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Franchising in Australia

According to the 2016 Franchising Australia survey, there are 1,160 Australian franchise systems and about 79,000 franchise units in Australia. This dynamic industry contributes $144 billion to the Australian economy annually, generating almost half a million job positions.

Highlights:

To expand a successful business, you may franchise. If managed well, it can open your product or service to new markets and extend your brand’s reach. Before you franchise your business, make sure you have a successful and proven franchise model. Operating your own franchise model before selling a franchise to someone else can help prove your concept, establish demand and create sound processes and systems that can be repeated in each new franchise. As a franchisor, you must comply with the Franchising Code of Conduct and Australian Consumer Law

The most famous franchises around the world all had to start somewhere. While setting up your own franchise can seem overwhelming at first, it also brings significant opportunities for growth. When setting up a franchise; you will need to consider several things that include: Create a solid business model

  1. Prioritise Recruitment
  2. Implement training standards
  3. Plan to succeed
  4. Decide on fees
  5. Protect your intellectual property (IP)
  6. Develop your operations manual
  7. Creating your franchise documents
  8. As a franchisor, you need to understand your tax obligations and how franchising fees are treated for tax. It’s also important to review your income tax and goods and services tax (GST) reporting requirements
  9. Appoint an expert.

We can help you setting up a new franchise. Contact us:

Buying a franchise means you’re buying the rights to run a business under an already established brand name. Often these rights are subject to conditions set out in a franchise agreement. Do your research and understand how it works. Also, consider the issues specific to franchises, such as what happens if the franchise or franchisor fails. As a prospective franchisee, it’s important to understand what is being offered and your rights and obligations under the Franchising Code. You should also know a franchise agreement only gives you the right to operate the business for the life of the franchise agreement. There is no guarantee that the agreement will be renewed, unless specifically negotiated under the agreement.

Once you enter into a franchise agreement, you’re legally committing to run the business according to the requirements set out in the franchise agreement and the franchise operating manuals. If you plan to buy a franchise business, it’s good to know your options and which franchise that suit your interest and skills. Like any business decision, consider franchising carefully and follow the right processes. Franchising is very different to other types of business; it can be restrictive. You won’t have the same level of control compared to a business you run independently. Franchisors can usually control the products or services your franchise sells and where they must be sourced from. Make sure you understand:

  • The upfront fees
  • Royalty fee
  • Marketing fee
  • Length of the agreement and further options.
  • Franchise transfer fee.
  • Training fee
  • The lease agreement of the premises on the franchiser’s name or your name and terms of the lease.
  • When the renovation is required and costs.
  • Your minimum rights and obligations. The information franchisors must disclose to you. The Australian Competition and Consumer Commission (ACCC) administers and enforces the Australian Consumer Law and Franchising Code of Conduct. They also guide your rights and obligations under these laws.

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Selling a franchise is largely the same as selling a business, but there is the added aspect of your relationship with the franchisor. If you are an existing franchisee who intends to sell your business, your franchise agreement may require the purchaser of the business to gain the prior approval of the franchisor. Usually the purchaser will be subject to the same selection criteria for the system as the original franchisee.

Franchising in Australia is regulated by a mandatory Franchising Code of Conduct. The Code of Conduct sets out the rights and obligations of franchisors and franchisees and is legally binding. The Franchising Code of Conduct provides several guidelines including:

  • a request for a franchisor’s consent to transferring a franchise must be in writing
  • a franchisor cannot unreasonably withhold consent to a transfer
  • a time limit of 42 days applies for a franchisor to decide on a requested transfer of a franchise.

Under the Franchising Code of Conduct, franchisees who sell their businesses as going concerns must provide a Disclosure Document to the purchaser, which must include:

  • contact details of the franchisor, franchisee, and background details of each director of the franchisee’s business
  • copy of the franchise agreement and lease agreements (if leases are to be transferred)
  • profit and loss statements for the last two years
  • summary of obligations the franchisee has with the franchisor
  • pay details (including outstanding obligations) of each member of staff of the franchisee
  • contact details of each ex-franchisee in the last three financial years.
  • Amendments to the franchising Code of Conduct in July 2010 also require the franchisor to disclose whether the franchisee may sell the business at the end of the franchise agreement, and if so, whether the franchisor will have first right of refusal, and how market value will be determined.

We are specialised in selling a franchise. Contact us:

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