Franchises explained

Author: Youth 2 Youth.

A franchise is a business arrangement that allows a business (or branch of a business) to operate under the name of an established brand, for example, Wendy's or Burger King. The franchisor (the company who owns the established brand) grants the franchisee (the person who wants to set up business) the right to sell or produce the brand name product. This article explains some of the basics of franchising.

The Good

• An established name and reputation
• Smoother entry into the market
• Often less initial investment (capital)
• Training manuals etc usually provided
• Sales and marketing materials and research provided
• The ability to be instantly able to compete with large companies

The Bad

• Continuing reliance on the franchisor's products and services (decisions!)
• Contracts and agreements can be complicated during the application process

Useful Advice

Talk to the experts before you sign on the dotted line! That means your accountant and lawyer.

Investigate the franchisor's financial history and position; whether the company has adequate records; whether the franchisor is interested in building the brand or just selling people frnchises, because someone interested in building the business is usually someone who cares about it!

Do some research by speaking with established franchise owners of the same brand. Check if they are happy with the service and communication from the franchisor, and ask their opinion on whether the market has potential for more or whether its saturated already.

Make sure there are no hidden costs by running everything past your accountant, and undertand fully the exact royalty rate that must be paid to the franchisor and how it is calculated. Also, are the projected profits straight from the franchisor or have they also been independently evaluated?

There is a Franchising Code of Conduct in Australia. In fact, part of the code makes it compulsory for you to get professional advice before you buy a franchise! For more information on the Code or on Franchising, and other government regulations and franchise information, check with the Franchise Council of Australia at www.fca.com.au.

More information

Australia Franchise Directory www.franchisehost.com/franchiseaustralia.htm

Plus loads of others on the web - just search!

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth cannot be held liable for anything resulting from how you use the information provided in this article.