Want to be a franchisee? Are you buying yourself a job?

Own your own business by buying a franchise

Many people have the dream or desire to own their own business, and many achieve this by buying into a franchise system. There are many kinds of franchise systems to choose from across a range of industries and they can vary in terms of size, initial investment amount, ongoing support, ongoing cost or expenses, and their franchise network size. Some are local, or originate from Australia, while others come from overseas. If you think of some of the big brand names, you’ll probably know them or at least you’ll be familiar with what they do.

Unfortunately, all too often I see people who buy franchises who have little to no understanding of why they are buying a franchise, or what the implications or consequences of buying that franchise means for them. Sometimes it also means that they think they’re buying a business, but instead they’re just buying themselves a job.

Of course there’s nothing wrong with a job, or to be gainfully employed in any form or another, but if that’s not your original goal – then it wouldn’t be the best decision for you, or the best way to achieve what you really want in the first place. I appreciate that this issue is the same faced by any kind of small business and now I find myself quoting the ‘Entrepreneurial Myth’ or the ‘E-Myth’. There’s always a risk that if you’re in small business then you may find yourself working IN the business rather than ON the business, and for the purposes of this article, by working in the business then you’ve really just got yourself a job.

In fact, the unfortunate end result is that you may actually be worse off in ‘your own job’ than having some other form of paid employment. As your own employer, you’ll probably find that you’re not going to get the same kind of employment benefits that you’d get if you’d worked for someone else. Would your boss even pay you at all? All too often, being self-employed means paying yourself after everyone else. So who are you going to blame now? Of course I’m not trying to discourage any budding business person out there, but rather highlight the reality of the situation that many people in small business face all the time (and I’m no exception to the rule).

Rightly or wrongly, some franchisors will question their franchisees’ intentions for buying into their franchise – and some franchisors will even reject applications from franchisees if they determine that the intended franchisee is only ‘buying a job’ but has no or limited intentions of building a business. After all, most franchisors are focused on building their franchise business and brand and need to have franchisees who not only share that vision but are also actively building their franchise empire for them.

So the key questions for you are – why are you going into business and why are you buying a franchise business? Sometimes these questions aren’t asked, yet the answers are very important to determining whether buying a franchise is right for you.

What kind of expenses am I expected to incur when entering into a Retail Lease?

We get this question a lot and it’s a tough one to answer! Not because we can’t – it’s just difficult to answer such a general question. There is no hard and fast answer to this question as it will depend on a large number of factors. In addition to rent, there are all sorts of costs that you would have to incur when you enter into a Retail Lease. These are both ongoing or one-off. Generally however you would incur the following outgoings:

  • Rent
  • Water Rates
  • Local Council Rates
  • Land Tax
  • Electricity Rates
  • Local Council Parking Levies (if premises offer council parking)
  • Local Council Outdoor Seating License (if premises have outdoor seating)
  • Public Liability Insurance
  • Glass Replacement Insurance
  • Building Administrative and Maintenance Fees(if premises is part of strata)
  • Marketing Fees (if premises is part of a larger shopping complex)

Outgoings will change depending on:

  • Floor space
  • Location
  • Value of the premises
  • Equipment on the premises
  • What you are doing

The above is a non-exhaustive list of matters. As stated there is no hard and fast answer to “what is expected” and “how much” it is expected to cost as these matters will change depending on where you want to lease. This is a matter for homework and you’ll likely get these answers once you’ve properly investigated the location of where you want to lease. But this isn’t a chicken and egg dilemma – in NSW the Retail Leases Act says that the landlord of retail premises must issue a “disclosure statement” to all potential lessees that sets out what these costs are before the lessee enters into the lease agreement.

Retail Leases can be complex – if you are entering into one, give us a call and we’ll guide you through the process and assist you with your transaction.