What you Need to Know to Buy a Franchise
What you need to know to buy a franchise
If you're in the market to buy a franchise then you may be weighing up your options and deciding what is best. There are several reasons why you could purchase a franchise, with a variety of pros and cons to consider.
With 1,500+ opportunities available on Bsale we go through what you need to know to buy a franchise.
Why Buy a Franchise?
When you buy a franchise you are purchasing the rights to be part of a system that you can use to generate an income. This system includes; branding, suppliers, products, training manuals, marketing, technology and more. You are buying the rights to be part of it.
PROS
3 reasons it is an attractive option to buy a franchise
1. Support
When you become a franchisee you are buying into a larger system, which offers a lot more support than you would have if you buy an independent business. This can also be great for owners who feel they don’t have the necessary experience, franchisors will typically provide training and offer ongoing support.
2. Financing
A key advantage when you are looking to buy a franchise is financing, it can be much easier to find and secure financing. Not only do franchises have a higher rate of success when compared to start-up businesses but it can also cost less to buy a franchise than start your own business of the same type.
3. Higher Chance of Success
Whilst this can be a grey area - some people are very successful when they buy a franchise, others may not always make money. This is why it's so important to conduct proper due diligence when you buy a franchise and don't just listen to the seller's information.
CONS
There are some reasons you need to do proper due diligence and be aware of what you are committing to.
1. Agreements
These tend to work in the favour of the franchisor as it is about the success of the entire group. You sign a Franchise Agreement when you buy a franchise so you need to make sure you have advice from a solicitor and understand the expectations and what is involved.
The ACCC has a free online course about franchising that could be well worth your time.
2. Limited Flexibility
When you buy a franchise you are part of a system. This means you cant just start selling a different coffee, place an ad on the local noticeboard or hire your best friend to do the marketing. Everything has a plan, and everything has to go back to the agreement and decisions from the franchisor. So if your a creative type and want to invent and change things then it may not be the best idea to buy a franchise.
3. Other franchisees
There will be franchisees that add value and others who may affect its reputation. There will be franchisees who want to help and see you succeed, there will be others who keep to themselves. Working alongside franchisees will be different depending on the type and size of opportunity you are buying. But you need to be willing to work as part of a group to ensure the entire group succeeds.
Understand the Franchise Agreement
The Franchise Agreement dictates everything you can do in the system. It applies to all franchisees and there is very little room for movement or change and it's something you need to fully understand when you buy a franchise. It will underpin what happens when you first buy a franchise to how it will be in the day-to-day operations, such as ordering products.
When you buy a franchise is distinctly different from a regular business sale. In Australia, all franchise systems must abide by the Franchising Code of Conduct. A Franchise Agreement and a Franchise Disclosure Document legally must be provided to potential buyers.
When you buy a franchise, you are legally committing to the rules that are set out in the agreement, it is a legally binding contract that both the franchisee and franchisor must follow so it is important that you consult with professionals before signing.
To get a better understanding of the particular location when you buy a business, you should be provided with a Franchise Disclosure Document. This will help you make a well-informed decision before entering a franchise system and the FDD must be updated at the end of every financial year.
As a franchisee, there are a number of expectations on you that you may have to agree to such as; trading hours, sales and KPIs, marketing and promotions, training, refurbishment and fit-outs, sourcing products and more.
Every opportunity will have different agreements so it's important to read in full and obtain professional advice. When it comes time to sell a franchise you need to know the level of input a franchisor has, so you can have an exit strategy in place.
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4 Simple Steps to Buy a Franchise
Here is a short summary of the key steps you need to take when it is time to buy a franchise.
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Do your research!
Research industries, consider your experience, understand the training process and explore your costs. Deciding which opportunity is right when you buy a franchise is an important first step.
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Work with professionals
As it goes with business sales, it is important to get professional advice and build your team with the right people such as lawyers, accountants and find a business broker with the right experience for your needs. Consult with experienced professionals who will ensure you perform your due diligence and help guide you through the process.
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Analyse your Franchise Agreement
We briefly touched on the Franchise Agreement above, for more information on why you need to review the franchise for sale agreement Bsale has a detailed guide.
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Get your financials in order
In order to buy a franchise, you need to have the capital to invest. Getting your finances in order is important.
Final Thoughts
Whether you are looking to buy a franchise for the first time or add to your empire, always make sure you are prepared and have professional advice. There are a lot of differences when buying a franchise versus a traditional business such as a company, partnership or sole trader. It's important you understand these differences and how they can affect your ability to make decisions and the support you will receive.
There are a lot of successful franchisees who make a lot of money, just take a look at the financials on some of the franchises for sale. If you want to be part of that opportunity then you need to buy a franchise.
Tags: franchise success small business buying
About the author
Caitlin Mary
Journalist
Caitlin has a background in media and communications, studying journalism at University and doing various freelance writing and production work over ...
