Are you asking yourself ‘how do I franchise my business‘? This article is a comprehensive guide for those interested in franchising their business but aren’t sure where to begin.
What is a franchise and why franchise your business?
A franchise is a way of doing business. It is a business system where the Franchisor (owner of the Franchise) assigns the right to Franchisees to market and distribute goods under the Franchise brand.
Franchise businesses are becoming increasingly popular in Australia, appearing in a wide range of industries including fashion retail, fast food, restaurants, fitness facilities, professional services and real estate to name only a few. Franchising is an exciting legal and marketing method. Properly structured and well run, it provides benefits and satisfaction for both the Franchisor and the Franchisees.
What do you need to do to franchise your business?
- consider the advantages of franchising your business;
- determine if your business is suitable to franchise (feasibility assessment); and
- highlight some of the steps you will need to take if you venture down the franchising path.
Advantages 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:
Cost – franchisees make an initial payment to you (the franchisor) in return for becoming a part of your business and then they continue to pay you a percentage of their revenue (or a set monthly amount) for the duration of their Franchise Agreement. The costs of setting up the franchise, training staff and launching the business are also covered by the franchisee.
Management – franchisees are responsible for the management of their invididual business in accordance with the Franchise Agreement and the Operations Manual.
Commitment – franchisees have invested in their business and are therefore motivated to succeed. Franchisees will take real pride in the service they provide and will do their best to exceed their customers’ expectations.
Growing Network – franchised networks can be expanded more quickly than company-run networks. Franchising is all about replicating a successful business formula and if you choose the right franchisees, the brand can quickly be expanded nationwide or internationally.
Before setting up a franchise, you should consider whether the business can be franchised, for example:
- Is the business established enough to run a franchise?
- Have there been test outlets/ branches?
- Is the business or brand distinctive?; and
- Does the business have a solid reputation?
Answering yes to these questions is the first step.
Franchise Development Plan
When establishing your Franchise Development Plan it is important to seek professional advice from lawyers, accountants and business specialists along with considering the following issues:
- Who will the franchisees be?
- How much can you charge franchisees?
- What will the Franchise System be?
- How will each franchise run? Will the franchisor lease premises and licence them to each franchisee?
- Do any logos etc. need to be Trade Marked or other intellectual property protected? If yes, we encourage you to seek legal advice in order to protect your IP? and
- Preparation of an Operations Manual noting this manual sets out the secret to the “business system” and includes rules, standards and specifications in relation to items such as:
- Sales & Marketing;
- any Recipes/ Products/ Business methods;
- Corporate images;
- logos etc.
Franchising Code of Conduct – What are your obligations?
Once you are in the process of recruiting franchisees, the Code requires franchisors to disclose specific detailed information, and provide specific documents to any person, people or organisation who propose to become a franchisee.
This information is intended to assist the prospective franchisee to make an informed decision about whether to proceed with the agreement.
Under the Code, you must provide a number of documents to a prospective franchisee at least 14 days before they enter into a franchise agreement. These documents are outlined below.
Preparing Franchise Documents
The following documents (Franchise Documentation) must be provided to every prospective franchisee:
- Information statement: pursuant to Annexure 2 of the Code, a generic statement which highlights the risks and rewards of franchising must be provided;
- Business summary: a summary of your business activity and your business history must be provided to assist the franchisee learn more about your brand and decide whether enter the franchise;
- Disclosure Document: the purpose of this document is to give the prospective franchisee information about the franchise system in order to decide whether enter in the franchise;
- Franchise Agreement: this is the legally binding document spelling out the rights and responsibilities of both the franchisor and the franchisee; and
- Franchising Code of Conduct (Code): a copy of the Code must be provided to the franchisee.
It is important to note that the Franchise Documentation is legally binding. Therefore it is important that all documents are accurate. This is why we strongly encourage you to legal advice in order to prepare the Franchise Documentation.
Finally, it is time to recruit franchisees and make your business a success!
Getting off on the right foot and protecting your position as Franchisor with each Franchisee is crucial. If you are either a franchisor thinking about franchising your business, or a prospective franchisee unsure about how to proceed, call LegalVision on 1300 544 755 to speak with one of our franchise specialists. A franchise lawyer will be able to advise you on your prospects and obligations, contact us today!