In Short
- Not-for-profits (NFPs) can adopt franchising models, using social franchising to increase social impact rather than profit.
- Social franchising allows NFPs to expand globally, benefiting communities and employing marginalised groups.
- Planning, legal advice, and ethical considerations are essential for franchising success.
Tips for Businesses
If your NFP considers franchising, focus on clear legal frameworks, ethical practices, and strong governance. Engage professional legal advice to ensure compliance and sustainability in expanding your social mission through franchising.
Table of Contents
Expanding your Not-For-Profit (NFP) organisation can be a strategic way to increase your social impact, extend your reach, and empower others to contribute to your cause. However, for NFPs in Australia, the question arises: can they operate under the franchising business model and become franchisors? This article explores the critical considerations for NFPs considering the franchising model.
What is a Not-For-Profit Organisation (NFP)?
NFPs play a crucial role in society by supporting various causes and communities. They differ from typical for-profit commercial organisations in that their primary focus is on social and community benefit and change rather than generating profit. While similar to charitable organisations, NFPs differ in their taxation status.
Some examples of common NFPs include:
- childcare centres;
- art centres;
- neighbourhood associations;
- medical centres; and
- sports clubs.
What is Franchising?
Franchising is a business structure where a brand owner (the franchisor) offers a licence to others (the franchisees) to run a business using the franchise network’s branding, system/marketing and infrastructure. With the franchisor’s permission, franchisees can sell goods or services under the brand, provided they meet the standards set by the franchisor. A Franchise Agreement can formalise this process by:
- granting the franchisee the right to use the franchisor’s intellectual property and trademarks; and
- setting out the obligations of the franchisor and franchisee to each other regarding the operation of the business using the franchisor’s established structure and systems.
Franchise agreements outline the terms and conditions of the licence. This typically lasts for a specific period that both parties agree on but can be renewed or extended for further periods. Franchising enables businesses to expand domestically and internationally by leveraging the franchisees’ capital and operational capacity. It also provides franchisees with a ready-to-implement business model, brand recognition, and initial setup support and training.
Continue reading this article below the formDo You Need to Be For-Profit for Franchising?
While most well-known franchises are for-profit, organisations are not required to operate this way to become franchisors. When NFPs adopt a franchise model, the purpose of franchising changes. Where typical franchises aim to gain more profit (paid to the franchisor as royalty fees), NFPs will engage in franchising to increase their social impact. This concept is social franchising.
Some franchisors may operate as a social enterprise instead of a NFP. The key difference is that whilst NFP invest all profits back into the organisation (including as charitable donations or initiatives), a social enterprise can still earn a profit for its owners whilst still aiming to provide a ‘social benefit’ or ‘social impact’ in the sale of goods or services to the community.
Social enterprises commonly include hospitality, environmental or welfare organisations that aim to:
- employ disadvantaged members of the community to provide them with job security and skills;
- improve environmental outcomes by promoting sustainability and ethical supply-chain practices; or
- use revenue from goods or services sold to the market to provide discounted/free products and programs to in-need members of society.
The nature of the business’ operating model and relevant tax and compliance aspects of being an NFP or social enterprise are relevant considerations for determining the ideal structure.
Social Franchising: What is It and How Will It Benefit My Organisation?
Social franchising is an emerging segment of the franchise sector that is essentially not yet well understood or fully recognised for its future growth potential. It applies the principles of franchising to organisations focused on societal benefit. Unlike commercial franchises, where shareholders receive a distribution of profits, social franchises reinvest profits to further their mission.
The benefits of social franchising include:
- expanding the reach of your organisation, maximising social impact;
- allowing for global operations;
- increasing the scale of your business; and
- empowering others to join and support your organisation’s mission.
An example of social franchising is Tender Funerals. Since 2016, the original Tender Funerals has provided personalised, meaningful, and affordable community-led funeral services. Established to address many Australians’ high funeral costs and resulting debts, the NFP allowed communities to care for their deceased sensitively and openly. In 2019, Tender Funerals Australia was franchised to support and resource a national network of Tender Funerals services based on their original operational model.
Furthermore, an international social franchise is Jibu, an enterprise providing affordable, clean drinking water in eight African countries. Since its inception in 2012, Jibu has established 160 franchises, creating thousands of employment opportunities, mostly held by African women and youth. It has distributed over 490 million litres of water to individuals who otherwise may not have access to clean drinking water.
The Trussell Trust is another well-known social franchise that expanded its network of food banks under the franchising model across the United Kingdom from 2004. It offered training, guidance, ongoing support, and governance structures to help new food distribution charities get set up. At the end of the 2022-2023 financial year, the Trussell Trust oversaw 421 independently governed food bank charities, many of which operated multiple sites.
This publication offers guidance on managing your franchise network effectively to achieve success, ensure franchisee satisfaction, and maintain legal compliance.
Socially-Developed vs. Socially-Acquired Franchises
Social franchises can follow different models. The two primary models are socially-developed and socially-acquired franchises.
| Model | Characteristics |
| Socially-Developed | the NFP becomes a franchisor to expand its impact; often involves employing individuals from a beneficiary social group or increasing social benefit by maximising beneficiary participation throughout the organisation; and likely to be innovative, highly creative, and fill a market niche that is either untapped or not well-serviced by private enterprises. |
| Socially-Acquired | the NFP acquires a commercial business, which then becomes a franchise; and commercial business generates profit which supports the social mission (including as a social enterprise). |
Ethical and Operational Considerations
Social franchising, like any business model, requires careful planning and ethical considerations. Transparent and fair practices build trust with all individuals involved and ensure long-term sustainability. Adopting responsible franchising practices includes complying with the Franchising Code of Conduct. It also includes performing due diligence and ensuring all parties understand the terms of the franchise agreement.
Often a social franchise will have similar governance structures to a charitable organisation, including a board and charters setting out the values and key purpose of the organisation. As NFPs, social franchises may look to obtain pro bono assistance from professionals and commercial organisations. NFPs may also seek funding and other assistance from government grants and other business initiatives.
Key Takeaways
Adopting the franchising model can help NFPs expand their impact and reach. Whether through socially-developed or socially-acquired models, the primary goal remains to create social benefit rather than profit. Careful planning, legal advice, and consideration of alternative strategies are essential for successfully leveraging the franchising model for social good.
If you need legal assistance in exploring franchising options for your NFP, our experienced not-for-profit and franchising 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.
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