Starting a franchise in Tasmania
If you're considering purchasing a franchise in Tasmania, here's what you need to know.
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Australia's only island state and the smallest distinct state in the country, Tasmania has a population lower than 500,000 people. Of that population, more than 200,000 reside in Hobart, with Launceston, Devonport and Burnie being other popular regional areas.
One of the more defining features of the business industry in Tasmania is that, due to its small size and correspondingly tiny population, businesses in Tasmania tend to enjoy low staff turnover and a close-knit workplace. Affordable land outside Hobart and abundant water resources have led to an agricultural industry that continues to grow in regional areas.
The Tasmanian state budget in 2015 extended the $20,000 First Home Builders Boost scheme and aimed to attract new businesses to the small state with an $8 million budget for that purpose.
What type of franchises might be successful in Tasmania?
The agriculture and food industries in Tasmania are well-established, and tourism continues to grow in the state. In 2016, more than 1.2 million people visited Tasmania, providing an estimated boost of more than $2.1 billion to the local economy.
People interested in purchasing a franchise in Tasmania could look to the franchise models that have proven to be successful in mainland Australia but that have yet to be launched in Tasmania. With the Tasmanian government proactively seeking to encourage new business start-ups in the state, 2018 may be an excellent time to purchase a franchise in Tasmania.
Tasmania continues to perform well in the areas of renewable energy and IT. Service-based franchises are tipped to be the strongest performance in the coming years.
Laws relating to business and franchising in Tas
In Tasmania, all business owners must ensure that they comply with state and federal laws. The Australian Competition and Consumer Commission (ACCC) administers the Competition and Consumer Act 2010 (CCA), which is the relevant federal legislation regarding business operations. The aim of the CCA is to regulate and monitor business trading so that it is fair for all parties.
Compliance with the Franchising Code of Conduct is mandatory for all franchisees and franchisors, and the Code is mandated under the CCA. In Tasmania, the ACCC is located on the 3rd floor of the AMP Building, 86 Collins Street, Hobart. The relevant state legislation is the Fair Trading Act 1990.
Loan options for financing a franchise in Tasmania
Costs of starting a franchise
Examples of the initial costs of franchises available in Tasmania at the time of writing, in April 2018, are as follows:
- Soul Origin is a fresh fast food franchise typically found in shopping centres and requires an initial investment starting at $300,000.
- Magic Hand Carwash is a combination car washing, car detailing and cafe franchise, requiring an initial minimum investment of $190,000.
- Xpresso Mobile Café is a mobile coffee van franchise, which requires at least $120,000 in initial investment.
How can I finance the purchase of a franchise in Tasmania?
It can be notoriously difficult to secure franchise financing for new franchise start-ups in Tasmania. Once you know the finance options open to you, you'll be in a much better position to set yourself up for finance success.
Secured business loan
A secured business loan is a common choice for new franchisees looking to fund their franchise venture. The lender will require residential property as security for the loan and will make their finance offer based on the strength of the valuation of the property, along with other considerations. The term of a business loan is typically between 25 and 30 years.
Unsecured business loan
A unsecured business loan is a type of loan that is offered by most alternative lenders and some banks, such as NAB. You will be able to apply for a maximum of between $250,000 and $500,000 depending on the lender and loan terms extend up to five years. Your eligibility depends on your business' turnover and time in operation.
With a franchise loan, you are borrowing against the value of the franchise itself, rather than putting up residential property as security for the loan. A franchise loan can involve a lower cash deposit and more flexible loan terms than a secured business loan, however some lenders will only lend up to 50% of the amount required to fund your franchise. The shorter loan term ultimately means that less interest will be paid over the length of the loan. However since the loan term is shorter than that of a business loan, the individual repayments will be higher.
For people who would otherwise find it difficult to obtain franchise financing, some franchisors have developed their own schemes to assist people to fund their new business venture. For example, Under Wraps is a healthy fast food franchise that offers a variety of financial services to potential franchisees, including financial lending packages for up to the full cost of a new franchise, in addition to equipment leases and the ability to pay franchise fees in instalments.
Frequently asked questions
Will my franchise start earning a profit straight away?
Just because your franchise is based on an existing successful business model does not mean that it will start turning a profit immediately. In most cases, it will take at least a few months of operation before a franchise becomes profitable. For this reason, it's essential that you factor this in when budgeting to ensure that you have enough working capital to pay your business and personal expenses for at least the first few months of operation.
Is it worth visiting a franchise expo?
If you're considering purchasing a franchise, it's a very good idea to visit a franchise expo if possible. At an expo, you will have the opportunity to speak directly with franchisors and perhaps even existing franchisees, while also getting a feel for the physical product or service you'll be selling. It can also be helpful to view your potential franchise in light of other franchise opportunities available, to see how it compares with its competitors in the franchise arena.
Should I obtain independent financial advice before purchasing a franchise?
Absolutely. While it's against the law for a franchisor to provide you with false or misleading financial data, it can also be easy to misinterpret financial data or to rely on a best-case scenario rather than a most-likely financial outlook. A reputable financial advisor will have the skills and objectivity to look past the emotional reasons for purchasing a franchise and provide reliable, independent financial advice on the viability of a franchise for you.
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