Franchise My Business: Ultimate Guide + Steps

Franchising your business can be a daunting task, but it can also be extremely rewarding if done correctly. It offers a way for business owners to expand their reach and generate additional income.

If you want to franchise your business, you typically copy your business (or the part of your business that you want to franchise) along with  its procedures and methods. This allows other people to run an exact copy of your business.

Whether franchising your business is a viable option for you depends on understanding several key factors, including the legal requirements of franchising and the overall demand for your product or service.

We have set out below the benefits that can come from franchising, possible risks that may arise when considering franchising a business, and strategies needed to begin the process.

What Is Franchising?

Can I Franchise My Business?

Advantages to Franchising Your Business

Disadvantages to Franchising Your Business

What Is Franchising?

When you decide to franchise your business, you offer others the chance to open new franchise locations. These locations will mirror your established business model. This arrangement gives franchisees the right to use your trademarks, name and other intellectual property. They can also benefit from your specialised training, business systems, and continued support.

You will receive initial franchise fees and ongoing royalties. Franchisees will work to establish and manage new locations, which in turn, will generate greater sales for your brand.

5 Advantages of Franchising Your Business

1 - Franchisees Invest the Capital

Business growth typically requires capital investment. This capital investment can be substantial, especially if business growth involves opening stores in different locations. Franchising allows you to expand without increasing debt or the cost of equity.

If you franchise your business, your franchisees will invest the capital needed to grow the brand. This capital may include substantial fit out costs, an initial franchise fee (paid to you) and the working capital required to establish the business.

In addition, typically the franchisee will sign the lease with the landlord, reducing one of the risks involved with operating multiple sites.

2 - Greater Buying Power

As the franchise network grows, you will have more bargaining power with suppliers. Further, expansion may allow you to customise products. For example, most coffee franchises have their own particular blend of coffee. This blend may form part of the competitive advantage or USP of the brand.

Also, as the franchise network grows, you will have access to more funds to market and advertise the brand, through the advertising fund.

3 - Growth

Franchising enables you to grow your brand more quickly because you are not constrained by either financial or personal resources.

If your business goal is to open 10 locations in the next 12 months, each costing $300,000.00, you would need to find $3,000,000.00 plus working capital to grow the business organically. In addition, you would need to find locations and employees to operate and manage those locations. 

If you franchise your business, the franchisee will find the location, finance the fit out and employ the staff to operate and manage the locations.

4 - Franchisees have a stake in the business

Unlike in an employment relationship, a franchisee has a financial stake in the business. It is in the franchisee's interests to maximise the profitability of the individual franchise business.

Franchisees will generally outperform managers, both in generating turnover and in keeping an eye on expenses. For example, labour costs are generally better managed by a franchisee, as they are usually more careful with wages and scheduling. 

5 - Franchisees are responsible for the day to day

A franchisee will often work in the franchise business and is responsible for employing and training staff.

If you are not responsible for the day to day operations of the franchise business, this will allow you to focus more on the big picture, including innovation and brand management.

Franchisees will also often undertake their own local marketing, both digital and traditional. Some franchisees are permitted by the franchisor to manage local facebook pages - building rapport and brand loyalty with their local customers.

5 Disadvantages of Franchising Your Business

1 - Loss of Control

The flip side to the franchisee being responsible for the day to day operation of the franchise business is that you do not have control of the day to day operation of the franchise business.

It is essential that your systems and processes are clearly documented and that your franchise documents adequately support franchisee compliance.

In addition, it is essential that franchisees and their employees are well trained.

2 - Training and Continued Support of Franchisees

The development and implementation of a good training program which will produce compliant franchisees requires time and resources.

A common complaint made by franchisees is that their initial training was very basic and that they commenced operating the franchise business without really knowing what to do.

Franchisees also require continual support. Again this requires additional resources. You may need to employ specialised staff to undertake this role.

3 - Poorly Performing Franchisees

Perhaps one of the greatest challenges for a franchisor is managing poorly performing franchisees.

Often a franchisee is "locked in" to their franchise, due to financial investment and may be forced to continue to operate the franchise business when they are no longer motivated to do so.

If a franchisee is not performing and is unhappy, they can be difficult to move on and they can damage your brand.

Again, it is vitally important to have adequate systems and procedures in place to ensure compliance and to give you the ability to terminate the franchisee if it is in the best interests of the franchise network to do so.

4 - Compliance Costs and Risk

You need to ensure that you comply with the Competition and Consumer Act 2010 (Cth) and the Franchising Code of Conduct ("the Franchising Code") [What is the Franchising Code of Conduct?].

In addition, you need to ensure that franchisees are complying with relevant laws such as the Privacy Act 1988 (Cth) and the Fair Work Act 2009 (Cth) (the Fair Work Act).

In 2017 "franchisor liability" laws were introduced which include franchisor accessorial liability for serious contraventions of the Fair Work Act by franchisees.

5 - Managing Growth

The flip side to "fast growth" is ensuring that your new business as a "franchisor" has the resources required to adequately manage the franchise network.

The business of franchising and being a franchisor is different from operating the business that you have franchised. You will need to ensure that you have the staff and the systems that can support an expanding franchise network.

10 Steps to Franchise Your Business

Once you have evaluated your business model and made the decision to franchise your business, there are a number of steps that you need to take before you can grant your first franchise and open your first franchised location. While the franchise journey will be different for each person, we have set out the general steps below.

1 - Register Your Trademark

Do you have a registered trademark?

