When you decide to become a business owner, there are a few options you can choose to pursue that goal. You can start your own business from scratch, buy an existing independent business, or buy a franchise.
Your original motivation for becoming a business owner will be a key factor affecting which option you choose and there are many pros and cons associated with each option.
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However business format franchising is a very successful and rapidly growing way of doing business in Australia, with 1,180 franchise systems established and total franchisee numbers growing 8% each year, indicating more and more start-up business owners are choosing franchising over independently owned businesses.
Here are my top five advantages of choosing franchising:
1. Proven business and results
Established and recognised franchise systems are by their very nature less risky than starting up your own business.
The business format franchise uses a comprehensive system for the conduct of the business, which includes elements such as business planning, management system, quality of goods, location, image and appearance. Standardisation, consistency and uniformity across all aspects are hallmarks of the business format franchise.
Franchise businesses bring the added benefit of generally being proven several times over by different franchisees. Generally the franchisor has tried and tested different approaches to get the best results.
You should take advantage of this information and ask to see example financial results of the best, worst and average performance of franchisees in the group, to have a clear understanding of what you can actually expect to achieve. While it isn’t a guarantee that you can expect the exact same results in your chosen territory or location, it is real information you can use in your decision-making, planning and to obtain any crucial funding you might need.
Some franchise groups also have accreditation with banks that smooths the path to obtaining those funds. Other groups also guarantee a level of income while you establish your site and start building a consistent revenue stream.
Establishing your own business from scratch is a riskier premise, as your product, service and business model are unproven.
Many business owners have overly optimistic expectations about the market’s response to their offering, costs to bring it to the market, anticipated financial results and timeframe to see them come to fruition. The reality may be somewhat different to those expectations.
Starting your own business means you need to decide and develop your brand and create awareness of it in the market. Building and maintaining this, takes time.
Most established franchise systems have well-recognised and established brands, making it easier for the franchisee to get started and grow successfully. Recent statistics show that franchise groups are 30% quicker to become cashflow positive and on average experience double the success rate when compared to independent small businesses in terms of growth and failure rates.
Given that the median number of franchisees per franchise group across Australia is 22, it’s not hard to see why. Those franchisees are hard at work making the product and service known and accepted by the market and building the benefit of consistency, which can be leveraged by incoming franchisees.
As part of the franchise arrangement, most franchisees are also required to contribute to a central marketing fund. Ongoing marketing activities are often delivered by the franchisor, allowing the franchisee to gain benefit from coordinated and widespread marketing campaigns.
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