Buying a small business franchise can be a fantastic investment for an aspiring business owner. This is not to say that all franchises are guaranteed success – but with good research and the right franchise, you can reap amazing benefits.

Like anything, one of the hardest parts of running a business is getting started. You may lack the expertise to get off the ground, or maybe you don’t want to spend months getting the word out about your new business. But with a franchise, you get to skip the start-up phase and build upon an established and solid foundation for your business. 

A whole range of benefits come with buying a small business franchise, including the influence of an established brand, the ease of making your first sales, the access to supplies, the avenues to securing financial help, and the network, mentorship, and support from your instructor. 

While buying a small business franchise can be extremely beneficial, it is not all black and white. There are still risks involved in any small business, so it’s important to do your due diligence on any potential franchise purchase. 

To see the most success from your investment, you need to thoroughly understand the franchising model and what it involves. This article will take you through the pros and cons of buying a small business franchise. 

What is a Franchise & How Does it Work? 

A franchise is a licence or permit that allows a franchisee to access a franchisor’s brand. This licence includes access to the proprietary knowledge, processes, systems, and the associated names and trademarks of that brand – in essence, tapping into everything the brand is known for and has built its success on. 

In exchange, the franchisee will need to pay an initial upfront fee, as well as royalties and other ongoing fees throughout the contract. In exchange, the franchisee is able to trade under the franchisor’s brand name, with the benefit of ongoing leads, resources and support. 

The initial franchise fee typically covers the cost of obtaining the necessary licenses or lease, fit-outs, training, and recruitment. This is basically the cost of starting up the business to the franchisor’s standards. 

Once the business is set up, the royalties or ongoing fees are paid to the franchisor. This expense covers the ongoing benefits received from the franchisor’s brand. The cost will vary between franchise types, as the level of benefits a franchisee receives will be different for each brand. Ongoing fees also depend on the franchisee’s gross revenues – for instance, a percentage of revenue passed on to the franchisor. 

 

Luckily for Australian franchise businesses, the Franchising Code of Conduct firmly states that all franchisors must disclose all costs associated with buying their franchise. This aims to give complete transparency and protects the franchisee from hidden fees. 

However, it’s still important to do all the research upfront and ensure your franchisor is trustworthy before going into business. You should always feel completely confident you understand what fees you’ll pay and what benefits you’ll be receiving in return. 

Franchise Ownership Models 

 

In addition to understanding the costs of starting a franchise, it is important to be aware of the various ownership models and arrangements. 

 

  • Single-Unit Franchise Ownership – This refers to the ownership of one franchise in one location. The business can either be owner-operated or owner-supervised. This ownership model is low risk and allows the owner to manage the company at their own pace.
  • Multi-Unit Franchise Ownership – This means that a franchisee owns multiple units of the business, usually in the same area. This can be an owner-supervisor situation and a great way to expand, or it can be run by an investment company. 
  • Area Developer Franchise Ownership – This is like multi-unit franchise ownership, but over a larger territory. This is usually the territory of corporate owners who take over all stores or teams in a certain region.
  • Master Franchise Ownership – This type of ownership allows you to sell sub-franchises to other potential business owners. This is an excellent way for keen franchise owners with a passion for business to take on greater responsibility, including being a Master Franchisee for a franchise division, state or region. 

Pros & Cons of Buying a Franchise 

Pros of Buying a Small Franchise Business 


Builds on existing consumer trust 

There are so many advantages to buying a small business franchise. One of the greatest of these has to be that you get to work with an already established brand. This makes you more trustworthy to customers who feel a sense of familiarity with the franchise. Your first bookings are much easier to secure with one foot already in the door. 

You don’t have to worry about marketing from scratch to attract new customers when buying into a franchise. Instead, you only have to focus on converting and retaining them. This frees up your valuable time and funds to focus on other aspects of your business. 

 

Harvard Business Review reports that attracting new customers can cost 5 to 25% more than retaining existing customers, so tapping into existing brand ties means a lower cost-to-convert. 


Systems and processes are already established

Working with a franchise model also means that business admin and operations systems are already set up and ready to implement. This saves you valuable time and energy in the start-up phase, as you don’t have to set your new business up from scratch. When it comes to day-to-day operations, using tried-and-tested methods rather than time-consuming trial and error can make starting your business a much smoother (and less costly) experience.

