As a small business, it can be confusing to know what the next step is for expanding your business. You may even be considering whether franchising is a viable option for you. This article will explore key considerations in deciding to franchise and outline the initial steps you need to take to help you make this decision.
What is a Small Business?
Different regulators and laws provide varying definitions for a small business. The Australian Taxation Office, for instance, defines a small business as having an annual turnover of less than $10 million. According to the Australian Bureau of Statistics, a small business is characterised by having 5-19 employees, while Fair Work Australia specifies it as an employer with less than 15 employees.
When it comes to franchising, there is no specific definition or set of rules for what a small business can be. Consequently, any business has the option to choose franchising for its operations. However, the pivotal question remains: is franchising a good idea for your business?
How Do I Decide Whether to Franchise My Small Business?
When deciding if franchising aligns with your business goals, there are numerous considerations you must assess. These may include critical factors such as profitability, affordability, a strong brand, and scalability.
1. Profitability
It is essential to ask yourself whether your business is doing well financially. Are you making a profit? Or, are you incurring significant losses? Franchising carries substantial financial risks. Therefore, you must ensure that your small business has been profitable before you begin establishing your franchise system.
2. Affordability
You must be mindful of your financial position as a franchisor, recognising the capital investment required for tasks such as drafting:
3. Strong Branding
Your business must have a strong brand to attract franchisees. Franchisees seek reputable brands and well-defined business identities. Therefore, you should market yourself strategically and craft a unique brand that resonates with your target audience.
4. Scalable
Can your business easily be duplicated? Ultimately, all franchises must deliver the same products or services. So, you must develop systems that can maintain a consistent level of quality and customer service. Ask yourself whether the systems are easy to learn and can be taught in just a couple of franchisee training sessions.
Continue reading this article below the formWhat Are the Steps Involved in Franchising My Small Business?
Growing your business through franchising involves several steps. Some of the initial steps in franchising include developing a business model, preparing a franchise agreement and operations manual, selecting and training franchisees, and safeguarding your intellectual property.
1. Creating a Business Model
When franchising, you must ensure that you have an effective business model developed. The business model should:
- have a profitable existing business model that you can pitch to franchisees
- make clear your financial information, your profit margins and cost analysis.
2. Preparing a Franchise Agreement and Operations Manual
You will need to invest in having lawyers draft legal documents for you when franchising, such as:
- a franchise agreement, which is a legally binding document articulating the franchising relationship between you and the franchisee; and
- an operations manual that explains the daily procedures and operations of the franchise business, as well as franchisee expectations.
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3. Franchisee Selection and Training
Choosing an efficient franchisee that fits your brand and upholds the quality of your brand is essential when franchising. Therefore, you must be wise in who you select as a franchisee. You should train your franchisees and support them in managing your business. This will ensure that your business maintains a good reputation and is successful.
4. Protecting Your Intellectual Property
Protecting your brand is effectively achieved by registering your logo as a trademark or registering your business name. Your franchisees, in turn, will be required to pay a fee for the utilisation of your intellectual property in their businesses.
Key Takeaways
The decision to franchise your small business is yours to make, considering that it requires significant effort and capital for setup. Success in franchising depends on crucial factors such as profitability and branding. When considering franchising, it is essential also to assess how easily your processes can be duplicated and whether the entire process is affordable. Franchising your business involves various steps, including:
- creating a business model;
- preparing legal documents;
- selecting and training franchisees; and
- protecting intellectual property.
It can be quite complicated to navigate setting up a franchise. However, 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.
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