Franchising as a business expansion method has a proven track record in Australia. If done properly and with care, it can be a great way for business owners to grow their brand.
Importantly, the franchising process takes time and there are many different components than exist in a stand alone business.
If you, or your client, is considering expanding your business through franchising, or indeed a new franchisor who is looking to grow, this article is for you.
The Operations Manual
The cornerstone of any successful franchise is its operations manual.
The purpose of an operations manual is to educate, inform and instruct new franchisees in how to run “your business.” This document (or series of documents) should include all business systems and procedures, as well as any specific business philosophies or customer service requirements which are integral to the business’s success.
The first step is to sit down and consider exactly what makes your business successful or gives it its’ point of difference, and translate those procedures and strategies in to a document which a new business operator will be able to follow.
Protect Your Intellectual Property
The intellectual property of your business is also vital to franchising.
The goodwill and reputation of your business will be heavily associated with its’ name, branding and trade marks. It is this goodwill and reputation which attracts franchisees to the franchise network. If you are thinking of franchising your business, you should undertake a review of any trade marks used by the business and look at registering these if you have not already done so.
Trade marks are valuable business assets and should be protected wherever possible. Franchisees will want to benefit from the recognition of your brand and trade marks in the marketplace. Ensuring these are registered will comfort your franchisees that the brand they are buying is protected.
Decide On Your Franchising Structure
There are a wide variety of franchising structures available. A simple franchising structure usually looks like this: Please see link for diagram
Depending on the type of business you operate there could be a number of alternative suitable options for asset ownership, revenue streams and intellectual property licensing rights.
Before making any decisions about your franchising structure, you will need sound legal, accounting and tax advice surrounding the options available to you and the benefits and drawbacks of each.
If you have already started franchising and have concerns or misgivings about the structure that is in place, it would be worthwhile seeking advice on restructuring in the early stages before your network becomes larger and more valuable.
Know Your Obligations
The franchising industry is regulated by the Franchising Code of Conduct. The Code is mandatory and failure to comply can have serious consequences for a franchisor. One significant obligation is the preparation of a Disclosure Document.
Your Disclosure Document must tell prospective franchisees all costs involved in establishing and running the business. To complete this you will need to thoroughly consider all costs currently incurred by your business and use this as the basis for providing disclosure to prospective franchisees.
What Documents Do You Need?
Once you have completed the above steps then it is time to start preparing your franchise documents. What documents will be required depends upon the type of business being franchised. Common documents involved in a franchise system are: Intellectual Property Licence Agreements; A Franchise Agreement; A Disclosure Document; A Confidentiality Deed; Leases or Licenses to Occupy; Finance Agreements; and General Security Agreements.
This is not an exhaustive list and either fewer or more documents may be appropriate.
The preparation involved in setting up or restructuring a franchise network is quite involved, however a capital outlay at the beginning of this process, when done properly and in consideration of your future business aims, can save your business significant expense in the future.