Money

Franchising - a popular option

Paul Clitheroe.
Paul Clitheroe.

AS we head toward the holiday season, many Australian workers are planning their annual leave. It can be a time when our thoughts turn to saying goodbye to the boss for good, and taking up the option of self-employment.

Buying into a franchise is a popular alternative to starting a business from scratch but it's not a guaranteed path to prosperity.

Australia's franchise sector turns over annual sales of around $128 billion, and investors have a choice of over 1,000 different franchise options from fast food outlets to pet grooming, juice bars and real estate.

There is an equally wide range of costs involved. The purchase price of a franchise can vary from a low of around $5,000 to in excess of $1 million. The higher the profile of the franchise and the greater its commercial success, the higher the price tag. In addition, some franchises like McDonald's require a significant investment in capital equipment, which adds to the cost.

Apart from the upfront cost of buying a franchise, the "franchisee" (the person buying into the business) can expect to pay ongoing royalties and service fees to the franchisor (the parent company). These vary from about 1% to 35% of your gross revenue. Other costs can relate to the mandatory purchases of company supplies including accounting systems, uniforms, signage and ongoing supplies.

In exchange for your money, franchisees gain the (hopefully) proven business formula and established brand name of the franchisor, as well as cooperative marketing, bulk buying and training and assistance from head office. Capable franchisors may also save a failing franchisee by arranging a sale of the business or buying it themselves to avoid damage to the public image of the business.

These are all significant benefits, and they can lead to a lower rate of business failure. Research by one Australian university found franchises are 2.5 times less likely to fail than independent small businesses.

However running a franchise is not for everyone. As a franchisee you're expected to operate within the strict framework laid down by the franchisor. This means giving up some of the freedom of traditional self-employment, notably the ability to call your own shots.

If you're reasonably sure a franchise is the right choice for you, it pays to research the market thoroughly thinking about the type of industry that would suit your skills, interests and budget. A good franchisor will be happy for you to speak with existing franchisees for their feedback, which is something I recommend you do.

Always have your accountant and solicitor review the franchise agreement closely before you sign it. These contracts can be complex, and you need to be quite sure about what you're getting into.

Finally, be aware that in some cases franchisees are required to undergo lengthy training periods, often without pay. Where this is the case you will need a pool of cash to support you through weeks, even months, of little or no income.

A good place to find further information about franchising is the Franchise Council of Australia website at www.franchise.org.au


Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.   Visit www.paulsmoney.com.au for more information.

Topics:  employee, franchising, holidays, paul clitheroe



3 snakes to watch out for right now on the Northern Rivers

A well-grown Tiger snake was soaking up the warmth of the path.

These snakes are some of the most venomous in the world

Quick thinking from market organisers may have saved lives

The tree that cracked in half and fell at Mullumbimby markets this morning.

Tree falls down at Mullumbimby markets

4 offences police will target this long weekend

Double demerits will be in place this long weekend.

Speeding fines up to $3400 and 14 demerit points

Local Partners

Marvel's Luke Cage S1E6: Suckas Need Bodyguards review

Rosario Dawson and Mike Colter in a scene from the TV series Marvel's Luke Cage. Supplied by Netflix.

*WARNING: spoilers if you haven't seen Marvel's Luke Cage*

Marvel's Luke Cage S1E5: Just To Get A Rep review

Mahershala Ali, centre, in a scene from the TV series Marvel's Luke Cage. Supplied by Netflix.

*WARNING: spoilers if you haven't seen Marvel's Luke Cage*

Marvel's Luke Cage S1E4: Step In The Arena review

Mike Colter in a scene from the TV series Marvel's Luke Cage. Supplied by Netflix.

*WARNING: spoilers if you haven't seen Marvel's Luke Cage*

Rob Kardashian admits his first crush was his sister Kim

Rob Kardashian once had a crush on his sister Kim Kardashian West.

Marvel's Luke Cage S1E3: Who's Gonna Take The Weight

Mahershala Ali in a scene from the TV series Marvel's Luke Cage. Supplied by Netflix.

*WARNING: spoilers if you haven't seen Marvel's Luke Cage*

Marvel's Luke Cage S1E2: Code of the Streets review

Simone Missick and Mike Colter in a scene from the TV series Marvel's Luke Cage. Supplied by Netflix.

*WARNING: spoilers if you haven't seen Marvel's Luke Cage*

Beach-side real estate starts at $85k on Fraser Coast

HERVEY BAY REAL ESTATE: You can buy this townhouse in Scarness for under $300k.

Live your beach-living dream locally.

Buyers forking out millions

Owners benefiting from undersupplied Northern Rivers market

UPDATE: Former rodeo champ's sale rained out, now back on

Larkhill local Ken Consiglio is having an auction of most of the things on his property.

'People kept showing up and we had to turn them away'

Couple build their own 'tiny house' for $45k

Holly Bowen and Oli Bucher built their "tiny house" themselves, only hiring a plumber and an electrician. Photo/supplied

The house, which is built on a trailer and can be towed.

Sunshine Beach property breaks real estate record

The property overlooks Sunshine Beach, as the backyard lawn meets the sand.

Sunshine Beach mansion sale smashes real estate record

New $33 million development planned for Ballina Shire

The site of a proposed seniors living development at Skennars Head.

Plans include 211 homes, clubhouse and recreational facilities