The Franchise Council of Australia reports that Australia’s franchising sector is worth $146 billion. As a fast-growing sector, franchising is an attractive prospect for many successful business owners.
While franchising is a great way to expand your business, it also comes with a few risks… so what are the pros and cons of franchising your business, and what aspects of franchising law in Australia do you need to be aware of?
What is a franchise?
A franchise is an agreement between two parties (a franchisor and a franchisee). The franchisor agrees to give the franchisee the rights to market a product or service using the franchisor’s operating methods and intellectual property (i.e. logos and trademarks). In return, the franchisee pays a range of associated fees and royalties to the franchisor.
Advantages of franchising
Many business owners decide to franchise their businesses because it’s a great way to expand quickly. Your franchisees pay to buy stores, so you don’t need as much capital to fund growth, and because you’re not investing as much of your own money, franchising also offers a relatively low-risk means of expansion, while still enabling you to earn potentially significant amounts from royalties and sales.
If you want to expand but aren’t keen on all the organisational responsibilities, franchising is a good route to go down because each franchisee will have more control over the store than if you were the direct owner of every single outlet in your business.
Disadvantages of franchising
This does lead us to one of the principal cons of franchising, being that you do not have as much control over each store. Your franchisees are entrepreneurs, not employees. However, if you have robust systems, policies and procedures in place that you communicate effectively to your franchisees, and have a solid franchising agreement that outlines the exact operating procedures you want your franchisees to follow, this will minimise the risks associated with not having as much control over each store.
Franchising does expose you and your business to a variety of legal risks. For example, July 2018 will see the introduction of single touch payroll, whereby companies with more than 20 employees will have to report salary, pay as you go (PAYG) withholding and super information directly to the ATO at the same time they pay their employees. The Fair Work Amendment (Protecting Vulnerable Workers) Bill has also made franchisors liable for any franchisee breaches of employment and fair work legislation.
Are you ready to franchise?
If you are thinking of franchising your business you should seek the assistance of a legal professional to prepare a franchise agreement that covers all the bases, is fair to both franchisor and franchisee, and minimises the extra risk that comes with franchising. Contact Turnbull Hill to find out how we can help.