So you want to franchise your business?

by McColm Matsinger Lawyers



 

 

 

So you want to franchise your business?

As a business owner, perhaps you have asked yourself the question, do I want to franchise my business?

Franchising can be a very effective means of expanding an existing business.  The nature of a franchise can be described as:-

“A franchisor, holding property rights over a marketing system, business service or product (identified by a brand name or trade mark) enters a contract or agreement with the franchisee and grants, under certain conditions, the right to use a business brand name or trade mark and the right to produce or distribute the franchisor’s product or service. [1]

There are a diverse range of Franchise systems in Australia encompassing many different industries and businesses of all sizes, and there is undoubtedly still much growth to come in the Franchising sector.

If you are considering franchising you need to ask yourself several questions.

Do you have a business that:-

  • Operates successfully, i.e. has a proven positive cash flow.  You need to be franchising a proven system not simply a great idea or concept which hasn’t been proven.
  • Is able to be systemised and replicated.  Franchisees need to be taught how to use your system or method of doing business.  It is essential that your system and business methods can be replicated.  Your business requires development of a detailed Operations Manual which documents your business system in its entirety.  This Manual is used as a training tool and as a reference point for Franchisees.
  • Has an identifying name or trademark.  Your concept needs to be unique and provide Franchisees with a competitive edge by use of a distinctive brand and image.
  • Has a proven track record and is sustainable.  Your system needs to have staying power and be more than a passing fad with a limited lifespan.
  • Is capable of generating sufficient income for you as the Franchisor and to sustain the Franchise network. 
  • Is capable of generating sufficient income for your Franchisees.  The business has to be financially viable after payment of ongoing royalties and marketing fund contributions.

Do you have what it takes to Franchise?

  • Do you have a very strong desire to grow?  This desire is best based on your confidence in your business and a vision for growth which need to be matched by your commitment to make it happen.
  • Are you prepared to accept the responsibility for other people’s capital and assets.  Franchising can reduce the risks of entering into business but it certainly does not eliminate them.
  • Do you have sufficient time and capital to invest in developing your franchise strategy. The best foundation that you can lay is developing a sound franchise system.  To achieve quality and a business that is sustainable for both parties, i.e. the Franchisor and the Franchisee, you need to be focussed and prepared to invest a significant amount of time in establishing your franchise system i.e. at least four to six months.  You also must be prepared to invest enough capital to ensure that all facets of your business are properly developed and systemised, and ready to be franchised.    These steps will include:-
    • the development of Operating Manuals;
    • implementation of a comprehensive training program;
    • ensuring any computer based programs that are part of your system are up to date and problem free;
    • ensuring your Intellectual Property is protected, i.e. registering your trade mark;
    • choosing and setting up an appropriate legal structure to franchise your business; and
    • preparation of the documentation required to comply with the mandatory Franchising Code of Conduct, including a Disclosure Document and your Franchise Agreement.
  • Key decisions need to be made early in the development of your Franchise strategy, and you will need to source expert advice from industry consultants experienced in Franchising including Business Advisors, Accountants and Lawyers.
  • You need to consider your ability to recruit, train and motivate your Franchisees.  Careful selection of Franchisees is imperative if the network is to grow and prosper.  You need to be able to communicate effectively and develop relationships with all different sorts of personality types. 

When developing your Franchise system, there is a wealth of sources of information available.  You cannot read too many books on Franchising and business, or talk to too many existing Franchisors and Franchisees about their experiences.  Visit the Franchise Council of Australia website at www.franchise.org.au and the publications section for some valuable resources on franchising your business.

The keys are “to make haste slowly” and “if it’s worth doing, its worth doing properly”.  For assistance with Franchising please contact McColm Matsinger Lawyers.

CHRISTINE MATSINGER

McCOLM MATSINGER LAWYERS

Ph: (07) 5443 1800

www.mmlaw.com.au

[1] The 1997 House of Reps sector. Standing Committee on Industry, Science and Technology, Finding a Balance: Towards Fair Trading in Australia, AGPS, Canberra. May 1997

 

 

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