Granting Franchises

BEFORE THE FIRST GRANT

Are you ready to grant a franchise?

Before approaching prospective franchisees, you need more than a franchise agreement. Your franchise model, disclosure document, selection criteria and systems for training and supporting franchisees should be ready to put into practice.

If you are still developing those foundations, start with our guide to franchising your business. If they are already in place, the next step is to establish a consistent process for each franchise you grant.

EXPLORE FRANCHISING MY BUSINESS →

THE GRANT PROCESS

What are the steps to granting a franchise?

Each franchise grant follows a sequence, from a prospective franchisee's first enquiry through to signing and opening. A consistent process helps you assess the applicant, provide the required information at the right time and keep a clear record of the transaction.

01 - ENQUIRY

What happens when someone enquires about a franchise?

A prospective franchisee will express an interest in finding out more about the franchise system, either by filling out an online form or by contacting you directly.

After the initial contact is made, you will generally meet with the prospective franchisee for a preliminary discussion.

At this initial meeting you should provide the prospective franchisee with information about the franchise system together with sales material.

The prospective franchisee may ask detailed questions at this meeting such as How much income can I earn? and Are there any financial incentives?

You must ensure that any information provided to a prospective franchisee is accurate (either during the discussion or in any written material given). In addition, any written information provided to a franchisee should include a disclaimer which sets out the basis upon which the information is being provided.

If you are expecting to release detailed information about the franchise system at this stage, you can also provide the prospective franchisee with an NDA (Non disclosure agreement or confidentiality agreement).

Under section 22 of the Franchising Code of Conduct (the Franchising Code) you must provide a prospective franchisee with an Information Statement no later than 7 days after the prospective franchisee formally applies or expresses an interest in acquiring the franchised business.

7 DAYS
Send the Information Statement

Give a prospective franchisee the prescribed information statement within seven days of them formally applying for the franchise or expressing an interest in buying the franchise, and before giving them any other document.

02 - APPLICATION

How do you assess a prospective franchisee?

If a franchisee thinks that the franchise system is a "good fit" he or she will complete an application form.

An application form is far more detailed than an expression of interest form.

You will typically use the information contained in the application form to assess the suitability of the prospective franchisee.

Consequently, an application form will include details such as:

• the prospective franchisee's financial circumstances;
• the prospective franchisee's educational history;
• the prospective franchisee's employment history;
• the prospective franchisee's long term and short term goals.

In preparing an application form you should consider what information is needed to make an assessment of whether the prospective franchisee is likely to be successful in the franchise system.

Success indicators will vary between franchise systems. Some franchises are operated under management so the franchisee will need to have good management skills. Other franchises are owner-operated and may require the franchisee to have excellent interpersonal skills to build rapport with their customers.

All franchisees will be required to follow the systems created by the franchisor as consistency is key to a successful franchise system. 

Key areas to assess:

EXPERIENCE AND SKILLS

Does the applicant have the skills to operate the business, manage staff and follow systems? The answer will differ between an owner-operated business and one run under management.

FINANCIAL CAPACITY

Can the applicant fund the establishment of the business and meet its ongoing commitments, including during a period before it reaches expected trading levels?

EXPECTATIONS AND FIT

Does the applicant understand the degree of independence they will have, the standards they must follow and the support your system will provide?

03 - DISCLOSURE

What documents must you provide before granting a franchise?

Once you have decided to proceed with the applicant, you need to provide the documents required by the Franchising Code.

The prospective franchisee must have the opportunity to consider the proposed agreement and understand the franchise system before entering into it.

DOCUMENTS TO PROVIDE BEFORE SIGNING → 

The prospective franchisee is likely to seek independent advice at this stage.

You may also require a franchisee to pay a deposit, which is regulated by the Franchising Code.

It is important that the application document and the disclosure document are consistent in relation to the information provided about the deposit.

THE FRANCHISE AGREEMENT

Give the prospective franchisee the franchise agreement in the form you propose to sign, subject to the limited changes permitted during the disclosure period.

THE DISCLOSURE DOCUMENT

Provide a current disclosure document containing the information required for your franchise system and the proposed grant.

THE FRANCHISING CODE

Provide a copy of the Franchising Code with the disclosure package.

OTHER RELEVANT DOCUMENTS

Depending on the transaction, you may also need to provide leasing information, other agreements the franchisee must enter into, and earnings information in the form required by the Franchising Code.

The documents should tell a consistent story. Fees, the premises, the territory, supply arrangements and any information given during recruitment should be checked against the proposed agreement and disclosure document before the package is issued.

04 - REVIEW AND SIGNING

When can the franchise agreement be signed?

A prospective franchisee is unable to enter into or sign a franchise agreement until he or she has had the franchise agreement in the form in which it is to be executed for 14 days.

During the 14-day consideration period the franchisor may amend the franchise agreement:

• pursuant to a franchisee's request;
• to fill in required particulars;
• to reflect changes of address or other circumstances;
• for clarifications of a minor nature;
• to correct errors or references.

If the franchise agreement needs to be amended for any other reason, the prospective franchisee must be provided with a new disclosure document and franchise agreement (and supporting documents) and the 14-day consideration period is required to start again.

The prospective franchisee is unable to waive this obligation.

Further, before the prospective franchisee enters into or signs the franchise agreement and any other supporting documents, the franchisor must have received from the prospective franchisee signed statements required under sections 26 and 27 of the Franchising Code.

14 DAYS
The Consideration Period

Check the date the required documents were provided, and whether later changes or earnings information affect the earliest signing date.

05 - COMMENCEMENT

What happens after the franchise agreement is signed?

Once the franchise agreement is signed, you will generally deliver the training program, provide access to the systems and coordinate the opening of the franchise business.

A new franchisee generally has a 14-day cooling off period after entering into the franchise agreement. Additional cooling off rights can arise where the franchisee leases or occupies premises through the franchisor or its associate.

A franchisee's cooling off rights should be taken into account when scheduling payments, training, fit-out and commencement.

Franchise Grant Transactions

We help manage an individual grant from the initial information statement through to disclosure, proposed amendments, required statements and signing. We can also prepare application and confidentiality documents and keep a record of the steps completed.

FRANCHISE CONSULTING →

Premises and Supporting Agreements

Where a franchise operates from premises, the lease or occupancy arrangements need to work with the franchise agreement. We can advise on leasing and prepare related documents, including property licenses and step-in arrangements where required.

RETAIL AND COMMERCIAL LEASING →

Disclosure Documents

Your disclosure document needs to reflect your franchise system and be current when it is given to a prospective franchisee. We prepare disclosure documents for new franchisors and help established franchise networks review and update theirs.

FRANCHISE DEVELOPMENT SERVICES →

Ongoing Franchisor Support

Advice on granting franchises, compliance, franchisee issues, transfers, renewals and the ongoing operation of your network.

SUPPORT FOR FRANCHISORS →