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If your business is looking to expand, you might want to consider franchising as a way to grow. For example, you might run a commercial cleaning company in one location but plan to expand across Sydney and beyond. Franchising can be a massive step in expanding your business, but it can be a confusing and daunting process. This article is a comprehensive guide for where to begin franchising your business. 

What Is a Franchise and Why Franchise Your Business?

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. 

Therefore, franchising can be an exciting legal and marketing method. 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;
  • determine if a franchise is the right step for your business (feasibility assessment); and
  • highlight some of the steps you must take if you franchise. 

The Ultimate Guide to Setting Up a Franchise

Making the decision to franchise your business can be difficult. This Franchisor Toolkit covers all the essential topics you need to know about franchising your business.

This Toolkit also contains case studies from leading franchisors including leading Australian franchises including Just Cuts, FlipOut and Fibonacci Coffee.

Download Now

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:

ReasonBenefit
CostGenerally, 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 costs of setting up the franchise, training staff, and launching the business are covered by the franchisee. 
ManagementFranchisees are responsible for the management of their individual business in accordance with the Franchise Agreement and Operations Manual
CommitmentFranchisees have invested in their business, and this should motivate them to succeed. A good franchisee will take pride in their work and aim to exceed customer expectations. 
Growing NetworkFranchised networks can expand faster than company-run networks, allowing you to expand your brand nationally or even globally if you engage the right franchisees. 

Feasibility Assessment

Before setting up a franchise, you should consider if the business can be franchised, including whether: 

  • your business is established enough to run a franchise;
  • there have been test outlets or branches, and whether these were successful; 
  • your business brand is distinctive; and
  • your business has a solid reputation. 

If your business fulfils all of the above, you may be ready to franchise. 

Franchise Development Plan

When establishing your franchise development plan, it is important to seek professional advice from lawyers, accountants, and business specialists. You should also consider the following issues:

  • Who will the franchisees be?
  • How much can you charge franchisees?
  • What will the Franchise System be?
  • 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 in order to protect your IP; and
  • What should you include in the Operations Manual (in effect, a step by step guide to running the franchised business)?

Franchising Code of Conduct – What Are Your Obligations?

Before you start recruiting franchisees, it is important your prepare the required documentation and get an understanding of 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. 

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.

It is also important 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:

DocumentDescription
Information StatementA generic statement highlighting the risks and rewards of franchising. 
Disclosure DocumentA 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 SheetProvides a concentrated summary of the disclosure document. 
Franchise AgreementA legally binding document spelling out the rights and responsibilities of both the franchisor and franchisee. 
Franchising Code of ConductA copy of the code. 

Importantly, the franchise documentation is legally binding, once you and your franchisee sign it. Therefore, ensure they are accurate. It is good practice to engage legal advice when preparing franchise documentation to ensure they are legally compliant and accurately reflect your franchise brand.

Recruiting Franchisees

After you complete the above steps, you can begin recruiting franchisees and expanding your business. You should also be aware of the ongoing obligations of your franchisees to ensure clear communication and effective running of the franchise. 

Key Takeaways

In conclusion, it is crucial to get off on the right foot and protect your position as a franchisor with each franchisee. If you are either a franchisor thinking about franchising your business, or a prospective franchisee unsure about how to proceed, our experienced franchise specialists 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

What is a franchise?

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.

Who and what governs franchising law?

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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