Are you a franchisor who is looking to expand interstate? Congratulations!
If you are looking to expand your franchise into another State or Territory of Australia, there are a number of ways to do so. Here are a couple that our Franchise Lawyers recommend.
Direct Franchise
The most common way to expand a Franchise is simply to directly grant a franchise to a franchisee.
What does this involve?
This involves the same process as when you grant a franchise to a franchisee in your current State or Territory. The difference, of course, is that you are granting the franchisee a franchise in another State or Territory.
What are the benefits?
The main benefit of directly granting a Franchise is the level of control that you have on that specific Franchise. As that franchisee will be dealing directly with you, you will be able to oversee their performance directly.
What are the disadvantages?
A key disadvantage is that you are located in another State or Territory. This means that meeting them can be expensive and oversight may be more difficult. Another disadvantage is that under the new Franchising Code, if you get into a dispute with that Franchisee and need to go to Court, you will have to go to the Court of that State or Territory where that Franchisee’s territory is located. For example, if you’re located in NSW and the franchisee’s territory is in Victoria, then you are likely to need to go to court in Victoria.
Licensing
Licensing involves establishing a Master Franchisee in a State or Territory. You license your Intellectual Property to them, and grant them the right to use that Intellectual Property to grant other franchises in that state. The Intellectual Property will include your trade marks, written material and know-how for your Franchise. The Master Franchisee effectively becomes the Franchisor in that particular State or Territory of all other franchisees.
What are the benefits?
The main benefit is that you won’t need to worry about the day-to-day management of that particular State or Territory. The Master Franchisee effectively takes your position and deals with the entire process of recruiting, establishing, managing and dealing with Franchisees. The Master Franchisee is also generally already located in that State or Territory so should be more familiar with that State or Territory.
What are the disadvantages?
A key disadvantage is that you do not have direct control over the franchisees. You can require the Master Franchisee to adhere to certain obligations, such as needing your permission before new franchisees are established, or requiring them to give you a regular report on the performances of the franchisees in that State or Territory.
Before you establish a Master Franchisee, you need to ensure that you are confident that you will be able to retain a high level of control over, and have a good relationship with, the potential Master Franchisee, otherwise it can lead to difficulties in the future.
Conclusion
Irrespective of which path you decide when expanding to another State or Territory, there are benefits and disadvantages for every method. If you want more information, please contact us at 1300 544 755.