Franchise opportunities in Australia
A multitude of opportunities
Anyone considering a small business venture in Australia should look closely at opportunities within the franchise sector. With a multitude of franchises available, opportunities can range from small ‘husband and wife’ service providers to retail business models offering potential in the millions of dollars.
Many franchises provide a staged career path, enabling franchisees to start small and move up through structured tiers. Franchise systems are present in most industry sectors, and the economic impact of franchising is substantial and growing.
Security in franchising
A great benefit of franchising is the security provided by moving into a proven business with training, support, centralised buying, induction programs and other business resources available. This is especially valuable to people coming into the country with capital and skills, but little knowledge of the Australian market, tastes and the commercial environment.
Interestingly, few Australian franchise systems are imported from other franchising strongholds like the USA. Ninety-two percent are ‘home grown’ concepts centred specifically on Australian needs, tastes and lifestyles and are, therefore, in tune with the home market.
Funding and fees
Most big banks in Australia have unique packages designed for franchises, and customised franchise teams who specialise in franchise lending. Many long-established franchises have ‘approved’ status with banks, which means that between 20 and 70% of the establishment cost can be financed by the bank and secured by a debenture loan over the franchise and its assets. However, in high-risk times, banks can halt lending for start-up businesses and prospective franchisees may have to raise or provide capital themselves.
In all package franchise programs, franchisors are paid instalments from franchisees for the right to use their brand. These fees could vary in price from $5000 to over $1 million. Franchisees also pay ongoing fixed or ‘percentage of turnover’ fees for support and other costs such as group marketing.
The stats
Estimations point to over 63,500 business format franchised units operating in Australia with 7900 company-owned units, producing a total of 71,400 units in business format franchise systems. There are approximately 8000 fuel retail outlets and 2500 motor vehicle retail outlets. The total number of persons employed in business format franchise systems is said to be 413,500.
Legislative safeguards
Franchisee security is enhanced by a Franchising Code of Conduct, legislated in 1998 and updated in March 2008, requiring franchisors to operate within strict guidelines, including full disclosure to prospective franchisees. The Code places an obligation on franchisors to disclose 23 categories of information to franchisees, and enables easier mediation for disputes and a cooling-off periods. It is also boosted by a voluntary code of Member Standards under the auspices of the Franchise Council of Australia.If you are considering purchasing a franchise, it is wise to become familiar with the Code of Conduct and ensure that any company you consider is a member of the FCA.
Know the risks and rewards
The Franchise Council of Australia offers a free handbook for potential franchise business owners entitled, “What to know before becoming a Franchisee”. The handbook provides multiple recommendations and suggestions, as well as a list of imperative steps one should take when considering the purchase of a franchise in Australia.
Despite the current flourishing franchise situation in Australia, and the fact that franchising is by far the most profitable form of small business, success is by no means guaranteed. It is essential that the risks are understood and appreciated.
