As a business owner, turning your established brand into a franchise network can be a challenging yet rewarding next step for your business. The journey to franchise your business model involves navigating significant legal and commercial considerations. This article will discuss key considerations when franchising your business and whether this business model is suitable for you.
What Does Franchising Involve?
By franchising your business, you are entering an entirely new business “game”, which may be different from what you have previously experienced. While franchising can be rewarding for your business, you should manage your expectations early on through proper legal consultation and commercial awareness. Reaping the benefits of a strong franchise model may often take time, and this needs to be considered. Perseverance is the key to any business aspirations, and this is especially true for franchising your business.
Key Considerations When Franchising
Upfront Costs
When setting up your franchised network, you should factor in essential expenses associated with establishing and expanding your franchise network, such as:
- legal costs of setting up the franchised network – this is inclusive of any corporate re/structuring of the relevant entities, drafting of the franchise suite documents, drafting the disclosure document, key facts sheet and other requirements under the Franchising Code of Conduct, and the registration of any intellectual property;
- commercial costs for engaging franchising/business consultants for tailored business strategies and advice;
- paying human resources managers to manage the administration, operations and supply chain of your franchises; and
- conducting research for new products and services.
Franchising your business? This free guide will guide you through key strategies, legal essentials, and tips for successful growth.
Compliance
Compliance with the Franchising Code of Conduct is essential for potential franchisors such as yourself. In addition to having all the required documents, you must ensure you honestly conduct your business. You must not mislead individuals into becoming franchisees of your network. This requires proper advertising and ensuring all your information and advertisement material used to onboard franchisees comply with the requisite standards.
Oversight of Franchisees
As a franchisor, you must provide franchisees with initial training on running the franchise. In addition, you must construct a good training course that outlines franchisees’ roles, duties, and expectations.
The risk of not having a sound training system is poorly performing franchisees, which can impact your brand and reputation. Unless you have drafted a comprehensive procedure to terminate underperforming franchisees, this could significantly impact your business.
Ultimately, franchisees are in charge of your business’s day-to-day operation. Managing franchisees can be a difficult task, but it becomes easier with well-established systems ensuring compliance and order.
Continue reading this article below the formHow Do I Know if My Business is Ready?
There are some general questions that you should be asking yourself about your business to determine whether it is ready to be franchised. Some of these questions include:
- what value does my business bring to customers;
- do I have the motivation to create and nurture a franchise system;
- is my business stable enough to operate a franchise system;
- will my business concept be competitive in the market;
- will franchising my business be able to increase future asset value;
- will franchisees be attracted to my business;
- are there other ways I can grow my business apart from franchising; and
- am I willing and ready to adhere to the Franchising Code of Conduct and the extensive reporting requirements?
Key Takeaways
The choice to franchise your business hinges on your willingness to take risks. While there are substantial benefits, such as business expansion and brand recognition, there are also associated risks, upfront costs, and regulatory compliance requirements. Before proceeding with franchising, it is crucial to assess whether these factors align with your tolerance for risk and business goals.
If you need assistance deciding whether to franchise your business, our experienced franchise lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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