The most famous franchises around the world all had to start somewhere. While setting up your own franchise can seem overwhelming at first, it also brings significant opportunities for growth. Taking the time to plan your franchise structure can go a long way to making your franchise the next household name. This article outlines 10 steps to start a franchise on the right foot.

1. Create a Solid Business Model

Ideally, you should have an existing business that you want to scale up. It can be harder to sell a franchise model to potential franchisees if you can’t point to an existing business. When you already have a profitable business it is easier to show that you have a proven formula.

However, you do not always need your own business model. Perhaps you are bringing an international brand into Australia, acting as the “local” franchisor and buying the right to issue sub-franchises within the country. If so, you would be setting up shop as a “master franchisee”.

2. Do Your Research

Consider the industry your franchise will be operating in.

  • who are your competitors?;
  • are there similar franchises already and what is your point of distinction?; and
  • what laws are likely to apply to your franchises (such as food safety laws for fast-food franchises)?

A strong understanding of the market will allow you to pre-empt any potential issues and adapt your model accordingly.

3. Speak to the Experts

Get legal, accounting and business advice on the best framework for owning and operating your franchise business. By describing your expectations about how you want the business to run, you can get feedback on whether your vision can work within the confines of Australian law and receive input on how to meet your business goals.

By consulting with professionals who have assisted other franchisors, you can hear their stories and learn what will work best for your particular type of franchise. Different industries favour different franchising models, as do premises-based versus mobile franchises.

Keep in mind that franchisors have ongoing legal and accounting obligations. If you get good advice from the start, you can set up best practices that will minimise long-term headaches.

4. Prioritise Recruitment

Take your time to develop a strategy for recruiting and assessing potential franchisees. Consider what your ideal franchisee looks like, where you will find them and how you will attract them.

Strong recruitment processes are essential, especially for your early franchisees. These franchisees will be pioneers for your business model. Some franchisors recruit their existing employees as their first franchisees. Employees are already across the ins and outs of the business and have a history of being good brand ambassadors.

Given that your network’s reputation depends on your franchisees’ success, it is also important to build trust and cooperation from your very first franchisee. You want to be bringing franchisees on board who “buy-in” to your vision and are committed to high standards.

5. Implement Training Standards

However, maintaining high standards does not end with recruiting the right franchisee. You should also create training materials that give your franchisees the knowledge they need to make their business a success. For example, is there specialised equipment that your franchisees will be operating, or a particular recipe to be followed? Consider what information your franchisees need to be successful.

You should also be ready to update these training materials when there are changes in applicable laws or industry developments. Many franchisors recently found themselves doing this in response to the Vulnerable Workers Legislation, which makes franchisors more responsible for ensuring franchisees comply with employment laws.

6. Plan to Succeed

Reflect on your conversations with the experts and think about what you want your franchise system to look like. It is important to take the time to carefully reflect on the details of what you will offer your franchisees, and what you expect of them in return. With more detailed systems and processes, you will be in a better position to maintain high standards throughout your network and therefore work towards providing the best possible product or service for your customers.

Key questions you should ask include:

  • will franchisees be able to operate in exclusive areas?;
  • what are your rules around marketing? Will you be operating a marketing fund?;
  • what ongoing support will you offer franchisees?; and
  • what are the minimum requirements franchisees must meet before they are allowed to operate a business? Will they have to obtain licences or provide you with a police check?

7. Decide on Fees

You want your franchisees to be profitable. This will encourage growth and draw other franchisees to your network. A key part of fostering this profitability is ensuring that the fees you charge franchisees are reasonable.

There are two types of fees to consider — initial and ongoing. The initial fee is what the franchisee pays to purchase the business. Ongoing fees give the franchisee the right to use your franchise system and brand. Ongoing fees can also take the form of marketing levies and ancillary fees for items such as software.

When drawing up your fees, you want to ensure that franchisees see value from what they are spending. For example, you may provide ongoing assistance and continual improvements to the franchise system. You also need to strike a balance with making sure that you are able to cover your own costs of running the network.

8. Protect Your Intellectual Property (IP)

Consider registering each type of IP relevant to your franchise. Every franchise will benefit from having their logo as a registered trade mark and having a registered business name. One aspect of building a strong brand is protecting your right to use your trade marks and other IP. As part of setting up your franchise, you give franchisees a licence to use your IP for as long as they are franchisees. To keep your franchise consistent, you can also prohibit franchisees from using any other symbols, logos or business names.

9. Develop Your Operations Manual

An operations manual is a go-to guide that shows your franchisees exactly how to run their business. It will cover everything from how to interact with customers to the format in which franchisees must give you regular reports. Ideally, the manual should be very detailed. The more guidance you give franchisees, the greater your ability to maintain quality throughout the franchise.

Due to being highly detailed, the operations manual will contain confidential information. Typically, the manual will be provided to a franchisee after they have entered into the franchise contract, or signed a document agreeing not to disclose the contents of the manual.

You should also be careful to make sure that your manual matches up with the terms of your franchise agreement and other documents.

10. Create Your Franchise Documents

At a minimum, you will need to prepare a franchise agreement and a disclosure document. You can also require franchisees to sign other documents, including:

  • property licences;
  • confidentiality agreements;
  • non-compete deeds; and
  • personal guarantees.

Do not take shortcuts when it comes to your legal documents — take the time to consult with franchising lawyers. Franchising is a highly regulated area in Australia, with rules about what you can — and cannot — include in your franchise agreement.

There are also strict rules around how franchisees are to enter into a franchise agreement. For example, you must give franchisees a copy of the Franchising Code of Conduct along with the franchise agreement. You must also provide the franchisee with all relevant documents at least 14 days before they sign the agreement.

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

Key Takeaways

Franchisees buy into franchises to follow a proven system for running a profitable business. Therefore, before turning your business into a franchise, ensure you have everything in place to allow your franchisees to run a turn-key operation. Research and planning gives your franchise the best chance of success.

Our firm has advised some of the biggest franchises in Australia. If you need advice on everything you need to get your franchise ready to grow, call LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Amritha Thiyagarajan

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