whichfranchise.au - whichfranchise guide to franchising in Australia

Business franchise questions and answers - franchise advice

Question: We were forced to close down our franchise and had sent all the franchisor our stock to use while we sorted out all the mess our partner left us in. The franchisor used all our stock, profited from it and refuses to pay us for it. He said he will only give us store credit, but we don't want store credit, we want to be paid in cash the same way we had to pay for the supplies from his supplier. There is nowhere in the contract stating anything about store credit. It is what he wants, its suits him. Can he legally do this? The business ceased trading in nov 2008 and he still won't pay us.

Answer: In the absence of a contractual term that allows the franchisor to provide store credit you are entitled to be paid for stock sold or taken by the Franchisor at your cost price. They may, however, be trying to offset that amount against money they allege is owing by you to them which would be difficult to dispute. Robert Toth, Wisewould Mahony

Question: I have always been interested in owning my own business and I think it is time to start reseaching different options. My biggest problem at this stage and I'm sure many other people have the same issue is finance! I have recently obtained a loan to build my first home and have used all my savings for that. I now sit with no savings and a home that has no equity! What would be my options for financing a new business? If the Bank can't help is there a small business loaning scheme from the Government and what do you need to apply?

Answer: Always a tough question. With a standard small business the Banks will usually look to have some form of landed security to support the application.

With franchise finance it can be a little different. A Bank will accredit a franchise system and then lend a certain amount “unsecured” against the strength of that brand and the business entity you set up. However no Bank will lend 100% to assist in purchasing a small business whether or not a franchise. (“unsecured” usually means a mortgage taken over the business supported by personal guarantees but not supported by property).

Whilst it is a little too late now, sometimes it is better to use whatever deposit you may have to assist with the purchase of that business and look to build/ buy your home at a later stage. The rationale behind that is that your deposit is then income producing and if the business runs as you would plan it to, a little later down the track you may have been able to complete a house purchase supported by the income of the now set up business.

In relation to Government Grants/ support, there is nothing that would allow you to fund a 100% business purchase available

Greg Lawton, Commonwealth Bank

Question: When calculating an ongoing Franchise fee of 9%. We understand that this is after GST is taken out of the total sales. When paying the 9% franchise fee which we understand is a royalty, should I be charged GST on top? My Franchise agreement just states "9% of Adjusted Gross Weekly Revenue" with the definition of this being "the Gross Weekly Revenue in respect of the Franchised Business excluding GST and redeemed Gift Vouchers and other items specified in the Manuals.

Answer: In answer to your question:

1. GST is payable on Franchise fees as a general rule unless the franchise services are exempt as a financial supply. That does not appear to be the case with your franchise.

2 The liability to pay GST is determined by the agreement. In your extract and definition it appears that from the definition that you pay the 9% on the Gross weekly revenue amount which excludes the GST; however that’s not to say that you are not to pay the 9% plus GST. There will likely be a GST provision in the agreement towards the back which says words to the effect that if any supply under this agreement is subject to GST ( and as I have said the payment of Franchise fees as a rule is ) then you as the Franchisee are liable to pay that GST. If that clause is not in the agreement then the Franchisor has no contractual right to pass that liability on to you.

This issue is often raised and often misunderstood by Franchisees.

I suspect therefore that your Franchisor is charging you the 9% plus GST .This would make sense as otherwise they would only be entitled to the 9% less one eleventh which they would have to remit to the ATO and would receive net 8% roughly.

You should take some comfort that your position is revenue neutral in that you can claim back that GST in your BAS statement as an input tax credit.

Robert Toth, Wisewould Mahony

Question: There is a pet franchise for sale where I live in Melbourne, but after some research I found out that it is more expensive than opening a new one in a neighbouring town. I understand a lot of this will be to do with them having potentially a database of customers, but what are the other benefits? How do I know if should buy this or buy a new one?