In the same boat, branding and marketing tools are also ready to put into action from day one. This eliminates the usual costs of doing market research, branding your business, and establishing all your marketing communications. With so much of the work done in advance, buying a small franchise business is often more cost-effective than starting an independent company. 

 

Less risk than starting from scratch 

Research shows there is a lower failure rate when buying a franchise as opposed to starting an independent business. The decrease in risk is a significant factor for people who decide to venture into a franchise. But always take this with a grain of salt, as all business success is only possible with drive and persistence. Going into business always involves some risk, but buying a franchise helps you anticipate, minimise and manage key risks that often lead to small business failure. 

 

Built-in support networks 

When you buy into a franchise, you also get access to experts and advisors who will support you throughout your business journey. So if you are new to the business world or have a hard time finding your footing, you will always have a mentor to guide you. Again, this generally decreases the risks involved with new businesses because there is plenty of knowledge there to tap into. 

You get to enjoy not only the resources and training provided by the franchisor, but also a ready-made support network from the company’s other franchisees. Joining this community can get you access to valuable advice that will further reduce risk and help you avoid mistakes as you get your business off the ground. 

 

Easier access to financing

It’s often easier to secure finance for a new business when buying a franchise compared to launching an independent business. This is because you’ll be attaching yourself to an established brand, so banks and other lenders will consider your request less risky. The franchisor may even have finance options available to help you get started. 

Working within a franchise system also allows you to tap into the buying power of your franchisor. This usually allows you to buy supplies in bulk and save money on materials and operating expenses. 

Cons of Buying a Small Business Franchise 

Rules, regulations and standards 

One disadvantage of buying into a franchise is the limitations you may face because of the franchise’s standard ways of operating. Many of these rules will be non-negotiable and will generally relate to branding, pricing, signage, decor, marketing, products, services, and more. 

If you’re keen to get creative with your business, buying a franchise may not be ideal for you. However, all franchise agreements will be different, so you should definitely clarify upfront how much freedom you’d have as a franchisee and where you’re able to do things your way. 

Initial fees and ongoing costs

When buying into a franchise, there is an initial fee involved in purchasing the rights to use well-established systems and processes for your own business. There will also be ongoing costs involved with running your franchise, and quite often, these costs are set in stone and cannot be deviated from. This means you will have to stay on top of your budget and manage your business finances well.  

However, remember these costs typically pay off in the long run and offer extensive value for the business owners. Just be sure you fully understand the costs involved before entering into a franchise, and have your accountant or financial advisor check out the contract as well. 

Shared reputation between both parties 

While tapping into your franchisor’s reputation can be a benefit, the reality is that you’ll have ongoing ties to this brand. That’s why you should be sure to choose a franchisor with a strong, reliable reputation. This means you’ll also have to make sure you don’t damage the reputation of the brand, including the way you conduct your business online and offline – for instance, when responding to customer complaints. For that reason, it’s important to act with integrity and professionalism when representing your franchise. 

Communication barriers 

You will have to maintain strong communication with your franchisor for the duration of your business contract. This includes transparency about your finances, as well as staying in touch with any important updates and marketing changes. Communication can prove difficult with overseas franchisors, for instance, especially when there are time differences and complex issues to discuss. It is very easy for messages to get lost in translation, so choosing a local franchisor or ensuring clear lines of communication with higher-ups is important. 

Potential for contractual issues

When you buy a franchise, the contract typically runs for a set length of time, and if your business performance isn’t up to scratch, there is always a risk that your contract will not get renewed. This can also work in reverse, as you may face barriers if you wish to end your business within the contract term. 

For that reason, it’s important to know upfront what your options are and to have an exit plan prepared – for instance, if you decide to sell the franchise, what are your options and what are the costs involved? It’s a good idea to have a legal professional look over the contract and ensure your exit plan suits the contract terms. 

Buying a Franchise vs Starting a New Business

If you have ever thought about diving into the business world, you have probably asked yourself whether it is better to buy into a franchise or start your own business. The answer to this question is not clear cut and will be individual to each person’s circumstances. However, besides the pros and cons above, the following information may help you decide. 

