There are many benefits to purchasing a franchise. One of the biggest advantages is that a franchisee purchases an existing business which is already known to consumers, that is, it has existing good will or value. This overcomes one of the largest difficulties faced by people setting up a new business, who often need to invest significant capital in marketing and promoting their business to attract consumers. With an established customer base, a franchise provides its franchisees with an excellent opportunity to potentially achieve a respectable cashflow from the outset and with a reduced upfront investment.
A second key advantage of a franchise is that the franchisee is not usually involved in the marketing of the business. This will be the responsibility of the franchisor, who receives a financial contribution from each franchisee. The franchisee can focus on its daily operations and, without the added stress of being involved in this process, the franchisee is provided with the potential to boost their profitability through the promotional campaigns employed by the franchisor.
There are however disadvantages and risks of purchasing a franchise. The main disadvantage is the dependent nature of the relationship between a franchisee and franchisor. Anything that has an adverse effect on the franchisor is likely to have a similar effect on the franchisees, for example, if the franchisor is involved in legal proceedings or has experienced a downturn in its reputation. The franchisee’s investment in the business is always vulnerable. Similarly, if the franchise operates from a store, the franchisor will usually have the sole power to negotiate an extension or renewal of a lease or for the sale and acquisition of the premises. These decisions could compromise the continued operation of a franchisee’s business.
If you are considering purchasing a franchise, the franchisor will be required to provide you with certain documents, including one which sets out the advantages and disadvantages of becoming a franchisee, a contract known as a Franchise Agreement which is a contract that will govern the relationship between the franchisor and franchisee and a copy of the Franchising Code of Conduct by which both parties will be bound. We recommend that you seek legal advice to ensure that you understand your rights and obligations and to assist in negotiating terms with the franchisee.
If you wish to speak to one of our Franchising Advice & Disputes Lawyers, please contact our firm by telephone on (02) 9233 4048 or send an email to info@navado.com.au.
This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.
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