Starting a franchise in QLD
If you're looking to purchase a franchise in Queensland, you'll need finance. Here's what you need to know.
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Queensland boasts the lowest payroll tax in Australia which, coupled with the state's relatively inexpensive office rental costs and utility rates, makes Queensland an attractive location for a business start-up. Brisbane is known for its strong and consistent growth in the retail industry, in addition to business services, financial services, construction and health.
In other cities and towns in Queensland, it's agriculture and food that truly shine. Regional areas of Queensland are known for their high-quality, low-cost food production. In fact, Queensland is responsible for producing one third of the primary produce in Australia.
On the other hand, Queensland has some particular laws and regulations that make certain franchises difficult to run compared to other states and territories in Australia. For example, stringent laws regarding electrical appliance businesses, such as tagging and testing, make these franchises more difficult to get off the ground and more expensive to run when compared to the identical franchise model in other areas of Australia.
What type of franchises could be successful in Queensland?
The sheer size of Queensland and its agriculture-based industries mean that regional areas of the state need to be self-sufficient when it comes to the provision of goods and services. People within a regional area are often resentful of having to travel to another regional area or having to resort to using services in Brisbane simply because the product or service required is not available in their area.
Potential franchisees in Queensland are advised to look at franchises that have been successful in Brisbane and regional areas of Queensland, and then investigate other regional areas that may not yet have access to that product or service.
Within Brisbane itself, a range of franchises could be successful, especially those that complement the already strong retail and financial and business services industries.
Laws relating to business and franchising in QLD
Queensland businesses are subject to federal laws as well as state laws. The Australian Competition and Consumer Commission (ACCC) is responsible for administering the Competition and Consumer Act 2010 (CCA), which is the relevant federal legislation. The CCA is designed to protect the interests of businesses and consumers alike.
As part of the CCA, the Franchising Code of Conduct relates directly to franchise businesses. In Queensland, the ACCC has an office in Brisbane on Level 24, 400 George Street, Brisbane, and in Townsville on Level 6, Central Plaza, 370 Flinders Mall, Townsville.
The relevant state legislation is the Fair Trading Act 1989.
Loans suitable for financing a Queensland franchise
Costs of starting a franchise
The following are some examples of the initial costs of franchises that were available in Queensland at the time of writing in April 2018:
- Bridgestone Select is a tyre and auto service retailing franchise that requires an initial investment starting at $350,000.
- Plus Fitness 24/7 is a gym and fitness franchise that requires an investment of at least $240,000.
- Snap-on Tools is an American hand tool and power tool franchise that requires an initial investment of at least $150,000 for a new franchise.
How can I finance the purchase of a franchise in QLD?
If you've decided that a franchise in Queensland is the right choice for you, the next step is to find funding for your new venture. Consider the following franchise finance options.
Unsecured business loan
Many alternative lenders offer unsecured business finance without needing a property as security. You can generally borrow up to $250,000 although some lenders offer up to $500,000. Terms vary, but you will usually have up to five years to repay what you borrow.
Secured business loan
If you have appropriately-valued residential property that you can put up as security to fund your new franchise venture, a secured business loan could be the perfect option. The term of the business loan tends to be between 25 and 30 years, and you can borrow 50-100% of the value of the loan depending on the strength of your residential property and other factors. Note that the business itself cannot be put up as security for a business loan.
A franchise loan is similar to a business loan, with the major difference being that a franchise loan is not secured by residential property but is taken out against the value of the franchise itself. Some lenders will loan a maximum of 50% of the amount required. There are no preset credit criteria for approval and each application is considered on a case-by-case basis depending on the franchise, the industry and other factors determined by the lender. The lender will use their own criteria to place a value on the franchise you intend to purchase, and this value may not directly correspond with the purchase price that you have agreed with the franchisor.
Getting approval for franchise finance can be difficult, which is why some franchisors have created their own in-house programs to assist new franchisees to get started in their own franchise business. For example:
- Ferguson Plarre has been operating as a bakery for more than 115 years, and recently celebrated this milestone by offering ten successful franchise applicants a grant of $50,000 each. While this was a one-time offer, it is the kind of opportunity that franchisees can look out for with other franchise opportunities as well.
- Jamaica Blue is accredited with all four of the Australian Big Four banks and provides assistance to potential franchisees who need to apply for finance to purchase a new franchise.
Frequently asked questions
Will the franchisor take care of all marketing for my business?
The amount of marketing that the franchisor will provide may vary depending on the franchise, but it's almost guaranteed that you will still need to undertake some kind of marketing on your own, and at your own expense. The franchisor may take care of large-scale, statewide or national marketing but is unlikely to also provide local or community marketing specific to your franchise. In some instances, franchisees will pay an additional ongoing marketing fee to cover advertising and promotion. Ensure that you are very clear about what is covered in terms of marketing on an ongoing basis.
Will the franchisor hire staff and negotiate contracts for me?
While franchisors will typically offer extensive initial training shortly after the purchase of the franchise, you will generally be required to take care of the majority of business matters for your franchise in the long-term. Hiring and training of staff, negotiating contracts for utilities and services, and managing local promotions and marketing efforts are just some of the responsibilities that are typically fully borne by the franchisee.
Is there a difference between cash flow and profit?
Yes, and the distinction is a vital one for potential franchisees to understand. Anyone who walks into a fast food outlet can be forgiven for assuming that the franchisee must be making enormous profits, based simply on the amount of foot traffic and money being brought in. However, it is only once the outgoings and other expenses are considered that a business's true profit situation is known. Before purchasing a franchise, seek independent financial advice to understand the true profitability of a franchise and how that may differ from its perceived cash flow.
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