The franchise industry in Australia has a turnover of $172 billion as of 2022. It employs thousands of individuals across 94,524 businesses. Poised for 0.9% growth in 2023, the franchise sector undoubtedly presents lucrative opportunities for budding entrepreneurs. The added benefit is the structure of the business model, which makes owning a franchise and running it simpler than building a stand-alone business from scratch.
Nevertheless, there are a few things to keep in mind, like the financial aspects involving buying a franchise in Australia. This article sheds light on those.
Understanding the Financial Aspects of a Franchise Business
A franchise business for sale might come with a proven structure and marketing model, and the support of an already established customer base, but there are a few things on the financial side that one must keep in mind. Let’s explore.
Initial Investment
It starts with the initial investment, which is the amount you need to buy the rights as a franchisee. The cost typically depends on multiple factors, like:
- Size and location of the franchise business
- The industry that it belongs in
The initial investment covers:
- Franchise fee
- Equipment cost
- Inventory cost
- Cost of real estate
The franchise fee is an amount paid by the franchisee to buy rights of the franchise operating system, business model, and trademark. It varies from one brand to another, based on the brand value and annual turnover.
While the franchisor might offer support and guidance, the franchisee is solely responsible for covering the costs. It’s essential to keep these in mind before you start looking for franchises to buy in Australia.
Ongoing Franchise Costs
After you have bought and started running the franchise, you will have to cover ongoing costs as the franchisee, which cover:
- Space rent
- Utilities
- Marketing
- Payroll
- Ongoing franchise fees, like royalties
The ongoing fees cover a percentage of the profit earned from that franchise outlet. Other than that, you might also need to make additional investments, like buying new equipment and hiring more people to stay relevant in a highly competitive, market. If you can’t keep up with these expenses, it can impact the profitability of the business and reduce revenue.
Profit Prospects
There is no doubt that running a franchise for sale in Australia can give you the financial freedom that you desire. However, it is essential to keep up the revenue and profit margins, by staying mindful of the;
- The success rate of the franchise
- Local market trends and conditions
- Marketing strategies
- Your ability as a franchisee to run the business smoothly
If you do it right, you can expect to earn a consistent profit margin of at least 6-8%. Based on the brand value, that percentage will elevate further.
Conclusion
Before signing the papers of a franchise for sale in Sydney, you must be aware of the financial obligations, as mentioned above. It will help you make a more informed decision when choosing a franchise and running it eventually. For more insightful reads, subscribe to the leading franchise directory and magazine, https://www.businessfranchiseaustralia.com.au/.
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