Answer: There are many benefits to buying an established franchise. As you pointed out, they should have an existing client base who they should have a good relationship with, and a profitable business. Their accounts will let you see how profitable it is, or isn’t. If profitable you could be making money from day one. Read more

Question: I live in Queensland and I’m interested in buying a franchise. Which franchise would make me the most money?

Answer: If I knew the answer to this I would buy that franchise! It is not as simple as finding the franchise that makes the most money. A lot of the bigger franchises may make you more money but they also require a bigger initial and ongoing investment. You need to weigh up the pros and cons and outline what exactly you would be getting for you money and what the business would require from you. Read more

Question: Would a Nando’s franchise in Australia make me money? Is it a good franchise to buy into?

Answer: It is not as simple as finding a good franchise to buy into then sitting back and letting the money roll in! Only the franchise owner can determine the level of success they achieve. Even the best franchise in the world cannot make a bad franchisee money! Nando’s is reputable franchise that originated in South Africa. It came to Australia in 1990, initially opening in Western Australia, with presence now throughout Australia as well as the rest of the world. Read more

Question: What investment do I need to buy a McDonalds franchise opportunity for sale in Australia? What other requirements do they have?

Answer: The cost of buying a McDonald’s franchise will vary according to size of premises and location of the business. You will need to contact McDonald’s directly to find out the cost.

Buying a McDonalds franchise is not as simple as handing over the required cash. Even if you have the money for the franchise, they may not consider you right for their business. And equally McDonald’s franchise may not be the right franchise for you! Read more

Question: I live in Sydney and was interested in buying a coffee franchise. Does Starbucks Coffee franchise in Australia? What other coffee franchises are available?

Answer: We get asked this question a lot so best to address it with what Starbucks officially say on their website. Read more

Question: I’m considering buying a coffee franchise but I don’t really want to work in it. Is this a good idea?

Answer: Generally most coffee franchisors will be very reluctant to grant a franchise to someone who is not going to be actively involved in the business. Read more

Question: I’m thinking of buying a franchise – How do I find out what I need to know?

Answer: Let us presume you have narrowed down your choice and have selected the franchise that most appeals to you based upon your personal strengths and qualities. There is no substitute for hard work when investigating your franchise. If you were buying a house it would make sense to have a building inspection completed prior to handing over thousands of (dollars/pounds). So the answer here is to invest in professional advice. Do not treat this as a cost, but an investment. Read more

Question: I am considering buying an existing home-care franchise business. What are the key things I should be looking at?

Answer: Apart from the necessary due diligence of the financial, operational performance and growth potential of the business, an often overlooked element is ensuring you have adequate protection from the vendor starting a similar business [franchise or independent] in direct competition. Given these types of businesses rely heavily on close personal client relationships, and that a large part of your purchase will be the “good will” of the established network of clients, it is imperative that you have your solicitor include as a condition of the purchase some form of Deed which strictly prohibits the vendor from operating a similar business within your defined geographical region for a set period [say 3 years].

Graeme McCormack, FACTION

Question: Which franchise should I buy?

Answer: This is a very common question and sadly, one that can never be answered with a degree of certainty. Why is this so? The answer is simply because we are all individuals, and what appeals to one person and works well for them can be a living nightmare for someone else in the same circumstances. Read more

Question: I really want to buy a franchise but my husband doesn’t. Any suggestions?

Answer: Get a divorce! No, sorry, only kidding! Buying a new or existing franchise business involves making significant business decisions and taking risk, all of which could have profound effect on a person’s personal life and financial situation for better or worse, along with that of their wife, partner, children and/or family as a whole. Further, the operation and management of these businesses can be tiring, relentless and stressful. It should not be underestimated the strain and unexpected challenges owning a franchise business can have on personal and family relationships. If you are truly passionate about pursuing “your” dream of owning a franchise, my strong recommendation would be to engage the services of an independent franchise expert to discuss with you and your wife the process, challenges and potential pit-falls and rewards. This will enable both of you to make the most informed and united decision possible from the start.

