Are you looking to start your own or expand your already existing optometrist business? If so, you will need to decide upon a business structure that best suits your business. The business structure you choose will determine the path your business takes during its lifetime. It is then important that you understand the workings of each and every business structure available to you, and the pros and cons of each.
Each business structure has different legal implications, and you should seek professional advice at some point during the process. We set out two business structures available to you that are typical of an optometrist business – namely, a franchise and partnership.
Should I Choose a Franchise Business Structure?
There are two options when choosing the franchise business structure – joining an already established franchise, or forming your own. Establishing your own franchise is likely to require significant legal advice, and so this article will focus on the key aspects of joining an already established franchise.
What is a Franchise?
A franchise is a business structure whereby the owner of the franchise (Franchisor) permits another individual (the Franchisee) to operate under the already established brand of the franchise, selling its goods and services.
What Do I Need to Know About Joining a Franchise?
As a franchisee, you will need to know the ins and outs of the Franchising Code of Conduct. Some questions you will need to ask that the Code covers include:
- What does it mean to act in good faith?
- What penalties apply for breach of the Code, and what amounts to a breach?
- How are disputes between franchisor and franchisee resolved?
- Has the franchisor disclosed the relevant information, as required under the Code?
The relevant information the franchisor should provide you with includes:
- The franchise agreement;
- An information statement;
- A disclosure document; and
- A copy of the Franchising Code of Conduct.
It is prudent to speak with a franchise lawyer when reviewing these documents. You should also review the Franchisee Manual available from the Australian Competition and Consumer Commission (ACCC).
What are the Pros and Cons of a Franchise?
The franchise business structure has several advantages for the franchisee, namely:
- The brand, products and/or services are already established, along with the brand’s reputation in the marketplace;
- Independence of running your own business;
- Already established systems and procedures; and
- Support with location, fit-out and equipment.
There are however some disadvantages to consider before choosing the franchise structure:
- You must pay ongoing costs to the franchisor;
- Less decision-making power with business operations;
- Location restrictions, meaning you can only operate in a certain area;
- The area or ‘territory’ granted may or may not be exclusive, which means others may compete with your business;
- There is usually a ‘restraint of trade’ provision which prevents you from operating a competing business for a term after the agreement has ended;
- Damage to the reputation of the franchise is damage to the reputation of your business.
Should I Choose a Partnership Business Structure?
The partnership business structure allows you to pool your resources, giving you greater equity than you would achieve as, for example, a sole trader. Unlike a franchise, a partnership will provide you with much greater control over the make-up and direction of your business. As will be seen, the partnership structure requires complete trust between partners to operate effectively.
What is a Partnership?
In a partnership, two or more people operate a business using shared resources, and the businesses income and losses are shared among the partners.
What are the Pros and Cons of a Partnership?
The advantages a partnership can offer you are:
- Relatively inexpensive to start up and maintain;
- Easier access to financial resources, due to the partners shared resources;
- Earning tax benefits, while having minimal requirements for lodging tax returns; and
- Shared skills and intellectual resources.
However, certain disadvantages flow from the fact that all partners have complete control of the business:
- If one partner makes an agreement on behalf of the partnership and it turns out to be a mistake, all partners are liable for that mistake;
- Unless the partnership is defined as ‘limited liability’, all partners have unlimited liability for the debts of the business, which puts their own assets at risk; and
- Without a well-drafted agreement, there is a risk of disputes between partners
This article has unpacked two business structure options that would suit an optometrist. But there are many more available, and you should choose the structure that best suits you and your business. Before making any decisions about your business structure, get in touch with our business structure specialists on 1300 544 755.