With coffee shops continually popping up all over Australian streets, it is no secret that the coffee industry is booming. However, significant growth also means significant competition. If you are considering starting a coffee shop franchise, you should first have a successful business model for a single coffee shop. If your coffee shop runs successfully for at least five years, it is likely to be at a level to start a franchise. However, before jumping into things, it is essential to consider the following legal issues to ensure your franchise is successful.

Business Structure

Your business structure is the foundation of your business and it should, therefore, best suit your business needs. As the owner of a single coffee shop looking to franchise, you may already be operating as a sole trader. While this may work for a single one location, franchises often operate through a company structure. Specifically, franchises operate as a proprietary limited company, a private company that has not offered its shares to the general public.

Franchise networks typically operate with multiple franchisees as companies (operating companies) and one holding company. The operating companies perform the day-to-day business operations, while the holding company holds assets and oversees the operating companies. Such a system allows for you to separate and protect important assets. Further, the operating/holding company structure allows you to limit your liability as the franchise owner.

Business Model

Your business model is critical to the success of your coffee shop franchise. Due to the popularity of coffee shops, you should ensure that your business model is innovative and distinct from the competition. Your business model may stand out on the basis of what you offer, such as the quality of coffee or the way you deliver the service. For example, you may offer your customers a monthly or yearly coffee subscription.

Before expanding into a franchise, it is important to ensure that your ideas and business model are innovative, distinct and successful in the setting of a single coffee shop. You should then consider whether this business model would work on a larger scale, across multiple coffee shops as a franchise.

Location and Lease

The position of a coffee shop franchise can be crucial to its success. Even the best coffee shop can do terribly if it is in the wrong location. In most franchises, the franchisor is responsible for picking or approving the location of the franchises. The success of your franchisees and ultimately the franchise system may depend on your first few franchises and their location. Consequently, it is important to thoroughly research potential locations and target customers effectively before setting up a franchise.

You should also decide on who will hold the lease for your franchises. As the franchisor, you can choose to hold the lease and issue a premises licence to the franchisee. Alternatively, the franchisee can personally hold the lease. If you hold the lease, you have an additional level of control over the franchise. Holding the lease allows you to replace the franchisee without consent from the landlord. However, if you do hold the lease, you may have to continue to pay rent even if the franchisee abandons the location.

Trade Marks

Before you establish and set up your first franchise, you should protect your business name, logo, and any slogans by registering them as trade marks. Registering trade marks provides you with exclusive rights to use such trade marks. You also have the right to authorise others to use the trade mark. Therefore, you can license the trade marks to your franchisees, allowing them to use the brand’s trade marks. Further, if another party is using your trade mark, you can take action and prevent them from continuing to infringe your rights.

Registered trade marks protect your brand identity. Consequently, your trade marks should be both recognisable and distinct from others, so customers remember your business and brand. Seeking legal advice ensures that you have the best chance at obtaining approval for your trade mark registration.

Fit-Out of a Coffee Shop Franchise

As a franchisor, you have substantial control over how to set up your franchisees. It is up to you to decide on the extent and cost of the fit-out. The fit-out may include buying and setting up coffee machines, storage and furniture.

When setting up, you can choose whether to ensure consistency across your franchises or make each one unique. When looking to scale and expand as a franchise, consistency may allow for efficient setup and enable customers to feel a sense of familiarity in different locations. McDonald’s, for example, have a high level of consistency across their franchise locations in terms of their setup and the level of service they provide.

Regulatory and Insurance Requirements

Running a coffee shop franchise means that you may also prepare and sell food. If so, you must abide by Australian food standards: the Australian New Zealand Food Standards Code, the Food Standards Australia New Zealand Act 1991 and the relevant state food safety legislation and regulations.

For example, if your franchise system is in NSW, you must comply with the Food Act 2003 (NSW) and Food Regulations 2015. As the franchisor, you should establish business practices in accordance with food standard requirements. Doing so ensures you have taken appropriate steps in requiring your franchisees to comply with food standards.

As your franchises will operate from publicly accessible premises, you should also obtain public liability insurance. Public liability insurance will reduce your financial liability when certain incidents occur, such as:

  • death or injury to third parties;
  • property loss or damage; or
  • economic loss due to negligence.

Key Takeaways

Building a coffee shop franchise means starting from the ground up. While you have control over many aspects, it is essential to consider legal issues before setting up your franchise. You should:

  • have a business structure that allows you to expand your franchise, typically a proprietary limited company;
  • strive for a distinct business model and fit-out that suits you and your customers;
  • consider location and leasing issues;
  • register your business name, logo and slogans as trade marks; and
  • limit your liability by obtaining public liability insurance and implementing business practices that comply with food standards.

If you have any questions or need advice for setting up a coffee shop franchise, get in touch with LegalVision’s franchising lawyers on 1300 544 755 or fill out the form on this page.

Matthew DeRusha
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