Should I Franchise My Business?
A question I am often asked.
Franchising today is a way of life. Franchising allows people to own their own business in an area that appeals to their interest. It can also fulfil a long-term desire to be part of a business that they can enjoy and develop for themselves. A franchise allows an individual to own a business which has an established brand, which already has systems in place, training programs and on-going support.
This article will focus on what you need to do to franchise your business. The subject of buying a franchise (an individual franchise for yourself) will be dealt with in an upcoming month.
If you are looking to franchise your business, ask yourself the following questions:
What do I hope to gain by franchising?
Are there other options suited to my business? Franchising is not the only option, it is a great option (if done well) but a different business model may be better suited to what you are doing.
Is your business right to franchise? Do you have the systems in place? Is it able to be replicated? Do I have the manuals? Do I understand what franchising is about?
Is my business in the service area, a retail business or web based?
Is there enough business to give potential franchisees a good return, but at the same time provide a revenue base for you, the franchisor, to be able to earn good money and to invest into the ongoing business?
Are you happy to be involved with franchisees, who will always be asking questions and looking for direction and innovation?
What things do I need to offer?
This is not comprehensive, but you’ll need to be able to offer:
A brand (intellectual property)
Profitability for both you and the franchisee.
What is required?
The first step is research:
Find out what franchising is about. The Franchising Council of Australia has a good website that enables you to do some initial review on what is required.
Next you will need to:
Invest in the set-up of the system, which starts with developing the franchise model, profitability for both the franchisor and the franchisees.
From this will develop:
Preparation of the franchise agreement and disclosure document (as required by the franchising code).
The operational manual
Recruiting of franchisees
How do you start?
My recommendation is that you use a franchising consultant to prepare and provide direction. One of the areas of weakness with franchise consultants is actually developing the commercial terms for the franchisor. These companies are very good at getting the system together, the preparation and writing of documentation, but you need to get advice from other sources to ensure the commercial terms being offered to franchisees make the business viable for the franchisor.
Who can help?
Franchise consultants will do most of the document preparation but you need a good lawyer, who understands franchising to prepare the disclosure document and the franchise agreement. You must comply by the franchising code, which is heavily monitored by the ACCC. The cost of set-up will vary depending on the documentation and information that is available. The cost will also vary dramatically according to the franchise consultant that you use and the expertise that they offer. In addition to their cost will also be costs in preparation of the franchise agreement and the disclosure document.
In this article it is difficult to be comprehensive, but if you need help to explain the processes in more detail, it is only a telephone call away.