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How do I set up a franchise?

How do I set up a franchise?

If you’ve made up your mind about franchising your business, you should be considering what the initial steps would be in setting up the franchise system. Getting the business model and structure right from the outset will put you on the right path moving forward. Make sure to arrange a consultation with a franchise lawyer and an accountant, as you’ll need all the legal and financial advice you can get! Although there are no formal requirements to register your own franchise, there are some legal processes that need to be adhered to. Save yourself the trouble and speak with your lawyer! Here are some clues for you to consider when you set up your franchise.

Developing a franchise model
It is better practice to first set up your franchise model before you ‘go to market’ in search of prospective franchisees. This includes getting your legal documentation sorted. In building out your franchise concept, it is not unusual to want to add features to your business model, such as improvements to management processes. An Operations Manual that explains in thorough details all of the policies and procedures of your system will serve as a guide for future franchisees about how to run a franchised outlet. To ensure your Operations Manual reflects the goals of the business and effectively assists new franchisees, test out your current business model and adjust it according to your goals. The more detailed and comprehensive the Operations Manual, the more likely your franchisees will be on the same page in running the business. The more consistent the product and service at each branch, the easier it will be to build your brand.

Creating a relationship with potential franchisees
Put some thought into the types of people you’re looking for to be the ambassadors of your business. Your franchisees don’t necessarily need to have the same skill set as you, but management experience is certainly a plus. The most important thing is to choose franchisees that share your vision of the business. As yourself: What attributes am I looking for in future franchisees? What skills will help to run one of the franchise businesses? Another key consideration is team building. A successful franchise is founded on strong ties between franchisor and franchisees. How will you create this strong bond, and more importantly, how will you maintain it? Develop training programs and relationship-building opportunities so that you and your new franchisees can build strong relationship built on trust and teamwork.

Preparing a Franchise Agreement and Disclosure Document
One of the critical first steps during the set-up stage of your new franchise is having your legal counsel assist you in drafting the key franchise documents, specifically the Disclosure Document and the Franchise Agreement. The Franchise Agreement establishes the terms and conditions between the franchisor and franchisee. It is the most important document, as it sets out the rights and duties of each party throughout the relationship. On the other hand, the Disclosure Document discloses specific information about the business, including its financial viability, i.e. profit statements, projections, etc. Its purpose is to fully inform potential franchisees before they enter into a five or 10-year contract. Given the complexity of these legal documents, it is worthwhile having a skilled franchise lawyer draft them to avoid superfluous liability and needless legal disputes. Not only will a franchise lawyer be able to draft your essential legal documents to give you the utmost legal protection, but also they will draft them in accordance with the regulations of the Franchising Code of Conduct – the regulatory framework that binds franchisors and franchisors to their contractual obligations. Another reason you should consult a franchise lawyer is to ensure that your intellectual property is safeguarded against any potential threats of infringement. Remember, your brand is your business!

Knowing your tax obligations
Now that you’re a franchisor, whatever earnings you bring in will be subject to certain taxes, including GST and Income Tax. Speak with an accountant about the types of taxes you’ll be exposed to as a franchisor, not to mention any reporting requirements the ATO might impose. Taxation usually hinges on the structure of your business, so speak with a franchise lawyer about the different tax that attaches to the various business structures.

Feeling overwhelmed? You shouldn’t be. Setting up a franchise can be an enjoyable experience; you just need to be prepared for what’s coming. Write up a checklist so that you don’t miss any of the important steps, speak with a franchise lawyer with experience in business strictures, and get financial advice where necessary.

For more information about setting up, running, or selling a franchise, get in touch with LegalVision on 1300 544 755 and speak with one of our Client Care team about getting a fixed-fee quote, and arranging an obligation-free consultation.

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