Many business owners begin with few customers and countless hours of hard work. Months or years later, they are pleasantly surprised to find their business growing, and they must start thinking about how they can accommodate the demand.

You may be surprised to know that the first option business owners commonly consider is franchising. After all, you can charge ongoing fees to business owners around the country in exchange for using the branding and reputation you have built. But franchising isn’t appropriate for every situation and there may be alternative arrangements that better suit your business objectives. Below, we set out four ways to grow your business including licensing, outsourcing and hiring employees.

What’s Involved In Operating a Franchise?

When setting up a franchise in Australia, you must comply with the Franchising Code of Conduct which sets out obligations for both franchisors and franchisees. Operating a franchise means that your business will be:

  1. Giving another business permission to use your branding;
  2. Charging an ongoing fee for the use of your branding and marketing purposes; and
  3. Maintaining control over the standards and how the franchisee operates their business.

As you can see, excess demand doesn’t necessarily call for setting up a franchise.

1. Licence Arrangement

A licensing relationship is more cost-effective and less regulated. The Franchising Code of Conduct does not apply where a licence agreement establishes the relationship between your business and another business.

  • Intellectual Property: Your business gives permission to another business owner (the licensee) to use your branding.
  • Fees: Similar to a franchise, your business can receive ongoing fees as royalties for the use of your brand.
  • Provision of goods and services: In this type of arrangement, your business (as the licensor) does not directly provide services or goods to the client or customer.
  • The other party: The licensee sets their own operating system. In a licence arrangement, you don’t maintain control over the way the business operates.

2. Lead Generation or Referral Arrangement

In this type of arrangement, your business is responsible for sourcing clients or customers which you will then pass on to other businesses to provide the services.

  • Intellectual Property: You do not have to licence the use of your intellectual property such as trade marks. The other party will use their own business name and logos.
  • Fees: The other party may pay you a fee per lead or referral you generate, or a monthly fee for lead generation service.
  • Provision of goods and services: The other party supplies the goods or services directly to the client and is liable under the ACL.
  • The Other Party: The other party to the agreement may use their own branding and run an independent business. They are free to operate the business as they please.

3. Contractor’s Contract

Using a contractor is a good way for your business to provide services to a client, but outsource the work behind the scenes. 

  • Intellectual Property: You can choose whether or not you want a contractor to use your branding. If you would like the contractor to use your brand, your contract will need to include a licence to use your intellectual property. Requiring the contractor to use your intellectual property is appropriate for client-facing contractors. If you are engaging a contractor to do back end work, you may leave this out.
  • Fees: Your business charges the client directly and receives payment. The contractor then invoices you for the part of the work that they carried out, and you pay the invoice. Money does not change hands between the client and the contractor.
  • Provision of goods and services: Unlike the options above, in this arrangement, your business is responsible for providing the goods and services to the clients. The contractor may complete the work, but your business is liable for the provisions of goods or services. 
  • The other party: The contractor runs their own business with their own ABN and as such, are responsible for their superannuation and tax payments. In most arrangements, the contractor is free to source their own business and do not have to work with you exclusively.

4. Employment Agreements

You could also bring on board an employee (or more employees) to help manage your business’ demand.

  • Intellectual Property: Your employees will use your intellectual property and represent themselves with your branding.
  • Fees: The client will pay your business for the services, and you will pay your employee on a salary. You may need to check whether an Award applies under the National Employment Standards and ensure you are compliant.
  • Provision of goods and services: Your business provides the services directly to the client. The business and the employee are liable for the services provided under the contract.
  • The other party: The business can engage the employee on a permanent, fixed term or casual basis and they may work full-time or part-time. The employment agreement should stipulate what type of worker they are and their obligations.

Key Takeaways

You should decide your next steps in light of the goals you have for your business. Based on the differences between the above options, you should consider:

  • The level of control you want to retain over the way your business’ services are provided; 
  • Whether you want the other party to represent themselves with your branding;
  • Who will be providing the goods or services and who carries the liability;
  • What is financially viable for your business; and
  • Whether the arrangement is suitable for the type of business you operate. 

There are many ways to grow your business and satisfy client demand. Don’t be afraid to put systems in place to help you achieve this. If you are unsure which best suits your needs or have any questions about growing your business, get in touch with our commercial lawyers on 1300 544 755.

Dhanu Eliezer
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