Franchising is one of the most cost-effective ways to expand a business while still maintaining good returns from it. However, before jumping in, you must take a few factors into consideration before setting up a franchise. In Australia, franchises are regulated by the Australian Consumer and Competition Commission (ACCC) under the Code, the Franchising Code of Conduct.
Before franchising, you must consider the advantages of franchising your business and if the business structure is suitable to franchise. Testing out a franchise system with a few initial outlets before you recruit franchisees and conducting a feasibility assessment are some steps you must take before deciding to set up a franchise. This assessment depends on the competitive advantage and reputation of your company and includes factors that differentiate your company from its competitors. For instance, does the business offer a unique product, a more efficient modus operandi, or maybe a distinctive marketing strategy?
The Development Plan
To ensure that your business comes across as an excellent business opportunity, you should consider what continuing value and support you can offer prospective franchisees to keep them at the table. Whether it is an offer of a good return of investment, your brand name or a good system of operations, you must be prepared with a development plan that will strengthen your value proposition.
While you should consider the following issues, it is necessary to seek expert advice from franchise lawyers, accountants, and business specialists.
Can your business be duplicated?
The replicability of your business is an essential factor to consider. Additionally, there are a number of structures to consider when setting up a franchise. Structures available include operating as a sole trader or through a trust, partnership, single company or a two-tiered company. It is important to consider your specific circumstances when determining which structure is the most suitable and the implications of managing each asset.
Additionally, the business model of the original company may not be viable outside the company itself if it is too complicated, or if the main driving a factor of the business is the founder’s passion and talent. A system is one that can be taught quickly and run effectively by individuals. This system must be documented and easy to understand for all prospective franchisees.
Do you have the capital to franchise?
While franchising is a cost-effective way of expanding a business, like any other investment, you do need working capital to get started. Costs such as legal and financial fees, compensation for hiring professionals in the franchising field, and drafting legal documents such as a operations manual and trademark for your business concept. So, while the potential gain may be attractive, it is prudent that you also consider the risk and costs before deciding to become a franchisor.
To find out more about the “franchisability” of your business, contact Franchise Legal lawyers on 1300 798 501.