In Short
- Franchising can accelerate business growth – It allows expansion without the owner managing multiple locations, as franchisees invest in and run their businesses under the brand.
- Legal and operational preparation is key – You must establish strong systems, protect your intellectual property, and comply with the Franchising Code of Conduct.
- Recruiting the right franchisees matters – Choosing motivated franchisees aligned with your brand ensures quality, consistency, and long-term success.
Tips for Businesses
Before franchising, ensure your business model is proven, scalable, and has a strong brand identity. Get expert legal and financial advice to prepare essential franchise agreements and comply with regulations. Develop a clear franchisee profile and training system to maintain quality. Careful planning and the right partners will set your franchise up for success.
Table of Contents
- What is a Franchise, and Why Franchise Your Business?
- What Do You Need to Consider Before Franchising Your Business?
- Advantages of Franchising Your Business
- Franchise Development Plan
- Franchising Code of Conduct – What Are Your Obligations?
- Preparing Franchise Documents
- Recruiting Franchisees
- Common Challenges in Franchising
- Key Takeaways
- Frequently Asked Questions
If your business is looking to expand, you might want to consider franchising as a way to grow. Through franchising your business, you can grant third parties the right to operate it using your intellectual property. Franchising can allow you to expand your business rapidly. However, it can be a confusing and daunting process. This article is a comprehensive guide for where to begin franchising your business.
Franchising your business? This free guide will guide you through key strategies, legal essentials, and tips for successful growth.
What is a Franchise, and Why Franchise Your Business?
Essentially, a franchise is a business system where the franchisor (owner of the franchise) assigns the right to franchisees to market and distribute goods or services under the franchise brand.
As franchise businesses are becoming increasingly popular in Australia, they have started to appear in a wide range of industries. These include:
- fashion retail;
- fast food;
- restaurants;
- fitness facilities;
- professional services; and
- real estate.
Franchising is a popular method of expanding a business, as it allows the franchisor to grow their brand without requiring them to undertake the day-to-day operations of multiple businesses. When properly structured and run well, it provides benefits and satisfaction for both you as the franchisor and your franchisees.
What Do You Need to Consider Before Franchising Your Business?
If you are thinking of franchising your business, you should:
- consider the advantages of franchising your business;
- ensure you have systems and processes in place that work;
- protect your intellectual property;
- understand the steps you must take if you franchise;
- ensure your business is established enough to run a franchise;
- establish test outlets or branches, and assess whether these are successful; and
- consider whether your business brand is distinctive and has a solid reputation.
If your business fulfils the above, you may be ready to franchise.
Continue reading this article below the formAdvantages of Franchising Your Business
The following are just some of the reasons why franchising your business is an exciting opportunity to help the business develop:
| Reason | Benefit |
| Cost | Generally, franchisees will make an initial payment to you, the franchisor, in return for becoming a part of your business. They then continue to pay you a percentage of their revenue, or a set monthly amount, for the duration of their Franchise Agreement. The franchisee covers the costs of setting up the franchise, training staff, and launching the business. |
| Management | Franchisees are responsible for the management of their individual business in accordance with the Franchise Agreement and Operations Manual. |
| Commitment | Franchisees have invested in their business, which should motivate them to succeed. A good franchisee will take pride in their work and aim to exceed customer expectations. |
| Growing Network | Franchised networks can expand faster than company-run networks, allowing you to expand your brand nationally or even globally if you engage the right franchisees. |
Franchise Development Plan
When establishing your franchise development plan, seeking professional advice from lawyers, accountants, and business specialists is important. You should also consider the following issues:
- who will the franchisees be;
- how much can you charge franchisees and ensure they can make a return on their investment;
- who will undertake marketing – the franchisor, the franchisees, or a combination of both;
- what is the distinct brand, and how can multiple businesses use it;
- how will each franchise run? Will the franchisor lease premises and licence them to each franchisee;
- do you need to trade mark or protect any logos or other intellectual property (IP)? If yes, we encourage you to seek legal advice to protect your IP; and
- what should you include in the operations manual (a step-by-step guide to running the franchised business)?
Franchising Code of Conduct – What Are Your Obligations?
Before recruiting franchisees, you must prepare the required documentation and understand the Franchising Code of Conduct (the Code). The Code regulates the operation and conduct of franchised businesses, requiring franchisors to:
- disclose specific detailed information; and
- provide specific documents to any franchisees, within defined timeframes;
This information also assists the prospective franchisees in making an informed decision about whether to proceed with the agreement.
It is also essential for you to note that, as a franchisor, you must act in good faith.
Preparing Franchise Documents
As a franchisor, you must provide the following franchise documentation to every prospective franchisee:
| Document | Description |
| Information Statment | A generic statement highlighting the risks and rewards of franchising. |
| Disclosure Document | A document that gives prospective franchisees information about the particular franchise system. This should help them decide whether to join you and provide a degree of transparency for your business. |
| Key Fact Sheet | Provides a concentrated summary of the disclosure document (no longer required as of 1 April 2025). |
| Franchise Agreement | A legally binding document spelling out the franchisor and franchisee’s rights and responsibilities. |
| Franchising Code of Conduct | A copy of the code. |
Importantly, the franchise documentation is legally binding, once you and your franchisee sign it. Therefore, it is vital these documents are accurate. Engaging legal advice when preparing franchise documentation is good practice to ensure they are legally compliant and accurately reflect your franchise brand.
Recruiting Franchisees
Once you have completed the preparatory steps, you can begin the crucial process of recruiting franchisees and expanding your business. This phase demands careful planning and consideration to ensure the success of your franchise system.
Start by crafting a detailed profile of your ideal franchisee. Consider key factors such as:
- financial capacity;
- business acumen;
- personal qualities; and
- alignment with your brand values.
This profile will serve as a compass, guiding your recruitment efforts towards the most suitable candidates.
Remember, your franchisees will be the face of your brand. Their performance and conduct will significantly shape public perception. It will ultimately determine the success or failure of your franchise network. Choosing the right franchisees is, therefore, paramount. You should also be aware of the ongoing obligations of your franchisees to ensure clear communication and effective running of the franchise.
You will build a robust network of motivated business partners by implementing a thoughtful and strategic approach to franchisee recruitment. These carefully selected franchisees will become the driving force behind your franchise system’s growth and long-term success.
Common Challenges in Franchising
While franchising offers numerous benefits, being aware of potential challenges you may face as a franchisor is crucial. One significant hurdle is maintaining consistent quality across all franchise locations. As your network expands, ensuring each franchisee adheres to your established standards and procedures becomes increasingly complex. You will need robust systems to monitor and support franchisees and maintain brand integrity.
Another challenge lies in managing franchisee relationships. Balancing individual franchisees’ needs with the franchise system’s overall goals can be delicate. You may encounter franchisees who resist change or struggle to implement new initiatives. This requires strong communication and conflict-resolution skills.
Financial management across the franchise network can also prove challenging. Ensuring all franchisees meet their financial obligations and maintain healthy profit margins is crucial for the system’s overall success. Additionally, you will need to manage your finances carefully. You must balance the costs of supporting and growing the network with your revenue from franchise fees and royalties.
Key Takeaways
Getting off on the right foot and protecting your position as a franchisor with each franchisee is crucial. If you are either a franchisor thinking about franchising your business or a prospective franchisee unsure of how to proceed, our experienced franchise lawyers can assist 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.
Frequently Asked Questions
Franchises are a type of business where the Franchisor (owner of the Franchise) assigns the right to Franchisees to market and distribute goods under the Franchise brand.
A government body, the Australian Competition and Consumer Commission, governs the operation of the Code as it applies to franchise businesses.
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