Graeme McCormack, FACTION

Question: My partner and I want to start a new business as buyers advocates. We have the necessary experience and expertise but have not ventured into this particular area before. As we were doing our research we were approached by a company that we think is reputable and were offered a franchise arrangement. The details have not been discussed as yet. I would like to know how much money would be reasonable for them to ask of us and what are the main considerations we should be alert to? We are interested because it would save us from 'reinventing the wheel' and also give us much needed support and training.

Answer: Your question is not easy to answer. There is no scientific answer as to how much you should pay them. Rather, you have to make a judgment about the value of what they provide and whether the asking price is fair (and if you think it is not, don’t be afraid to offer to pay a fee less than what they are asking). Read more

Question: I am a Greek Cypriot and I live in Nicosia of Southern Cyprus which is a full member of European Union. What is your opinion about my interest in order to becoming the Master franchise of a carbon company which has its base in Australia? Do you believe that I will be successful in one of these businesses?

Answer: The area of Carbon Credits is one of mystery to most people and businesses across the World. To that end, if this area is to boom as many predict, then the time to "get on Board" is now.
For example, I would have loved to have been the first Macdonalds Franchisee!! Read more

Question: I am looking at purchasing a souvlakihut franchise in Sydney. At present we only have one Sydney location which is Gladesville. I had an initial meeting with them and although they don’t disclose too much information, they indicated that the profit margin which they aim for is 20%. This amount appeared a little low to me, however I have no experience in franchising. What is your opinion of a 20% profit margin?

Answer: I will assume that the 20% margin you refer to is the net profit margin – that is, the margin after expenses. Even assuming that, it is important to know what expenses are taken in to account before arriving at the margin of 20% - do expenses include a wage for the franchisee, or income tax? Read more

Question: I’m buying a franchise – am I set for life?

Answer: Unfortunately this is too often the expectation of a Franchisee, particularly those who have not done sufficient homework before deciding to enter their system of choice. Read more

Question: I found a franchise biz on the net which sounds very attractive. It's basically they supplying software to create homepage and as a franchisee, get sales and develop & manage clients' web site. But this head office is in UK, and it makes a bit hesitation that it might be a scam. What can you suggest me to prepare a research for this instance ? I really hope this franchise is genuine!

Answer: I suggest you contact the franchisor and ask them to send you information about the franchise. You can then assess the information they send you and try to determine if it is a scam. Read more

Question: I was in holiday recently in London and saw a food franchise that was a different concept and not one that I know of as being in Australia. If I wanted to bring a franchise from the UK to Australia, how does this work?

If the franchise is not as yet in Australia, there is the opportunity for you to become the master franchise owner for that franchise i.e. you have to sub-franchise to others in Australia. Or if they are looking for master for a defined territory e.g. per state, you would sub-franchise to those in your state. You ultimately would be the franchisor for that franchise in Australia/your state. As well as sub-franchising you may be required to run your own outlet. Read more

Question: I’ve just recently been made redundant from a job in the telecommuncations industry and have been looking at various franchising options. I want to try something different e.g. retail, but is this possible to do with a lack of experience in this type of business?

Unable to find a job that matches their previous income as well as aspirations, more and more people are using their redundancy money to invest in a franchise. One of the great things about franchising is that for the large majority of franchises available, you do not need any specific experience in that industry. As the franchisor wants you to become a successful and integral part of their network, they will train you in all aspects of running their franchise, THEIR way. Read more

Question: How much should you pay for a franchise? Why do some cost more than others?

When trying to identify how much should you, you need to look at what can you afford and what do you get for your money.

To work out how much you can afford you need to look carefully at your family situation and how much money you will need to live on. Work out how long you can live with no salary coming in, as this may be the case with the franchise you are buying (unless it is a franchise resale, you are very unlikely to be making money from day one) and then compare against how long you need to be running your business to make a profit. Read more

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