When you imagine some of Australia’s most successful businesses, you probably envision the names of logos of those businesses. These are a business’ trade marks, and form a primary part of its intellectual property assets. If you’re pondering what it would be like to own your own franchise business, consider the value that these trade marks bring, and the earning potential you will gain from having the right to use these marks and trade under an established brand name. 

 

In every franchise relationship, the franchisor, which is usually an organisation, is the party or entity licencing its brand under the business structure of a franchise. The franchisee, on the other hand, is the individual or organisation that, upon buying into the franchise, is granted usage rights over the franchisor’s intellectual property, and is therefore permitted to run a business under the franchisor’s brand and marketing system.

Most of the time, you’ll be inheriting a tried and tested business model with proven processes and systems, and you’ll benefit from the business acumen and know-how of the franchisor. You will also have the advantage of running a business under a brand name that has already been built up and has an established reputation and goodwill in the marketplace.

 

This means you get to run your own branch of a business that may have had broad success in various other locations and outlets, as opposed to building your brand from the ground up.

Along with the supposed advantage of inheriting an established brand, comes the possible disadvantage of becoming associated with a brand that may be tarnished in some way at some point in some other location because of the actions of another franchisee. Perhaps you buy into a fast food franchise that, two weeks later, is all over the news for food poisoning discovered in the cheeseburgers of an outlet in another state. The possible implications is that your business will be tainted as a result of the negative media coverage, despite the event taking place in another outlet.

 

The initial and ongoing expenses are considerable when you add them up, not to mention the administrative tasks such as record keeping and regular reporting requirements, which can be overly burdensome and time consuming. With little room to deviate from the status quo, some franchisors become unfulfilled and feel constrained under the franchise system.

 

After working so many hours every week to build up the reputation of your business, you might find yourself in a situation where the franchisor is entitled to buy back your popular branch under the ‘buy-back’ clause of the franchise agreement. The price is also often fixed at the outset of the agreement, which mightn’t be a fair reflection of the true value and goodwill you have generated over the years running the business.

The Franchising Code of Conduct governs the rights and obligations of both parties before, during and after a franchise relationship. Importantly, it mandates certain disclosure requirements, and ensures there is a 7-day cooling-off period after the franchise agreement has been signed.

As always, it’s a good idea to speak with a franchise lawyer about the terms and conditions of any of the franchise documents. It’s also wise to speak with previous and current franchisees to get an insight into the extent to which the franchisor supports its franchisees in its franchise network.