully understand the advantages the franchise system will deliver. Some franchises for sale are available direct via the franchisor and many are listed with business brokers. Speaking with an existing franchisee will give you a different perspective and can be very helpful to understand the pros and cons.

To learn more about the franchises for sale with SOT Business Brokers Perth, get in touch today.