The Franchise Grant Process: A Guide for Franchisors

In Short

• The franchise grant process involves essential steps for franchisors, including preparing disclosure documents, negotiating terms, and executing franchise agreements.
• Compliance with the Franchising Code of Conduct is mandatory in Australia.
• Clear communication and a systematic approach can streamline the process and foster positive relationships with prospective franchisees.

Tips for Businesses

Ensure comprehensive preparation of disclosure documents and adhere to the Franchising Code of Conduct to maintain legal compliance. Establish open and transparent communication with potential franchisees to clarify expectations and build trust. Systematically follow through each step of the grant process to effectively manage relationships and potential complexities.

Summarise with: ChatGPT Perplexity Microsoft Copilot

---

Table of Contents

• 1. Initial Discussions
• 2. Questionnaire and Interview
• 3. Confidentiality Agreement
• 4. Franchise Documents
• 5. Negotiations
• 6. Signing
• 7. Cooling-Off Period
• Key Takeaways
• Frequently Asked Questions

Once your business is franchise ready, you will be open to enquiries from people wanting to buy and operate your franchise. While this is an exciting step, allowing you the opportunity to manage your new franchise system, knowing what to do next can be daunting.

This article provides a step-by-step guide for franchisors who are working through the franchise grant process.

Franchisor Toolkit: How to Franchise Successfully

Franchising your business? This free guide will guide you through key strategies, legal essentials, and tips for successful growth.

Download Now

1. Initial Discussions

Firstly, a franchise grant usually begins with an initial discussion or expression of interest from someone interested in buying a franchise in your system. You should use these conversations to gauge whether there is a real prospect of onboarding a new franchisee.

At this stage, you should not distribute franchise documents. You are simply ensuring that the expression of interest is genuine.

2. Questionnaire and Interview

Next, you should assess whether the prospective franchisee has the capacity to operate the franchise you offer, both in terms of skills and finances.

While prospective franchisees can obtain the necessary certificates or licenses, you should determine whether the purchase is financially viable for them. Additionally, consider whether they have the experience and passion to manage a business.

Franchisors often use interviews, application forms or questionnaires to gather this information. This step will differ between franchise systems, but it is important to try and determine which prospects are suitable before you invest time and resources.

3. Confidentiality Agreement

Once you have established that the prospective franchisee has reasonable potential, you should have them sign a confidentiality agreement allowing you to dive into a deeper discussion about your unique systems and processes.

Signing a confidentiality agreement is vital as, at this stage, you will be sharing confidential and proprietary details about your business with them.

At this stage, it would also be helpful to discuss your expectations of your franchisees at a high level before officially issuing the franchise documents.

4. Franchise Documents

It is now time to send your franchise agreement and the rest of the franchise documents to the franchisee. In most cases, this involves instructing a lawyer to prepare a particularised version of the agreement, specific to the prospective franchisee.

Often, this is when franchisors will also require payment of a deposit. The deposit will partially cover the fees for preparing the franchise suite for this specific transaction. The franchise documents will also need to include:

• your current disclosure document;
• your current Key Facts Sheet;
• a copy of the Franchising Code of Conduct (the Code); and
• the information statement.

Depending on the type of transaction that is occurring, you may need to provide additional documents, such as a:

• Sale of Business Agreement;
• Licence to Occupy; or 
• Step in Deed, if the franchised business is premises-based.

It is important to ensure that all the relevant documents have been provided to the franchisee to start the 14-day disclosure period. If any document is excluded, you will need to re-issue all documents to restart the disclosure period. This can cause delays in commencing and getting the franchised business on foot.

5. Negotiations

Franchise negotiations can occur at any stage of the franchise grant process. Some franchisors give prospective franchisees a copy of their standard documents early in the process, opting to negotiate any changes directly before instructing lawyers.

This said, it is common for negotiations to occur after the prospective franchisee:

• receives particularised documents; and
• seeks legal advice.

6. Signing

After all the terms are agreed upon by the parties, it is time to sign the documents. These can be signed electronically or in paper form. If signing hard copy documents, two copies of the franchise agreement should be signed so that each party can keep an original copy.

Make sure that all annexed related documents are also signed. Typically, these include:

• acknowledgements as to advice received;
• a restraint deed;
• direct debit authorisation; and
• a software licence agreement.

7. Cooling-Off Period

Franchisors should always think about the fourteen-day cooling-off period required by the Code. This applies fourteen days from signing the franchise agreement and is automatically available to every franchisee. Accordingly, think of this as the final stage of the franchise grant process.

Key Takeaways

After ensuring that your business is franchise ready, prepare yourself to deal with prospective franchisees. Above all, adequately and efficiently guiding them through the franchise grant process is important. Ultimately, you should ensure that you complete the following steps as part of the process:

1. initial discussions;
2. questionnaire and interview;
3. confidentiality agreement;
4. franchise documents;
5. negotiations;
6. signing; and
7. cooling-off period.

If you have any questions about the franchise grant process, 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.

Frequently Asked Questions