What is a Franchise Business

What is a Franchise Business

A Franchise Business is a business model where the owners of the business, the “Franchisors” sell the usage rights to their logo, branding, systems and procedures to independent business owners. These third party operators then operate the business in line with the systems provided by the franchisor.

It’s an exceptionally common way of doing business and is something that many business owners start their commercial careers doing.

Franchise businesses are available in a wide array of industries in Australia, with names such as McDonalds, KFC, Subway, Grill’d and others topping the list of household name franchise businesses.

Buying a Franchise Business

When buying a franchise business it’s important to be aware of the different cost structures and how the pricing works.

Generally there’s an initial fee to purchase the license to operate. This ‘gets you in’ so to speak. It purcahses the rights to the business, training materails and often the equipment to go along with it.

Then, after the business has commenced operating there is typically monthly fees paid back to the franchisor called a royalty payment, which typically covers maintaining the brand at the top level and often some marketing budget.

Once the initial fee is paid and the contract is signed, the franchisee will open business under the franchisors name. Typically the franchisee does not have a whole lot of control over the operation of the business as it is set by the franchisors business model. Often they don’t actually want that anyway as the whole purpose of buying a franchise is to not have to worry about how to run the business.

Control of the Business & Franchise

Typically the franchisor will require that the business model and operations stay the same, for the period within which the franchisee remains active. This is because they want the business to conform to the overall operation of the franchise.

This means things such as business methods, uniforms, logos, signage, branding, all must stay the same. It’s an important delineation here to remember the fact that the franchisee is buying the rights to the business method and business process, NOT the right to buy and resell the franchisors products.

Most of the time the pricing and promotions run by a franchise are set by the franchisor and must be mandated across all the franchisees to ensure uniformity. That way, if you get an offer and price at one McDonalds, the same price and offer is available at the next McDonalds. In some circumstances, due to either geographical or legal reasons, the pricing may change in different Franchises. This is due to the Franchisee having different restrictions on themselves.

Clearly there are huge benefits to using an existing franchise model. It’s proven and tested, so you know it works. It’s important to remember that you’re buying a right to do business in a particular fashion, NOT to resell someones product. This is a big difference.

If you are considering buying a franchise, it’s useful to talk to a lawyer first so you know what you might be purchasing and your legal requirements within that franchise.

If you’re looking for the perfect franchise business for you and your family, look no further than JAN-PRO.

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