What are the first steps I should take to set up a franchising system?

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• Developing a franchise model
• Creating a relationship with potential franchisees
• Preparing a Franchise Agreement and Disclosure Document
• Knowing your tax obligations
• Conclusion

Once you have decided that franchising is the right option for your business, you should start considering the first steps for setting up a franchise system. It is always a good idea to make sure the basis of any business arrangement is well thought out and structured. It is in your best interests to speak with a franchising lawyer and your accountant early in the process to determine what steps your business must take to set up a franchise system. There is no formal registration process for franchises but it is certainly a largely legal process and legal advice is recommended. The following are some general steps that all businesses should take for setting up a franchise system.

Developing a franchise model

It is recommended that you set up a franchise model, including a suite of legal documents, before going to market to find potential franchisees. In developing a franchise model you will often discover ways you can improve your business concept and create management processes, all of which you can incorporate into your franchises. It is also a good idea to create an operations manual which will give franchisees detailed information on the systems and procedures for running your franchise. This is something that you could put together after experimenting with your franchise model and seeing what works best with your business goals. If you have a comprehensive operations manual you can ensure that your franchisees are all be working together in accordance with the same principles and procedures as you to set up an efficient franchising business.

Creating a relationship with potential franchisees

You should also consider who you would like to be your future franchisees. It is important for your franchisees to share the same business vision as you and have all the necessary skills and attributes that you may find important or valuable. You should also ensure that you have developed a working relationship with franchisees since building a franchise system is very much a team effort. While you will be effectively leading your business, you will require the support and cooperation of your franchisees throughout the entire process.

Preparing a Franchise Agreement and Disclosure Document

Perhaps the most important step in setting up your franchising system is to create a Franchise Agreement and Disclosure Document. The Franchise Agreement will set out the rights and obligations between you and your franchisee in relation to the business and is the key legal document. The purpose of the Disclosure Document is to give sufficient information to the franchisees so they can make an informed decision about whether to enter into your Franchise Agreement. These Agreements are complicated and it is therefore imperative that sufficient legal resources are invested in their drafting to avoid the risks of conflicts or dispute in the future. A franchise lawyer will be able to prepare a comprehensive and detailed Franchise Agreement that will protect your rights and obligations as well as ensure that your Disclosure Document complies with the Franchising Code of Conduct. Obtaining legal advice will also ensure the protection of one of your most valuable assets, the intellectual property of your franchise, whether in the form of your brand name or business concept.

Knowing your tax obligations

As a franchisor, your business earnings will usually be subject to a range of taxes including Income Tax and GST. You should familiarise yourself with what taxes your business will be subject to and your reporting requirements. Since the taxes that apply to your business are largely dependent on your business structure, you should seek legal or financial advice on your tax obligations.

Conclusion

While it may seem overwhelming at the beginning to remember all the preliminary steps for setting up a franchise system, we recommend a checklist of things to do to ensure that nothing slips through the cracks. Franchising can be a very challenging and exciting process and putting in the ground work in the early stages, considering your options and getting the necessary legal and financial advice for setting up your franchise is highly recommended.