Advantages and Disadvantages of Franchising: Is a Franchise Right for You?
Franchising can be a great way to grow a business with minimal risk, but is franchising right for you? There are advantages and disadvantages to owning a franchise in Australia - and we’re going to outline them all to help you make an informed decision.
If getting into a new business has been a dream of yours, there’s no shortage of ways to do it.
Whether it’s online or a brick-and-mortar store, it’s never been easier to set up shop and start selling products and services. The tougher question to answer is whether you opt for a franchise or start your own from scratch.
To help you weigh up your decision, we’ve rounded up the top advantages and disadvantages of owning a franchise.
Read on for the pros and cons you need to know about.
Advantages of owning a franchise
Franchises are widely popular in Australia with over 80,000 franchised businesses located throughout the country. When it comes to starting a business, franchises are a popular choice because they help avoid some of the challenges associated with starting a business from scratch.
Need a crash course on the basics? Click here to learn what a franchise is (and how it works)
Let’s talk about some of the most exciting advantages of owning a franchise.
✔ Business assistanceProven business model:
There’s strength in numbers and franchises offer the independence of small business ownership supported by the benefits of a big business network.
You’re able to learn from other franchisees, as well as access ongoing training and support, to ensure you have a strategy to overcome each obstacle as they arrive.
You’ll also benefit from your franchisor's established deep-rooted relationships with suppliers. This means that materials will be less expensive because of the franchisor’s collective buying power, so not only are you backed by the best, but you’re saving money too.
✔ Proven business model
Starting a new business always comes with an element of risk - that’s why an estimated 60% of businesses fail within their first 3 years.
This risk of failure is mitigated with the proven business model of a franchise, allowing you to enjoy an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
As a bonus, because of their history of proven success, getting a franchise business loan is easier than getting a loan to start an independent business.
✔ Established market share
Starting a business isn’t the hard part, finding customers is.
When you buy a franchise you’re able to bypass a lot of the work that goes into marketing and branding a new, unknown business. When brand recognition leads to x% of sales, it’s obvious that an existing name is a huge market advantage.
You don't necessarily need business experience to run a franchise - franchisors usually provide the training required to operate the business model.
✔ Low failure rate
The ‘F’ word.
No one wants their business to fail, but it’s a reality no matter what market you compete in.
To tip the odds of success in your favour, when you purchase a franchise, you're buying an established, successful concept. Statistics from the Australian Government show franchises have a better chance of success than independent start-ups, helping you remove the dreaded ‘F’ word from your vocabulary.
✔ New career (in a new industry) with little to no experience
You’ve got an entrepreneurial mind but no experience in a new field?
Not a problem.
You don't need years and years of business experience to run a franchise - franchisors usually provide the training required to operate the business model. This allows for sideways movement between industries and lets you bring transferable skills to your new venture.
✔ Support from day one
Owning a franchise unlocks pre-opening assistance with operations including:
- Site selection
- Launch programs
You’ll also enjoy ongoing training and assistance with management and marketing (and as marketing is a constantly evolving industry this is a huge leg up).
Finally, when you buy a franchise, you receive all of the equipment, supplies, and instruction needed to start your business.
✔ Replicable system
A major part of what makes a franchise successful is its easily replicable system, which includes training employees at every location in how business is done. You’ll get help bringing new hires up to speed on how things operate - often with on-site training on opening procedures, daily operations, using point of sale software, and more.
✔ Exclusive rights
In most cases, owning a franchise means you’ll have exclusive rights in your area. The franchisor won't sell any other franchises in the same location so you can work on becoming the #1 business in your area without another franchisee stepping on your toes.
Excited at the possibility of becoming a franchisee? Click here to discover Australia’s most exciting franchise opportunities.
Disadvantages of owning/buying a franchise
Hearing the success stories of Australian franchisees is enough to get any budding business owner excited, but you also know that every business opportunity needs to be weighed carefully.
Consider the following limitations on franchise ownership to ensure you’re making the choice that’s best for you, your finances and your future.
✘ Initial investment and ongoing costs can be high
It’s easy to get excited by the revenue potential of an existing brand name, but you’ll need to pay to play.
Initial investment can be large, especially for big-name franchises. Remember, you’re paying to leverage a well-established brand name, and the costs are typically reflective of that.
You may also be required to pay monthly royalty fees or ongoing fees to contribute to cooperative marketing and other funds. While it’s worth pointing out that you’re paying for an established brand - which increases your likelihood of success - although these higher costs may be off putting for some.
✘ Operational restrictions
Love to shake things up and make business decisions on the fly?
A franchise may not suit your approach.
There are creative limitations for franchisees who are looking to explore, alter or make additions to their company’s business model or brand. That doesn’t mean your franchisor won’t be open to new ideas, but you’re buying into a successful business model for a reason.
There are also restrictions placed on where you can operate, what products you can sell, and the suppliers you can use because of the predetermined business structure. These aspects are implemented to streamline your business, though some people may find this stifling.
✘ Lack of financial privacy
You’re likely one of many franchise owners, and the logo you operate under needs to compare your performances to ensure you’re all meeting set benchmarks.
To keep track of your progress, franchisors will continuously collect financial information from you in order to improve the business model and audit royalty payments. This is all above board, but it can feel intrusive if you’ve come from running your own business and keeping your finances private.
The best franchise companies share a great deal of financial information back with their franchisees so you can benchmark your performance with the rest of the franchise system. But if you’d rather keep your finances private, you may need to consider an alternate option.
✘ Varying levels of support
Not all franchisors offer the same degree of assistance throughout the life of your business.
While certain franchises come with extensive support (for example, Clark Rubber), some franchises are solely startup operations and everything after the beginning is up to you. You’ll need to understand what is or isn’t provided, and the implications for you.
✘ Reputation management
Your business is tied to the national franchise, which helps with instant brand recognition and credibility - but this may be a double-edged sword.
Any issues faced by your ‘parent brand’ could potentially impact on your local operation and reputation. If there’s a PR crisis at the top of the chain, you’ll experience the trickle-down effects as people won’t separate your franchise with the brand you fall under.