Franchising code amendments - dispute resolution
The long awaited dispute resolution provisions under the Franchising Code of Conduct (the...
If you want to franchise your business, you typically copy your business or that part or your business that you want to franchise and its systems and processes in a way that enables others to operate a business identical to your business.
We have the experience to help you get it right.
When assessing whether you can franchise your business, factors to be considered include:
A brand is reflected in everything that your business does from marketing, to menus, to uniforms, to the look and feel of your premises.
You may work with a graphic designer to assist you with the look of your brand and logo. This can include colours, fonts and design.
You may also work with a brand strategist to further develop the application of your brand, including the use of tag lines which convey your brand message.
Do you have business systems in place that can be easily followed and replicated?
It is important that all of your key business activites have documented processes, prodedures and standards.
The feeling and experience that a customer has at each franchise location must be consistent.
If a franchise location for some reason does not 'feel' like your brand, customers are unlikely to return and your brand consistency will be damaged.
To ensure consistency in products, you will need to either supply the franchisees with products or nominate approved third party suppliers who must be used by franchisees.
Quality and consistency is generally determined by franchisee selection, franchisee training, ongoing support and franchisee compliance.
There is no guarantee that the initial demand for a product or a brand will be sustained. The life cycles of products and services may be shortened by technological advances and new competitors may enter the market.
When considering the sustainability of the market for your product or service, you should again consider your target market and your Unique Selling Proposition.
Business growth typically requires capital investment. This capital investment can be substantial, especially if business growth involves opening stores in different locations. Franchising allows business owners 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.
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.
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.
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. In addition you would need to find employees to operate and manage the locations.
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.
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.
The development and implementation of a good training programme 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.
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.
You need to ensure that you comply with the Competition and Consumer Act 2010 (Cth) and 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 included franchisor accessorial liability for serious contraventions of the Fair Work Act by franchisees.
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.
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