You may have already registered your trademark as part of establishing and growing your business.

If you do not have a registered trademark it is important to take this first step. You may want to grant a franchise in a specific location, but not be able to because someone is already operating a business under your name in that location.

2 - Develop Your Franchise Business Model

At this stage you will develop the franchise fee structure, including initial upfront fees, ongoing royalties, ongoing advertising fees and other financial arrangements. It is important that you get advice and assistance from franchise professionals (such as franchise consultants, accountants and franchise lawyers) to develop the model and fee structure. If fees are too high, then franchisees may not be able to achieve an acceptable return on investment. If fees are too low, you may not generate enough income to grow the franchise and invest in advertising and marketing.

Establish guidelines for territory allocation, training, marketing support and operational standards.

Often this step will form part of the next step [Develop Your Franchise Documents] and may be undertaken at the same time.

3 - Develop Your Franchise Documents

In order to grant a franchise, you will need to develop a number of franchise documents including:

• a franchise agreement [What is a franchise agreement?];
• a disclosure document [What is a disclosure document?]; and
• a Key Facts Sheet.

It is important that you seek advice from an experienced franchise lawyer to develop these documents. Franchising is complex and a number of laws and regulations govern the franchise industry.

A well drafted franchise agreement will reflect your business model and will clearly set out the rights and obligations of both you and the franchisee.

A franchise agreement must comply with the Franchising Code, but must also comply with the unfair contracts regime under the Australian Consumer Law.

In addition to the franchise agreement, you must also develop a disclosure document that complies with the Franchising Code. The disclosure document should contain information that a prospective franchisee needs in order to make a decision on whether to buy a franchise. 

The Key Facts Sheet sets out some of the information contained in the disclosure document in a summarised form.

4 - Develop Franchisee Selection Criteria

In our experience, people sometimes franchise their business because they have a well known brand and people have approached them to "buy a franchise".

Prior to granting a franchise, it is important that you identify the qualities, skills and experience that you are seeking in potential franchisees. Generally, a franchisee application form will be prepared as part of your franchise document package. This form will provide you with information about a prospective franchisee, including qualifications, experience and financial standing.

A franchisee that lacks skills, capital or commitment, can cause a franchise site to fail and damage a franchise system's reputation.

Remember that you don't need to accept every application.

5 - Develop Franchisee Training Programs

Developing comprehensive training programs that cover all aspects of the business, from operations to marketing will help franchisees feel confident and equipped to run their own outlet. Most training materials and operations manuals are now delivered online, which means that you can continue to develop your training materials and operations manuals as the franchise system matures.

Ongoing support should also be provided to franchisees, whether through regular check-ins or meetings to address any questions or concerns that franchisees may have.

6 - Understand your Legal Obligations

It is important that you understand your legal obligations before establishing a franchise location. In addition to providing a prospective franchisee with franchise documents that comply with the requirements of the Franchising Code, there are ongoing obligations set out in the Franchising Code. These include obligations related to the marketing fund (if the franchise system has a separate fund) [Franchise Marketing Funds Obligations], obligations for ongoing disclosure, obligations related to significant capital expenditure [Significant Capital Expenditure Obligations], and the obligation to act in Good Faith [Good Faith in Franchising]. If you do not comply with your obligations under the Franchising Code, you may be subject to substantial penalties [Infringement Notice Penalties for Franchising Code Breaches].

Further, as a franchisor, you may also be liable for penalties arising from a failure by franchisees to comply with workplace laws [Franchisor Liability and the Fair Work Act]. Many franchisors conduct ongoing checks of franchisees, to ensure that franchisees are complying with their obligations under the Fair Work Act.

7 - Marketing and Branding

Marketing support is another crucial element of a franchise network. Franchisees should have access to professionally designed marketing materials, such as brochures, menus and digital templates, to promote their business effectively.

It is important that you develop marketing guidelines to maintain brand consistency.

One of the decisions you will need to make is how much marketing you as the franchisor will undertake for the brand, and how much marketing the franchisees will undertake for the brand. For example, will franchisees manage their own local social media pages, or will social media be undertaken on a global basis.

Local marketing initiatives are important for a franchisee to build rapport with their local community. Consider what local marketing initiatives can be undertaken by the franchisee.

8 - Franchisee Relationship and Communication

Establish clear communication channels and processes to ensure that information flows smoothly between you and your franchisees.

Effective communication processes help maintain consistency and adherence to the franchise system and standards.

Take into account that as the franchise system matures and grows, you will be unable to provide all franchisees with individual attention.

9 - Establish Supplier Relationships

Relationships with suppliers are integral to most franchise systems.

In retail food franchises it is imperative that suppliers have the capacity to supply both the increased number of sites, and additional locations. Remember that franchisees will quickly become frustrated if they are not able to maintain inventory. Additionally, you want to ensure brand consistency.

If it is proposed that sites be opened in new locations, you may need to establish new relationships with local suppliers. 

Shop fitters and equipment suppliers are additionally important for site based franchises. One of the foundations of franchising is that each location feels the same.

Other supply relationships must also be explored, such as software partners and uniform providers. 

10 - Establish a Growth and Expansion Strategy

Consider the pace and scalability of growth, ensuring that infrastructure, resources, and support systems are in place to accommodate planned growth.

If you have a good or service which is unique or new to the market (and given that infrastructure and resources are in place), you may aim for fast growth in order to capitalise on being first to the market.

If fast growth is not the best strategy for your business, you may choose more steady growth, possibly opening a number of corporate sites to generate cash flow.

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