How do I Franchise My 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. While the franchise journey will be different for everyone, we have set out some of the general steps below.
1 - Register Your Trade mark
You may have already registered your trade mark as part of establishing and growing your business.
If you do not have a registered trade mark, it is important to prioritise this as your initial step in the franchising process.
A trade mark serves as a unique identifier for your brand, protecting your business name, logo, and other distinguishing features from being used by others (in your trade marked category).
Failing to secure a registered trade mark could lead to significant legal and operational challenges. For instance, you may wish to grant a franchise in a specific location, but find yourself unable to do so because someone else is already operating a business under your name, or a similar name in that area (think Burger King vs Hungry Jacks). This can create confusion in the marketplace and potentially damage your brand's reputation. Additionally, it could lead to legal disputes over trademark infringement, which can be costly and time-consuming to resolve.
By registering your trade mark early, you ensure that your brand is protected and that you have the exclusive rights to use the trade mark to expand your franchise system.
2 - Develop Your Franchise Business Model
During this phase you will develop the franchise fee structure, including initial upfront fees, ongoing royalties, ongoing advertising fees and other financial arrangements.
It's 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. Conversely, if fees are too low, you might not generate enough income to grow the franchise and invest in advertising and marketing.
Establish guidelines for territory allocation (if any), 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:
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 an informed decision on whether to buy a franchise.
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.
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.
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.
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 franchise business. 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 Legal Requirements to Franchise Your Business
It is important that you understand your legal obligations in operating a franchise system. 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 special purpose funds [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].
7 - Marketing and Branding
Marketing support is another important 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.
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.
