Published on 23/10/2020 by Any Business.Com.Au

What is a Franchise?

Franchising is one of the fastest growing industries in Australia. Indeed, there are over 1000 franchise brands in the country stretching across a vast range of business categories, including fast food, automotive, cleaning and maintenance, health and fitness, and financial services.

You may be interested in joining this rapidly expanding industry. But how much do you know about franchising? Did you know there were different kinds of franchises? And are you aware of your rights and responsibilities as a franchisee? We hope to answer some of those questions here so you have a better idea of what you may be getting into.

What is a Franchise?

Franchising is a clever marketing concept that gives an independent person or group of people (known as the franchisee) the right to market and distribute a product or service using the trademark and (often) the operating methods of another business (known as the franchisor). The franchisee pays a fee, and in return receives rights and support from the franchisor.

What types of Franchises are there?

There are two main business models for franchises:

Production Distribution or Trade name Franchises

Under this model, these franchises sell the franchisor's products. The franchisee is the retailer who distributes the products directly to the public. Common examples are new car dealerships.

Sometimes, the franchisee is also licensed to manufacture the franchisor's products. Soft drink bottling plants typically fit within this type of franchise.

With this system, the franchisor licenses its trademark and logo to franchisees, but does not generally supply an entire system for running their business. In return for brand use, the franchisee pays a fee or royalties.

Business Format Franchises

This is the most common type of business franchising. With this model, the franchisor licenses its product, service and trademark to the franchisee. But the franchisor also provides a holistic business approach to the franchisee, complete with a management system, a marketing strategy and operations manuals.

Business format franchises strive for uniformity, consistency and standardisation. Because of this, the franchisee must agree to conform to operational standards laid out by the franchisor. These can include appearance and image, the quality of the goods, and the location of the franchise.

Business format franchising is the fastest-growing area of franchising. There are a lot more franchise systems, outlets, employees and opportunities in this model than in the product distribution and trade name franchises. The most popular franchising opportunities canvas a wide number of industries, including (but not limited to): Fast food Restaurants Building and construction Retail Maintenance Lodging

Examples of well-known Australian business format franchises include: 7 Eleven Athlete's Foot Pie Face Bendigo Bank Boost Juice Forty Winks * Budget Rent-A-Car

Commercial relationship

The business format franchising model provides a win-win legal relationship to both franchisors and franchisees. Franchisors able to expand their market presence without reducing their own capital while franchisees get access to an established business system at a lower risk than starting from scratch and with a greater promise of success.

This mutually-beneficial transaction is commonly called a "commercial relationship". It provides small business with the opportunities that come with working for a big business: the product, service and trademark, the marketing strategy, business systems, training, and ongoing assistance, guidance and supervision.

You would legalise this relationship by signing a detailed franchise agreement. Since each contract is unique to the franchise you're interested in, it's important to read it thoroughly to get a comprehensive understand of your commitments and responsibilities before you commit to a franchise.

Types of Franchise arrangements

When you're looking to buy a franchise, there are several options available to you depending on your circumstances:

Single unit (direct-unit) franchise

This is an agreement whereby you are given the rights to open and operate one franchise. It is both the simplest and most common form of franchising. Luckily, you're not tied into the one unit. After you manage to get your franchise open and operating successfully, you can buy more singlet-unit franchises. This is considered a multiple, single-unit relationship.

Multi-unit franchise

This is divided into two opportunities:

• Area development franchiseIn this scenario, you have the right to open more than one unit during a certain timeframe within a specific area. You have exclusive rights to develop that territory.
• Master franchise (subfranchising)This agreement allows you to open and operate a specific number of units in a specific area, but you can also sell franchises to other people in that area. Under this agreement, you take on more responsibilities, because you take over many of the tasks, duties and benefits that usually go to the franchisor. You may have to provide support and training, but you also receive royalties or benefits from each unit.

Area representative franchise

This is similar to a multi-unit franchise. As an area representative franchisee, you essentially buy an area of land. You can sell and service unit franchisees in the territory. So while the unit franchisees sign agreements directly with the franchisor, you still receive a portion of their initial fees and ongoing fees paid to the franchisor.

Why Buy a Franchise?

Are you interested in buying a franchise?

If you're interested in buying a business, buying a franchise may be one of the best options for you. Buying a franchise guarantees you a number of benefits you may not otherwise enjoy for a long time if you start up your own small business. It also ensures you have less work and stress when you start up or take over a franchise than if you were beginning your own business.

Here are some of the benefits of buying a franchise:

• You can control your own destiny but with greater security and less risk than starting your own small business
• You're buying a successful brand name with proven profitability
• You'll already have a loyal customer base
• You start ahead of the competition
• You're often given the opportunity to receive training and guidance from influential and successful professionals
• Franchisees have a much lower failure rate than start-up small businesses

Make sure you check out the Franchise Council of Australia's website for more information on your rights and responsibilities when it comes to buying and owning a franchise. And if you'd like to learn more about the best features you may want in a franchise, we recommend you read 'What Should I Look Out For When Buying a Franchise?'

AnyBusiness.com.au

Mary is the founder of AnyBusiness.com.au. She has a degree in Business from Monash University and been helping showcase businesses for sale for over 10 years. In the course of running her own business and working daily with business owners and brokers she has developed a keen sense of the Australian market for businesses for sale and shares her knowledge on this blog and others such as female.com.au

Author profile

Related articles

Australian Cafe Licences and Permits

23/10/2020 by AnyBusiness.com.au

Australian Café Licences and Permits You Can't Go WithoutWhen opening your new café, it can be easy to get distracted by all the glamorous things like taste-testing your menu and redesigning the décor. But to make sure you can legally open your doors to the public, you will need to ensure you have all the right licenses in place to operate your café.Every business in Australia requires a number of licences to operate within...