The difficulty and complexity of starting a new business will baffle most business newbies. There is so much to consider, and it can be extremely challenging to start such a mammoth venture from scratch. This is the key reason many people choose to buy a franchise instead. The ease of getting started is hard to pass up. With products, services, systems, training programs, marketing and a reputation already in place, you can skip past many of the beginning steps of creating a new business.
 
A new business is also more financially risky. If you have the capital or the borrowing capacity, you’re likely to get the return-on-investment from a franchise since it already has an existing client base. You don’t have to spend money on getting people through your door – in fact, customers will come to you because your brand name is already established and credible.

Though both provide learning opportunities, the learning curve is steeper when starting a new business. A franchise will give you access to mentors and a network of existing franchisees with years of experience in the industry. The troubleshooting manual already exists in a franchise if you run into problems.

However, if you have a reasonable amount of business knowledge and are ready to put in the hard yards to get a new independent business off the ground, it is very possible. For those who have very strong ideas and plans for exactly what kind of business they want to operate, you may struggle with the restraint of a franchise. If you crave creativity and flexibility, starting your own independent business may be the best road for you. 

If you are ambitious and have your own clear business model in mind, starting a new business can be a better avenue to bring your dream to life. With a franchise, you’re already riding the wave. But with a new business venture, you have to create your own wave. 

If your business idea depends on building everything from the ground up, starting a brand new business will be the path for you. However, remember that a successful business does not come easily – especially when starting from scratch. For those who have little or no experience running a business, a franchising model can give you valuable training and learning opportunities. 

Statistics show that 20% of new businesses fail in the first year, and this increases to 50% by the two-year mark. Particularly if you don’t have experience, there can be a lot of risk in starting the independent business of your dreams. On the other hand, buying a franchise gives your venture a better chance of surviving past those critical early years

Buying a Franchise vs Buying an Independent Business 

If you are interested in running a small business of your own, you may also wonder if buying into a franchise or independent business is better. 

If you opt to buy an independent business, you will have a lot more creative freedom. Once purchased, the business will be yours, and you can operate however you please. This is an excellent option if you have a variety of fresh new ideas you want to implement into your business. You don’t have to limit your imagination, as all the choices and decisions made about products, services and branding are ultimately yours. 

On the other hand, customisation is limited in a franchise. There is less margin for flexibility compared to independent businesses, as the franchisor will lay out the products, services and branding for you. This can be a big deal when the business is in an area with a unique local culture or very specific needs. In that case, an independent business may have more chances for success in that neighbourhood, since it can tailor its services to the territory.

Independent businesses also run at their own pace and decide their cash flow. This could be a good thing or a bad thing, depending on your current resources and how much you want to commit to the business. If you’re looking to start small and slowly scale up, or balance another career with part-time business ownership, a franchise may not be the right choice for you. 

That’s why it’s important to decide first what kind of business you want to run and how it fits into your lifestyle. Do you want to invest in a passion project (independent business) or a sure cash cow (franchise)? Are you looking for a part-time side hustle or will business ownership be your full-time occupation? 

That being said, there are definitely increased financial risks with buying an independent business. The revenue stream will not be as stable as a franchise, and you have minimal fallback options, as well as lacking the support system that comes with a franchising model. Once that business is yours, you’ll be making all the decisions yourself, without the training or ongoing mentorship offered by a franchise network. 

We have already discussed all the benefits that come with buying into a franchise. Ultimately, you will have to weigh up the pros and cons of purchasing an independent business and choose whichever resonates with you the most. 

Is Buying a Franchise a Good Investment? 

Like any small business, there are risks involved in buying a franchise. But that is not to say it is not a worthwhile investment, especially with plenty of research and due diligence. In fact, buying a franchise allows you to predict return on investment much more reliably than starting a new business. 

One of the most important factors that will influence the outcome of your investment in a franchise is the parent company’s management. You will need to find out how well the franchisors support their franchisees and how much they assist with critical areas like marketing, lead generation and promotion. One way to do this will be to talk to previous and current franchisees, to find out what their experience in the business was like. 

It would be naïve to expect that all franchises equal guaranteed success. To better evaluate if your chosen franchise will be an excellent investment, you will also need to consider how well that particular service will perform in your local market. If your research shows that the product or service offered by your franchisor is underrepresented in your region, then it could be a worthwhile investment. 

