When considering how to grow your SME business and capitalise on the success of your established brand, it’s wise to look at franchising to see if it’s a good fit for your enterprise.
Franchising is a $172 billion industry in Australia, made up of more than 94,000 businesses, according to IBIS World. Franchise operations are found in a variety of industries from real estate to mortgage broking, bookkeeping, travel, retail, and food outlets, and the sector employs well over half a million people nationally.
The benefits of a franchising structure:
Expanding your business using this model requires less capital outlay on your part (as the franchisee puts up the capital), allowing you to potentially capture more market share faster.
Helps you retain high-performing, ambitious staff who may want to run their own business using your already successful brand, systems, and marketing tools etc. Importantly, an owner is often more invested in the success of a business than a manager.
Making the most of your investment in developing your current business processes and systems, training, brand, database etc.
Fast-tracking your retirement plans.
Offering a succession plan.
By extending the life of your successful operation, your business can provide important goods or services to a larger number of people.
As a successful business owner, the hard work you’ve put into get where you are can be leveraged by using a franchising and/or licensing structure – but it’s essential you get the structure right from the outset and engage expert help to correctly prepare documents and protect your enterprise, including confidential information..
With the support of a trusted franchise lawyer, you can target new markets and locations with less outlay and risk, as your product or service has already been shown to be in demand.
How does franchising work?
In a nutshell, when you franchise your business, you allow another business owner (the franchisee) to operate a store modelled after your own and under your brand name.
As the franchisor, you enter into an agreement with the franchisee that allows them to sell your products or services, for a set period of time, in return for payment. You retain control of the brand, name, business systems and intellectual property (IP) and support the franchisee by providing training, leadership, guidance and access to business systems and tools.
Licensing is another type of model where business owners (the licensor) allow another person (the licensee) to use some of their IP (for example, a logo, trade mark , design, or technology like unique software) for a period.
The licensee will usually pay an annual or one-off fee for this access. Licensing generally requires less ongoing support from the licensor but, although the licensor retains the rights to their IP, they have less control over how the licensee uses it.
However, it’s important to ensure that your license agreement is documented carefully. For example, simply calling an arrangement a license does not mean it will not fall under the Franchising Code of Conduct. We recommend you receive advice on your license agreement to ensure you are not inadvertently contravening the franchising legislation.
Franchising & the law
Whether you opt for the franchising or licensing model to grow your business, legal agreements are required to outline the terms for both parties.
In Australia, there is a Franchising Code of Conduct that franchisors and franchisees must comply with. Franchisors must also provide a copy of this Code, as well as number of other documents, before a franchisee enters into a legal agreement. These include:
a disclosure document;
business fact sheet;
information statement; and
the franchise agreement (which is a legal contract both parties must follow).
The Australian Federal Government recommends business owners seek professional advice before entering into a franchise agreement.
A licensing agreement is also a binding legal contract.
At Quest Legal, our franchise lawyers are well-versed in helping business people establish franchise and licensing agreements.
Is franchising or licensing your path to business growth?
Not all businesses lend themselves to franchising or licensing but, if yours does, it can be a highly effective, low-cost model to grow your enterprise – and fast.
Whatever method you choose, we recommend you ensure you receive the right legal advice ahead of time to give your business the best chance of success.
This will ensure you are well educated on the benefits but also the potential risks of franchising and licensing.
If you’d like to know whether you can franchise your business, or have any questions about any of the above, please contact us now
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