Australia is estimated to have more franchised businesses per capita than anywhere else in the world. As a $146 billion industry, franchising has been a key plank of Australia’s economic success over the last 20 years.

Between 1998 to 2014, the number of franchise systems operating in Australia grew from 693 to nearly 1,200 (Franchising Australia 2014 Survey – Griffith University). 

Making the decision to franchise your business can be difficult.

Why Franchise?

If you own or operate a successful business and are looking for an avenue for rapid growth, franchising can be a great way to achieve that goal. 

Put simply, franchising your business means “leasing out” your business model via a franchise agreement which will allow separate individuals or companies to purchase the right to run that business model under your brand for a given period.

Franchisees get the benefit of the model to generate profits and cash for that period. As a franchisor, you get the benefit of the franchisee fees and growing your goodwill and brand presence in the market.  

On My Own But Not Alone

The franchisees will run each individual business “on their own” in the sense that they will be invoicing and paying as separate business owners. They will, however, be running their business according to a strict set of guidelines that you establish as a condition of operating under your brand.

You sometimes hear phrases in franchising such as  “I’m on my own but not alone” and “In the business for yourself, but not by yourself”. These phrases are intended to capture the idea that the franchisee has the responsibility of running the business, but is supported by the network and by the franchisor. The franchisor guides the franchisee in building the business via the franchise model that has been developed and refined to maximise the chances of success in the market.

Franchising won’t be the right business model for everyone. Going down the franchise path means you need to be comfortable with giving up a level of control over the customer experience. However, the benefits of franchising can be huge, and doing so can address some of the issues that can arise when trying to grow your business organically.

Growing Your Business Through a Franchise Network

In a franchise model, selecting self-motivated and self-disciplined franchisees is an important ingredient for success. They will not only reap the benefits of their own hard work, but they will also contribute to the overall growth of your franchise network. The model rewards self-motivated franchisees, which means franchisors spend less time managing them and more time invested in strategic long-term growth.

By choosing to expand your business through a franchise model, you can focus on improving the business as a whole, without needing to focus on everyday management tasks. Another benefit is that the capital investment in the business comes from the franchisees themselves. Moreover, as franchisees own their own business, they will be responsible for its liabilities. So, the only limit on the growth of your business is the willingness of prospective franchisees signing up for your franchise business.

How Franchising Works

Franchising is a business model in which a franchisor makes the key elements of a business available to others for a fee.

how-franchising-works_legalvision

Franchises are often very prescriptive. A great example is McDonald’s. Many McDonald’s stores that you go into are franchises – individual businesses operated by the franchisees who own them. But even though different people own the stores, they always have the same look and feel. The menu and the pricing are predominantly the same, no matter where you are in the country.

This is because the franchisor has set the manner in which the franchisee must run the business. The franchisee gets the right to use the McDonald’s brand, recipes, and business systems. The franchisor gets paid levies from the franchisee. The growing number of franchises in Australia shows that these kinds of arrangements can be a win-win for both parties.

While there is no ideal time to franchise, if your business concept is successful, has a strong brand and is in high demand, you should consider franchising now.

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This article was an extract from LegalVision’s Franchisor Toolkit. Download the free 32-page toolkit featuring case studies from leading Australian franchisors.

 

Tim Mak
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