However, if you have a high number of competitors for the same product or service, you will want to be confident you can find a steady enough client base for long-term success. This is where the strength of the franchisor’s branding can make a big difference, and if the franchisor can demonstrate how much market demand there is in your service area, this can provide you with more security going forwards. 

What Is My Role as a Franchise Owner? 

Your roles as a franchise owner will depend largely on the contract between you and the franchisor. Generally speaking, on top of the ins and outs of running a small business, your roles and responsibilities involve complying with the standards of your franchisor

That includes following the franchisor’s systems and processes, implementing their marketing material, and maintaining the brand’s image. You’ll also have to maintain regular communication with your franchisor and participate in any required reporting – for instance, financial reports. 

Should I Buy a Franchise in 2022? 

In the current Australian business environment, many small ventures are struggling more than ever to maintain consistent revenues. However, service-based franchises are currently experiencing high demand. Therefore, now seems like a pretty great time to buy a franchise.

Many people whose regular employment has been affected are looking for an investment where they can get a high ROI, as well as securing their medium-to-long-term employment. Being your own boss can be a very appealing scenario when you’re looking to gain more stability and even provide employment opportunities for family members. 


There’s one big advantage of buying a franchise business in 2022: you can leverage brand equity. With a franchise, you don’t have to start from scratch; instead, you will benefit from tried and tested systems and brand names. You can also tap into the training, support and resources provided by your franchisor. 2022 is an excellent time to connect, build a professional network, and get that much-needed support post-pandemic.

It can also be less challenging to get financing from banks or lenders when buying a franchise, compared to starting an independent business. 2022 is when many people are getting back on their feet, but banks will trust franchisors that remain steadfast and have a very strong brand reputation. 

Now, if you’re still asking yourself ‘should I buy a franchise?’ here are some general tips for you.

 

  • Assess your reasons for wanting to own a franchise. Being a franchisee might not be ideal for you if you want to be an entrepreneur as customisation and flexibility are lower. If you want to learn business skills under the mentorship of a franchisor you look up to, then it may be the perfect choice for you. 
  • Ask yourself whether your lifestyle and income can allow you to operate the business. Do you currently have a full-time job you want to keep? Consider who will manage the franchise day-to-day and how you’ll finance the upfront costs.
  • You’ll need adequate borrowing capacity or capital to purchase a franchise, so consider your financing options. Weigh up how a franchise business fits into your long-term investment strategies or retirement plans. 
  • Buy a franchise you fully understand or are willing to research thoroughly. Due diligence is important as not all franchises are sure to make a profit. Check the franchisor’s systems and support resources to ensure you’re getting good value.
  • Seek advice from legal practitioners and accountants before signing an agreement. Make sure you understand every detail in the contract, especially your responsibilities in paying royalties and ongoing fees.


What Small Business Franchise Should I Buy? 

At the moment, the demand for household and commercial services remains extremely high. As a result of this demand, small business franchises in the trades and services industry offer fantastic returns for eager owner-operators. Let’s look at some benefits of these service-related franchises.

If you’re looking to buy a cleaning franchise, there is very healthy demand and plenty of room for growth. A cleaning business allows you to not only tap into residential work where you will clean homes, but commercial properties who also outsource their cleaning needs. You can also run a cleaning business from home until you reach the revenue needed to move into a dedicated office. 

With a cleaning franchise, there are plenty of opportunities to specialise in niche services, like carpet cleaning, bin cleaning, and window or blind cleaning.

Another franchise niche worth looking into is home and garden services. There is consistent demand for trades and maintenance work, such as plumbing, electrical, mowing, and pool care. These are in demand by both homeowners and commercial properties, and since these services need carrying out on a regular basis, there’s the potential to build a loyal long-term client base. 

Related Questions

Is Buying A Small Business Franchise Risky? 

There is always risk involved in any business venture, but managing these risks through planning and due diligence is very possible. Always be sure to check the management system of the franchise you’re interested in. How do its current franchisees view the parent company? If the franchisor gives extensive support to its franchisees and actively aids their growth, then buying a small business franchise becomes less risky, and there’s a much higher chance of long-term success.