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The Advantages And Disadvantages Of Franchise Business In Australia

1479 words - 6 pages

Franchising is an exciting business format and marketing method. When it is properly structured and well run it provides benefits and satisfaction for both franchiser and franchisee. It is said that there are 44,800 franchised outlets and 730 franchise systems in Australia --- more per head of population than any other country. According to the University of Southern Queensland survey, the franchise system turnover is currently $81.4 billion expanding by 17% compound growth per annum. Furthermore, franchising is 2.5 times more successful than non-franchised business in Australia and only 0.7% of franchisees in serious dispute with the franchiser. All the figures above show that there are ...view middle of the document...

Furthermore, the bulk group purchasing power is available to the franchiser. It pulls resources into one major group and the franchisee receives the benefit from it.The main advantage of a franchise is that the franchisee¡¯s lack of basic or specialised knowledge is overcome by the training program of the franchiser. The franchisee does not need small business experience to join a franchise because the franchiser provides a range of services and support to the franchisee. Possibly, the franchisee reaches the same as, or greater than the goals the franchiser has achieved. The franchiser gives help for the site selection, identification of trading location, as well as complying with planning laws and preparing of plans for layout and shop fittings. Moreover, the franchiser provides the training of the franchisee and the staff in the operation of the business format, the provision of an operational manual, the method of accounting, management skills, marketing promotion and so on. In addition, the franchiser supports the franchisee in purchasing the equipment and helps to obtaining finance for the establishment of the new business.There are another advantages of a franchise business. The franchisee receives the benefit of the franchiser¡¯s continuous research and development programs, which will improve the business and keep it updated and competitive. As a matter of fact, all the franchisees contribute funds and knowledge and they are available for the whole franchise network. What is more, comparing with the non-franchised business, the banks prefer to lend more financial sources and terms to the franchisee because of the recognition of his/her franchised business.It is said that franchising will be the main business model of the 21st century and it shows no sign of a decline. However, the success of franchising is based on attentive research and the franchisee¡¯s hard work. Furthermore, the establishment of a franchise has to be undertaken with skill, patience and capital.As a potential franchisee, the disadvantages on operating a franchise should be carefully considered. The financial management of the business is the major problem of a franchise business.The franchisee should ensure that he/she has adequate borrowing capacity, including working capital, to successfully establish the franchise business. The franchisee will have to pay the franchiser for the services provided and for the use of the system --- the initial franchise fee and continuing franchise fees. Franchises may be purchased for a starting price from $15,000 to $200,000 or more. The initial average start-up cost of an Australian franchise in 1998 is $105,000 including $25,000 initial franchise fee and $ 5,000 for pre-opening training. The continuing franchise fees, which are known as ¡°ongoing fees¡±, may be a fixed monthly amount or calculated as a percentage of the turnover. It is said that the fixed monthly amounts may...

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