If you are thinking of starting your own business, you should consider the advantage of running a franchise. You may be pro at making burgers. However, would you be more successful starting your own brand of burger flippers, or operating under the tried and tested systems of Grill’d?

There are advantages and disadvantages to running a franchise business. This article will outline what to consider before deciding to run a franchise versus your own independent venture.

Existing Intellectual Property (IP)

A key advantage of operating a franchise business is using the franchise network’s existing IP. An established franchise brings brand recognition and customer goodwill. Indeed, this is usually a large part of what you pay for in purchasing a franchise.

For example, if your accounting business was to join a well-known franchise network, it may be able to obtain publicity from the franchise’s existing marketing. Customers may also trust the franchise brand more than an individual venture. Conversely, if you decided to go it alone, you will also need to build up your own IP, including registering a trade mark.

A Proven Franchise System

If you operate an independent business, you will need to develop your business on your own. You will need to set up your business model, start marketing and establish business relationships. However, by operating a franchise, you will have the advantage of entering a franchise system that has already laid down much of the groundwork.

For example, if your accounting services company were part of a franchise, the franchise may:

  • include you on their website;
  • provide you with software, marketing templates and stationary; and
  • have established business relationships in place for associated services or products.

All this means that the franchise system will allow you to go straight into providing accounting services. You will bypass much of the usual grunt work associated with setting up from scratch.

Advantages of Running an Independent Business

Conversely, there are three advantages to running an independent business. First, you will not be required to adhere to a system. When you enter a franchise, you sign a franchise agreement that creates obligations to follow a specific set of procedures. For example, you may not be allowed to provide additional products or services over those prescribed by the franchise agreement. While following a proven system can be advantageous, it can also be a downside if your commercial experience allows you to spot gaps in the market.

Secondly, running an independent business means you do not need to pay franchise fees for the rights to operate the franchise. In a franchise, a franchisor may require you to pay both an upfront fee and ongoing payments. This may not be a disadvantage if the franchisor gives you added value in the form of extra marketing and training. However, you should investigate what you receive in exchange for your fees.

Thirdly, you are free to run an independent business for as long or as short as you like. However, a franchise agreement will require you to run the franchise for a specific period. You may not be able to exit the franchise system before this period is up. Furthermore, franchise agreements often contain a restraint of trade clause, which restricts you from operating a similar business for several years (and in some cases, up to 10 years). This could be problematic if you intend to build your own franchise network in the future.

Key Takeaways

The main benefits of running a franchise business are that you receive a proven system to run the business and can rely on the existing franchise brand, goodwill and marketing. Conversely, the advantages of running an independent venture are that you have more freedom to run the business how you see fit, can do so for as long as you want and do not need to pay franchise fees. You may also eventually be able to build your business into its own franchise network.

If you want further advice on entering a franchise, including reviewing your obligations under a franchise agreement, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

 

Kristine Biason
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