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

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

1. Initial Discussions

Firstly, a franchise grant usually begins with an initial discussion or expression of interest from a person interested in buying a franchise in your system. These conversations should be used to gauge whether there is a real prospect of on-boarding a new franchisee.

Franchise documents should not be distributed at this stage. Essentially, you are simply ensuring that the expression of interest is genuine.

Tip: Be selective! Franchising involves a close and ongoing partnership between franchisor and franchisee, so ensure the person is a good fit for your system.

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 skill and finances.

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

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

Tip: Make sure you are capturing important information needed to assess whether the prospective franchisee has both the requisite experience and financial capacity to operate a franchise in your system and industry.

3. Confidentiality Agreement

Once you have established that the prospective franchisee has reasonable potential, you should have them sign a confidentiality agreement that will allow 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 private details about your business with them.

Tip: Always ensure the confidentiality agreement is signed before you hand over your franchise documentation, manuals or any other important information. It should be signed by all persons to which documents and information will be provided.

4. Franchise Documents

It is now time to send your franchise agreement, together with 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 be applied, in part, to the preparation of the franchise suite for this specific transaction. The franchise documents will also need to include:

  1. your current disclosure document;
  2. a copy of the Franchising Code of Conduct (the Code); and
  3. the information statement.

Tip: Under the Code, a franchise agreement cannot be signed unless it is provided in executable form at least 14 days earlier, along with the above documents.

5. Negotiations

Franchise negotiations can occur at any stage of the franchise grant process. Some franchisors choose to give prospective franchisees a copy of their standard documents early on 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.

Tip: Agreeing to amendments to your standard conditions can have flow-on effects. Ensure you consider possible long-term implications of any proposed amendment when your model or plans change.

6. Signing

After all the terms are agreed on, it is time to sign the documents. Two copies of the franchise agreement and disclosure document should be signed so that each party can keep an original copy.

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

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

Tip: Keep a record of all signed documents safe and easily accessible for future reference. A signed copy is vital for making amendments to the the agreement. 

7. Cooling-Off Period

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

Tip: Wait until the seven-day period finishes before expending significant time or money on a new franchisee – if they exercise the cooling-off rights, you can only regain ‘reasonable’ expenses.

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 agreement;
  5. negotiations;
  6. signing; and
  7. cooling-off period.

If you have any questions, contact LegalVision’s franchise lawyers today on 1300 544 755 or fill out the form on this page.

Jonathan Muncey
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