Buying a franchise is a big decision. So, evaluating the advantages and disadvantages of whether this is the right business decision for you is important.
What is a Franchise?
Before considering diving into the world of franchises, it’s crucial to understand the nature of this investment. While something like McDonald’s may come to mind, it’s essential to grasp the logistics behind this business arrangement. So, what is it? A franchise is a business arrangement where the owner grants to another party, known as the franchisee, the right to operate, use products, and leverage branding and knowledge, in return for a franchise fee. The franchisor exercises significant control over the franchisee’s business operations, overseeing the use of the name, brand, and business system. Conversely, the franchisee assumes the financial responsibility for their franchised business, makes payments to the franchisor and runs the business according to their requirements of the franchisor.
Advantages of Buying a Franchise
Opting to purchase a franchise presents several advantages. A significant factor prompting individuals to choose an established franchise is the avoidance of setting up an entirely new business. Existing franchises already possess crucial assets, including:
- brand recognition,
- a customer base, and
- established methods and procedures.
This eliminates the need to initiate a business from scratch, allowing you to bypass the challenges of building everything from the ground up. Additionally, as a franchisee, you gain access to industry trade secrets and the valuable expertise provided by the franchisor. Consequently, many find buying a franchise to be an easier and accessible alternative compared to establishing a brand-new business.
Disadvantages of Buying a Franchise
While opting to buy a franchise might present a more manageable path compared to launching a new business, it’s essential to recognise and consider potential drawbacks. A primary disadvantage is the significant start-up costs. These initial expenses inevitably vary based on the specific franchise, and in the case of well-known franchises, they are likely to be comparatively higher than establishing a new venture.
Another major disadvantage is the obligation to strictly adhere to the franchisor’s rules, outlined in the franchisers operations manual. As the business is already established, franchisees have limited flexibility to make changes to fundamental aspects like the business model and products. This ultimately results in reduced autonomy over the business.
- A franchise is a business arrangement where the owner grants the right to operate, use products, branding, and knowledge to another party, known as the franchisee.
- Buying a franchise can be more streamlined than setting up a new business but it may have higher costs than setting up a new business.
Gladwin Legal are experts in Corporate Law and have extensive experience in advising businesses. If you require assistance in understanding your legal obligations please contact us at or 1300 033 934.