Starting a franchise in SA
If you've always dreamed of opening a franchise business in South Australia, here's what you need to know.
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With a population of over 1.1 million, Adelaide is the fifth largest city in Australia. Renowned for its relaxed lifestyle in a competitive business setting, Adelaide has one of the best mixes of family and business life in Australia. Other highly populated areas of South Australia include York Peninsula, Barossa, Murraylands and Clare Valley.
A major reform to business and commercial stamp duty was announced in South Australia's state budget in 2015. This reform affects franchises since the reform sought to abolish stamp duty on all non-real property transfers, including business transfers. Stamp duty on the transfer of commercial properties is intended to be phased out in the coming years.
What type of franchises could be successful in South Australia?
Following the reform to South Australia's stamp duty regime, there has never been a better time for people to open a franchise in Adelaide or in other areas of SA. With stamp duty in other areas of Australia averaging around 4.5%, potential franchisees in South Australia can take advantage of these substantially reduced costs when purchasing an existing franchise.
The government thought that the previous business stamp duty rates were an impediment to people who would otherwise have opened franchises in South Australia, leaving many areas under-resourced and lacking access to franchise businesses that people might otherwise have opened. Potential franchisees could look to these lower start-up costs for franchises in SA and take the opportunity to open a franchise in a new area at a substantially reduced start-up cost.
Laws relating to business and franchising in SA
All franchises and businesses in South Australia are subject to both state and federal laws. When it comes to federal legislation, the Competition and Consumer Act 2010 (CCA) aims to achieve an efficient and fair marketplace through good business practices. The Australian Competition and Consumer Commission (ACCC) enforces the CCA as well as the Franchising Code of Conduct, a mandatory industry code.
In South Australia, the Fair Trading Act 1987 is the relevant state legislation.
Costs of starting a franchise
Some examples of initial costs for franchises currently available in South Australia are as follows:
- Hudsons Coffee is a well-known coffee and cafe franchise and requires an initial investment of at least $350,000.
- EmbroidMe is a full-service business-to-business marketing franchise that specialises in corporate branding and promotional products, which requires an initial investment of at least $200,000.
- Worldwide Printing is a design and print franchise with an initial investment requirement of at least $150,000.
Loans to consider for financing a franchise in South Australia
How can I finance the purchase of a franchise in SA?
When you're ready to pursue finance for your own franchise in South Australia, you'll need to know the different finance options open to you.
Secured business loan
In addition to requiring residential property as security for the loan, some lenders will also require a fixed and floating charge over commercial property, a director's guarantee or even an external guarantor to secure the loan. In return, the lender will offer you a loan term of up to 30 years, with a loan amount typically from 50-70% of the amount required, but potentially up to 100% depending on the strength of the franchise and the value of the residential property.
Unsecured business loan
Many alternative lenders and some banks now offer unsecured business loans. Generally, you will be able to apply for up to $250,000 with an unsecured business loan and terms can extend for up to five years.
Lenders view a franchise loan as a bigger risk for lenders because, unlike a secured business loan, you are not offering a residential property as security for the loan. As such, the business loan amount will typically be from 50-70% of the purchase price of the franchise, and approval will ultimately depend on how the lender views your creditworthiness and the creditworthiness of the franchise. The term of the franchise loan will depend on the initial term of the franchise agreement, which is unlikely to be longer than ten years.
Some franchisors offer different schemes to assist franchisees to fund the purchase of a franchise.
- Mail Boxes Etc. provides printing, design and shipping services to businesses. Potential franchisees can take advantage of their finance program which will assist with up to 50% of the funding needed to purchase the franchise.
- Fibonacci Coffee offers a pay-as-you-go program for potential franchisees to help them purchase their own cafe, kiosk or cafe and bar franchise.
Frequently asked questions
Who will resolve a dispute that I may have with the franchisor?
If you have a dispute with the franchisor that cannot be resolved through direct negotiations, the Franchising Code of Conduct states that both parties must attend mediation to try to resolve the conflict. If mediation is unsuccessful, the parties can resort to litigation. However, this is rarely necessary as mediation has proven to be a highly effective means of dispute resolution.
Do I need independent advice even if I already know which franchise I want to purchase?
You should always obtain independent legal and financial advice before purchasing a franchise, regardless of the circumstances. If you've had your heart set on a particular franchise for any length of time, there is even more reason for you to obtain independent advice as your desire to operate a particular type of franchise could cloud your objectivity.
What is a franchise agreement?
When you agree to purchase a franchise, you are entering into a legally binding contract known as a franchise agreement with the franchisor. Franchise agreements can vary in length depending on the type of business and the complexity of the franchise arrangements, but all franchise agreements must contain the same set of information, including the rights and obligations of all parties.
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