Pros and cons of buying a franchise

Finance May 18, 2022

4 min read

buying a franchise
buying a franchise

Buying a franchise or making the decision to start your own business is a big one, especially knowing around 60% of businesses in Australia fail within the first three years. It’s why, for many people, the prospect of joining an established brand, whilst still getting to be your own boss, is so appealing.

And that’s where franchises come in.

Purchasing or buying a franchise can be an effective way of becoming self-employed without having to build your own brand. This article looks at the pros and cons of purchasing a franchise and the things your needs to consider before taking the plunge.

Pros to buying a franchise

  • Utilises a proven, existing and successful brand to sell a product or service to a particular area or district making your chance of success greater
  • New franchisees are able to gain a good understanding the earning potential and profitability of a particular site with insights provided by the franchisor on comparable locations
  • If you have a limited amount of experience within that particular sector or industry, full training and ongoing support is often provided along with a ready-made business plan
  • Ability to obtain finance can be easier then funding a non-franchise start up, some banks can extend lending against the brand or site itself
  • You can speak to other franchisees within the group, get their guidance and learn from their mistakes

Cons to buying a franchise

  • Purchase and start-up costs can be high including the purchase of a location, premises and specialty equipment
  • Ongoing franchise fees can be significant and often you have a limited say in
  • Limitation to your product offering, no room to diversify outside of the agreed range of products or services that you can offer
  • There are set rules and regulations around suppliers and stock, they generally need to be sourced through an existing supply agreement decided by the head franchise
  • There is no guarantee of success in any business and the if there are issues at the franchise level with the brand, you may be vulnerable if there is bad publicity and the like

As with any business or investment idea you have, there are going to be certain elements which are going to be great and others which are not. Different franchisors may offer quite different terms and conditions, so it’s important to conduct your due diligence before jumping in.

Having an experienced finance broker can be very beneficial. We work with lots of different businesses and franchisees who are seeking finance, we often review business contracts and help prospective business owners with their due diligence.

Get in touch with a franchise finance specialist today.

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