Turning your business into a franchise model

March, 2018

By Warren Scott, Partner and Cassandra Taylor, Lawyer at Mills Oakley

Have you ever considered implementing a franchise model for your business?

If you are a business owner and are looking to expand your business, you should consider turning your business into a franchise network.

Franchising offers a number of benefits to business owners who are seeking to grow their operations. This article aims to look at some of those advantages of implementing a franchising model.

Many different businesses have grown using franchising; these include retail shops, restaurants, plumbing businesses, physiotherapy businesses, recruitment companies, professional service companies etc…The franchising model works well in many different industries.

Fast and cost-effective business growth

Franchising your business allows you to achieve growth at a rapid rate.  This is because the franchisees bring their own capital to their business rather than you needing to raise funds through your own capital or by borrowing money.  This allows the franchisor to grow its brand quickly and expand into new locations and markets.  It also means the inherent risks usually associated with expansion of a business are shared by both the franchisee group and you as the franchisor.

Franchisor’s future costs are also reduced as franchisees will continue to cover ongoing expenses such as rent, employee wages and service fees including IT and point of sale systems.

Reduced risk

It is the franchisee who will sign up to the various contracts such as the lease, supply agreements and equipment loans.  This means that the risk inherited by a franchisor is significantly lower than that of a small business owner.

Franchisee motivation

As well as providing the capital for the growth of the franchise, franchisees are also motivated to provide maximum performance to ensure they too enjoy the benefits of a successful franchise.

It can often be difficult to find suitable managers to oversee your business.  However, with a franchise network, the manager of the franchise will also be the business owner.  This means that since a franchisee is invested in the success of the business, they will be more motivated and committed to ensure the franchise operates as profitably as possible.

Another big advantage for franchisors is that franchisees will want to ensure their staff and employees are adequately trained and equipped with the required knowledge.

Often franchisee agreements will last for several years and since a franchisee invests a considerable amount of money when it takes on a franchise, they will provide continuity in your business network. The longer the franchisee owns and operates a franchise, the more knowledge they will gain in respect of the franchised business.

Franchise network unison

With the help of professionals, a well drafted franchise agreement ensures that all franchisees are operating their franchises in unison with the rest of the network. This means that the power still resides with the franchisor as it gives you control over the entire franchise network.

For example, as a franchisor, you can ensure each franchisee is using the same marketing and advertising material, provides certain goods and/or services and uses particular equipment, tools and systems.  You can even decide whether you want all franchise employees to wear a uniform or if a franchisee should buy its goods from a certain supplier.

Ease of involvement

Franchisors have fewer responsibilities than those of a typical business owner in relation to the day to day operations of each location.  This is because franchisors do not have to be directly involved in the day to day running of a franchise and the operational problems that may arise.  For example, working out rosters and finding a cover when an employee calls in sick.

Provided a franchisor has found suitable franchisees to operate the business, a franchisor has the time and freedom to concentrate on growing its brand.

What is the process of setting up a franchise network?

Turning your business into a franchise network is not an overnight process; however, with the help of the right professionals, you could be enjoying the benefits of a franchise network before you know it.

Here is quick 5-step overview of how to implement a franchise model:

  1. Work out your company structure – once you have decided to franchise your business, you should discuss with your accountant about how your company structure should look.  Often franchise network will have different companies to serve different purposes.
  2. Consider your territories/location/mobile operations– next you will need to decide where you want to open your franchises or if they will be mobile or have other industry specific focus.  Do you want your franchises to be inside shopping centres or street stores?  Will you start in one state or all over Australia?  
  3. Get the right documentation in place – you should ask a legal professional or franchise expert to assist in preparing the relevant documents, which includes a disclosure document, franchise agreement and a number of certificates.  Getting your franchise agreement right is very important as it will consider the commercial arrangement of your business and what is required of the franchisees.
  4. Ensure your franchise system is ‘Code compliant’ – the Franchising Code of Conduct is a mandatory code that applies to all franchising conduct.  It contains a number of requirements that you must comply with as a franchisor.
  5. Begin signing up franchisees – once you have all the correct documents in place and some locations ready to go, you can begin signing up franchisees and watch your business grow!

Warren Scott | Partner
T: +61 3 9605 0984
E: wscott@millsoakley.com.au



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