So you have established a business and are thinking about what the next steps are for growing your brand. Running an outlet of a franchised business is arguably a less risky business venture than some of the other models. Franchising one’s business has grown very popular in Australia in a range of industries because of its huge potential for growing a brand by licensing the intellectual property rights to the franchisees of a network.
Before you leap into the world of franchising, it’s important to consider the rather extensive requirements for setting up a franchise and whether or not your business is ready to expand to this level.
Is your business feasible as a franchise?
The first step is to conduct a ‘feasibility assessment’ to consider whether your business can, in fact, be replicated as a franchise.
Ask yourself;
- Is my business established enough to run [as] a franchise?
- Have there been test outlets or branches?
- Is the business or brand distinctive?
- Does the business have a solid reputation?
If you answered, “Yes” to the above, then you’re ready to proceed!
Development Plan and Operations Manual
Once you have decided to go ahead with creating a franchise, you need to create a Franchise Development Plan with the help of a franchise lawyer or business specialist.
You should consider the following essential issues:
- Who will the franchisees be? How much will you charge them?
- What will the Franchise System be?
- What is your marketing plan?
- How will each franchise operate? Will you (the franchisor) lease or licence premises to each franchisee?
- What Intellectual Property will be attached to the franchise? How will you protect it? Do your logos or designs need to be trade marked?
You will also need to prepare an Operations Manual, which sets out the processes, policies and procedures you will need to operate the business. It establishes the rules, standards and specifications relating to the franchise, similar to those that will eventually appear in your Franchise Agreement. The Operations Manual will cover issues such as sales and marketing, training, HR, business methods and intellectual property rights.
Franchising Code of Conduct (the Code) and Documentation Requirements
The Code comprehensively governs franchises in Australia, setting out requirements of franchisors, particularly in relation to recruiting new franchisees. The Code requires that franchisors disclose specific detailed information and provide specific documents to anyone that proposes to become a franchisee.
The Franchise Agreement is the main legal document that sets out the rights and responsibilities of both franchisor and franchisee, and must be drafted by a lawyer. A disclosure document and an information statement are required under the Code, as well as a summary of your business activities. These documents highlight the risks and rewards of purchasing your franchise and are intended to assist the prospective franchisee with making an informed decision about whether to proceed with the agreement. Finally you must provide the franchisee with an up-to-date copy of the Code.
All Franchise Documentation is due 14 days before a prospective franchisee enters into any agreement with you.
Conclusion
When you are thinking about franchising, it’s important to get off on the right foot. If the franchise is structured effectively and the franchisee and franchisor support one another in growing the brand and business, franchising can be a very lucrative and long-term business venture. If you are thinking about franchising your business, a specialist franchise lawyer will be able to advise you on your prospects and how to proceed.
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