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Setting up small-business franchising

Author's avatar By Expert commentator 20 Jun, 2014
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5 Franchising Q&As with a look at opportunities in Australia

Becoming a small business owner has grown into one of the hottest topics in the world business news in the past few years. With an over 90% prosperity in the franchise sector, running your own business is a one-way ticket to success. Yet, the unlimited power which franchise enterprises hold is often deeply buried under a messy pile of obscure researches and heavy statistics. Understanding the basics of franchising is the first step towards starting a successful business. This article will give answers to the top most asked franchising questions helping you improve your organisational and personal management skills.

Q1. What is a Franchise?

Franchise is generally an authorisation granted by a company or product owner which gives a person the right to market a specific service or product by using the trade name or trademark of another business. The authorised person is obligated to pay the franchising company a fee, usually receiving extensive training, know-how and lots of priorities in exchange Franchising Roles:

  • Franchisor:

The franchisor is the enterprise which originally owns the rights to the product or service and sells them in purpose of expanding its business or reaching out international markets. The franchisor usually provides: 1. Support and training and 2. Advertising by following a strategic marketing plan

  • Franchisee:

Person or company which has bought the rights to market the franchisor's product or services. The franchisee receives: 1. The opportunity to build a successful business by using the company's trademark. 2. The rights to use an already established marketing strategy.

Q2. What Business can I start?

There are generally two basic types of franchise business start ups you can embark in. Each one of them has its own perks and is bound by specific business start up strategies.

  • 1. Product Distribution Franchising Format

The product distribution format reflects the fundamentality of product marketing and supply-dealer relationships. The franchisee receives the right to sell under the name of the franchising company and use its logo, yet, this franchise format rarely includes a complete business management package. Despite product distribution franchising represents the larger part of franchising businesses around the globe, most franchises available today are business format franchises.

  • 2. Business Franchising Format

The business franchises opportunities comprise a full set of operations management data, an already working strategic marketing system, extensive training and lots more. Depending on the overall business development and expansion plan of the franchising company, becoming a business format franchisee can provide a wide range of additional assets.

Q3. What are the Steps to starting a successful Franchise business?

There are numerous reasons why becoming a franchise business owner is a top priority for ambitious investors all around the world. Being your own boss has its own perks, but it is of great importance to follow a winning strategy when it comes to setting up your franchise business. Today, there is a franchise company operating in almost any business sector in the Southern Hemisphere and the other world-leading economies. Yet, in order for your business to grow, you need to strictly keep up your business strategy and follow a personal startup checklist.

Starting a Business Checklist

  • Make a background research of the franchising company.
  • Check the franchise fees and decide whether or not you will be able to grow your small business into a profitable company.
  • Get legal advice from lawyers and accountants specialised in franchising.
  • Research the specific niche and the locality of the franchising business you wish to start.
  • Choose the type of business you would want to run.
  • Finance and start your small business.

Q4. How to finance a Business Start Up?

Obtaining finance for buying a business can be difficult as the majority of the commercial banks have a long list of requirements which the prospective franchisee have to qualify for. Your credit rating is of great importance when it comes to getting a business loan. Partnering up with a franchisor which has history of successful franchise investments can sensitively increase your chance of getting a loan. In order to apply for bank financing, you need to present a complete list of documents featuring:

  • Verification of the source of your down payment
  • Personal financial statement
  • Copies of your personal tax returns for approximately three years.

Your choice of franchise can help or hinder your business financing opportunities. That's why, prior to partnering up with a franchise company, you need to carefully investigate the possible turnouts of your investment.

Take in mind the franchising fees and variable monthly expenses which can be the turning stone of your future company.

Franchisors who guarantee a prearranged booking schedule and minimal monthly income are said to represent a secure investment. By promising you minimum turnover for the first few months, such franchising agencies help you develop a well-established business which can pay off much faster than a regular company.

Special Considerations for Australian Business Franchises

Q5. What is the Franchising Code of Conduct?

The Australian franchising code of conduct is a mandatory industry code which applies to all the parties of a franchise agreement. It is regulated by the Australian Competition and Consumer Commission ( ACCC ). The ACCC investigates eventual breaches of the code and takes appropriate action when needed. The franchising code requires the franchising companies to provide prospective franchises with the following documents at least 14 days before signing in the franchising agreement. Required documents by the Franchising Code of Conduct:

  • Copy of the franchising agreement in its original form.
  • Copy of the franchise code.
  • Disclosure document featuring key information about the franchisor company which the franchisee may not be able to obtain otherwise.

Good Businesses start in Australia

Before jumping straight into planning, you must consider the type of business you will start. Choosing a profitable niche is not the easiest strategy, yet it is the only secure way to growing a profitable company. To clarify the country's franchise business performance, we will take a look at the Australian Franchise Report 2012 courtesy of the Griffith University.

According to the researchers, the continent's franchise business success has increased tremendously in the years between 2008 to 2010. Indicating growth of over 4 percent for the time after the World Financial Crisis, today, Australia's franchise industry has over 90 percent prosperity. Yet not every business type enjoys such a rapid development.

Statistics show the country's leading franchise business categories are administrative and retail industries along with support services, such as home care or professional cleaning. Yet buying a local cleaning business or diving heads-up into the retail industry won't guarantee you profitability if you don't take the required actions to secure a steady growth and acquire the needed finances to start the outset of your new business.

Key Takeways for Franchising

1. Before you dive into the world of franchising, you need to consider what are the pros and cons of your company's industry sector and target a niche where the market hasn't already been oversold.
2. Take your time to conduct a thorough research of the locality you plan on setting up your business in. Getting your company off the ground isn't an easy tasks, but a detailed market analysis and proactive thinking can help you launch a prospective business in a niche or locality others failed to conquer.

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By Expert commentator

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