In our series of posts on franchises, we have covered an abundance of reasons why people might buy a franchised business, such as buying into a replicable system, or corporate image and brand, or the fact that the business is already up and running – and we’re not even done yet.
Workface has a number of exciting business opportunities in growth areas like work health and safety, bookkeeping and VoIP, available to the right entrepreneurs, which is why we thought it’s about time we talked about territories, which is a pretty important factor to consider when you’re thinking about buying a franchise.
In this day and age, there’s a pretty good chance that, unless you’ve invented the next Internet, your business is probably going to be in competition with another business offering similar products or services. We talk about researching the market in our Small Business Management Course so you can see what your competitors are doing, but what about franchises?
No Direct Competitors
Well, when you buy a franchise, you’re sometimes offered a territory in an area where there are no other direct competitors from other franchise owners within the same group, which is known as an ‘exclusive territory’ – in other words, there shouldn’t be two Jim’s Mowing franchises operating out of the Sydney CBD.
However, it’s important to read the fine print of your franchise agreement, particularly where it relates to territories, as there could be special exemptions for densely populated areas such as the Sydney CBD, where a provision is made for additional franchisees to trade from that same territory, as is customary for fast food franchises.
That franchise agreement should also include information on what would occur if the franchisor should start another franchise that is similar to the one you’re involved in, or acquire or merge with another similar franchise – for instance, the franchisor may be required to close one franchise to ensure it doesn’t encroach on the viability of the other.
Alternative Sources of Revenue
Beyond physical territory boundaries, however, it is important that you consider other means of revenue for the franchisor and this could potentially impact your franchise’s revenue. We’ve talked about why it’s important for franchise owners to stay ahead of industry trends and developments, so it’s important to ensure that there are provisions within your franchise agreement for other revenue streams, such as online shopping or sales kiosks.
However, the vast majority of franchisees operate their businesses free from any encroachment on their exclusive territory and continue to prosper even in a highly demarcated marketplace.
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