2023 Review of the Franchising Code - Key Findings and Recommendations
On 8 February 2024, the Minister for Small Business, the Hon Julie Collins MP, released the...
Franchising is what we do, and it's what we have been doing for 40 years.
Buying or renewing a franchise is an important decision that shouldn't be taken lightly.
Whether you're a seasoned entrepreneur or a first-time franchisee, it's essential to consult with an experienced franchise lawyer before signing any agreements.
Our franchise lawyers have extensive knowledge of the franchise industry (we have been providing advice to the franchise industry for 40 years) and can identify any potential risks or issues in your documents.
We will provide advice on standard terms and any unusual or unfair provisions. We will also provide you with real world examples based on our experience as to how certain clauses operate and the possible consequences for you and your business.
Additionally, we will let you know your legal rights and protections under the Franchising Code of Conduct.
We offer fixed fee pricing to give you certainty, and can accomodate short turnaround times.
We will meet with you either in person or remotely for approximately an hour to go through the franchise agreement and disclosure document in the meeting (but not read the franchise agreement in detail beforehand).
We will answer any questions that you may have about the franchise agreement and we will provide you with general information about franchising and the risks associated with buying a franchise business.
We will read and review the franchise agreement in detail and go through the franchise agreement with you in an in-person or remote meeting of approximately one and a half hours, highlighting and explaining any clauses that we consider you should be aware of, that are important or that we believe are harsh or unusual.
We will answer any questions that you may have about the franchise agreement and we will provide you with general information about franchising and the risks associated with buying a franchise business.
We will read and review the franchise agreement in detail and go through the franchise agreement with you in an in-person or remote meeting of approximately one and a half hours, highlighting and explaining any clauses that we consider you should be aware of, that are important or that we believe are harsh or unusual and we will provide you with a written review.
We will answer any questions that you may have about the franchise agreement and we will provide you with general information about franchising and the risks associated with buying a franchise business.
Partnering with an established franchisor can give you access to a tried and tested system with a market presence, providing an instant identity for your business.
With a franchise, you may be able to access advertising opportunities that would normally be too expensive for small businesses to pursue on their own. This may include tapping into the benefits of national advertising campaigns.
Well established franchisors will train you in everything from technology, to accounting, to standing behind the counter and taking money.
You may be able to tap into the bulk purchasing power and negotiating capacity made available by the franchisor.
Buying a franchise is not cheap, there is usually an up front franchise fee on top of the cost of the premises, equipment and inventory.
You need to be aware of the ongoing fees. In addition to the initial franchise fees, ongoing fees are payable by you to the franchisor.
You also need to be aware that some franchisors will require you to refurbish franchisee stores to keep up with a changing image or theme. These possible refurbishments can cost in excess of $150,000.00.
If you're considering purchasing a franchise, it's important to understand that there will be specific controls and limitations set by the franchisor. These can cover a range of critical areas such as products, pricing, employees, policies, territory, marketing, and work hours. Essentially, you won't have complete freedom to run the business as you see fit. Additionally, if you plan to sell or transfer the franchise later on, be aware that there may be restrictions or obligations in place.
If the franchisor or other franchises associated with the franchise system receive unfavorable press or have a negative public perception, it could have a negative impact on your business. Though there are many commendable franchisors in Australia, some franchises may not be well-established or effectively managed. As such, it is crucial to conduct in-depth research on the franchisor and only engage in franchise systems with a proven and reputable track record in the industry.
When it comes to franchised ventures, growth potential may not be as unlimited as in standalone businesses. Franchisors typically set specific territories for operation, with strict penalties for breaching those boundaries.
Franchise agreements heavily favour the franchisor and can result in severe penalties if certain clauses are breached. This may include termination of the franchise agreement and monetary compensation sought by the franchisor.
Regardless of the franchise's reputation, seeking independent legal advice is imperative before entering into any agreement.
Buying a franchise typically requires a significant upfront investment. There is a risk of financial loss if the business doesn't generate sufficient revenue to cover ongoing expenses and any borrowing costs.
Just because the franchise brand is successful, doesn't automatically mean that your franchise business will be successful. The success of your franchise business can depend on various factors, including market conditions, competition and location. There is a risk that your franchise may not perform as well as other franchises in the network.
Buying a franchise is not the same as starting or buying a business. When you buy a franchise you buy the right to use the franchisor's name, intellectual property and systems for a certain period of time. Generally, a franchise agreement will contain a 5 year term, with a right or rights of renewal. Renewing the franchise is not normally automatic and you may be required to pay further upfront fees to renew (you may also be required to undertake further capital works on renewal).
A franchise agreement is a legally binding contract between two parties: the franchisor and the franchisee.
It outlines the terms and conditions under which the franchisee is granted the right to operate a business using the franchisor's brand, trademark, or business model.
Under the terms of a franchise agreement a franchisee is usually granted the right to use the franchisor's name, trade mark and system, within a certain defined territory (or site) for a certain period.
The franchise agreement will also set out the franchisee's obligations such as:
1. Intellectual Property: The franchise agreement details the permitted use of the franchisor's trademarks, logos, trade names, and other proprietary assets.
2. Franchise Fees: The franchise agreement outlines the financial obligations of the franchisee, such as upfront fees, ongoing royalties, advertising contributions, or other payments to the franchisor.
3. Territory and Exclusive Rights: The franchise agreement defines the geographic area where the franchisee is allowed to operate and whether they have exclusive rights to that territory or face competition from other franchisees.
4. Operating Standards: The franchisor establishes specific guidelines, standards, and procedures that the franchisee must follow to maintain consistency in the business operations, product quality, customer service, and branding.
5. Training and Support: The franchise agreement may outline the training programs and ongoing support that the franchisor will provide to the franchisee, including initial training, operational assistance, marketing support, and access to proprietary systems or technologies.
6. Term and Renewal: The franchise agreement specifies the initial term of the franchise agreement and any renewal options, as well as conditions for termination or non-renewal.
7. Transfer and Exit Options: The franchise agreement may address the conditions and procedures for transferring ownership of the franchise to another party or selling the business, as well as any restrictions or approval requirements.
8. Dispute Resolution: The franchise agreement includes provisions for resolving disputes between the franchisor and the franchisee, such as through negotiation, mediation, or arbitration.
Franchise agreements are complex documents that protect the interests of both parties involved and provide a framework for the successful operation of the franchise. It is important for both franchisors and franchisees to carefully review and understand the terms of the agreement before entering into this business relationship.
On 8 February 2024, the Minister for Small Business, the Hon Julie Collins MP, released the...
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