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LEGAL GUIDE FOR THE FRANCHISOR FROM BEHAN LEGAL IN MELBOURNE

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Behan Legal Guide to Australian Franchising for the Franchisor

If you are looking for a way to expand or develop your business, franchising may be the most rewarding structure to see your company thrive. The franchise sector in Australia, accounts for nearly 4% of existing businesses, and a massive 30% of retail sales volume.  [1]

The total turnover of the franchising sector is now in the region of over $76 billion per annum [2] , and franchising contributes to about 10% of the national GDP. [3]

Today franchising is catering for every type of Australian enterprise. The Franchise Council of Australia currently estimates that there are over 44,800 franchise outlets in Australia, employing more than 678,000 people in different industries. [4]

In terms of export, earnings overseas operations of Australian franchisors generate $292 million per annum. Twenty-five per cent of Australian franchisors have expanded overseas, with 62% indicating an intention to do so in the next three years. New Zealand is the most popular destination, followed by the UK, USA, Singapore, South Africa, and Europe. [5]
 

WHY CONSIDER FRANCHISING THE BUSINESS?

Some of today's largest businesses have used franchising to finance and accelerate their growth into world brands.

For example, the Australian company Cash Converter had an annual turnover of $84 million in 1993, which jumped to $150 million in 1994, and it now has franchise outlets in Europe and the United States. Jim’s Group started with Jim Penman and a second-hand lawnmower and has now expanded into one of the world’s largest home service franchises, with over 2,300 stores in three countries. [6]

Franchising can be a very successful way of business expansion, and the greatest advantage of franchising the business is that one can achieve growth of the business network using the financial resources of the franchisee. The franchisor's organisation is compact and can earn profits without involvement of high capital risk.

As the franchisee manages and owns each outlet; the franchisor is not concerned with the day- to-day operation of each outlet, and can focus on expanding the business at the macroeconomic level.

Franchising enables the franchisor to service national customers through their network of outlets.  

ISSUES TO CONSIDER BEFORE FRANCHISING

As the most-franchised nation (per head of population) in the world, [7]  there is a very high level of awareness of franchising in Australia. Nonetheless, buying a franchise is a major decision. The commitment in capital and borrowings can be significant and establishing and testing a business concept is not as easy as some would believe. Therefore, one must carefully plan the co-ordination and implementation of a franchise. Firstly, the business must be successful, distinctive, and replicable.

Statistics show that the average stand-alone small business has an 80% chance of failure in its first five years of operation. [8]  Before franchising, it is advisable that a small business should operate for at least three years to prove that it has a viable concept, ongoing market demand, replicable systems, and a management, logistic, marketing and training structure capable of supporting franchisees in a variety of locations. It must be pilot tested with company-owned and operated outlets.
 

FRANCHISE AGREEMENT

The  Franchising Code of Conduct (‘Franchising Code’) provides the most stringent national regulations for franchising introduced anywhere in the world. This means there is little or no margin for error for "new" franchisors.

The Franchising Code outlines the rights and responsibilities of franchisors to franchisees, and includes particular requirements for disclosure of information, the provision of a cooling-off period, and unconscionable conduct.

Complying with the Franchising Code is mandatory, and the Australian Competition and Consumer Commission enforce it, with severe penalties for any breaches. Behan Legal can advise and assist in ensuring compliance.

OPERATIONS MANUAL

For a franchise to be successful, it is important that the franchisor control the system and the franchisee must follow the methods laid down by the system. This safeguards the franchise’s trade mark and the public’s ability to rely on the trade mark as an indicator of the system’s products or services – and ensures consistency from location to location.

Each bad franchisee has an adverse effect, not only on his own business, but indirectly overall of the franchised chain and as such, all other franchisees. The franchisor must impose standards and demand compliance so that the franchisee derives the maximum benefit (and indirectly the whole of the franchised chain) from the operation of the franchisee's business.

A comprehensive operations manual is essential which must be dynamic and encompass new developments, while maintaining the most important standards of the franchise operation. A successful operations manual will ensure that the training, marketing, and public relations of the franchise are optimal. The manual is crucial for the successful day-to-day operation of the franchise, and it should provide detailed policies, procedures and directions on employment and business issues.  

HOW BEHAN LEGAL CAN ASSIST

It is critical that intending franchisors get the right advice from the very start of their franchise journey, and in particular that they have ensured protection of all aspects of intellectual property rights before franchising.

Behan Legal can help with the franchising of the business from inception, and guide you all the way through all areas throughout its growth:

  • Drafting and reviewing key franchise documents, including the Franchise Agreement and Operations Manuals

  • Franchising Code compliance

  • Trade Practices compliance

  • Strategic planning and advice (including asset protection)

  • Intellectual Property protection

  • Supply agreements

  • Joint ventures and contracting arrangements

  • Retail leasing

  • Sales, purchases and restructuring of franchised businesses and systems

  • Importing and exporting franchise systems to and from Australia

  • Information Technology agreements for franchisors

  • Resolving disputes between franchisors and franchisees

  • Conducting litigation between franchisors and franchisees

  • Establishing, drafting and negotiating franchise employment contracts

  • Resolving employment related disputes

Behan Legal keeps abreast of all the developments in the franchising industry through a group of international and local affiliations, and most importantly of all, it keeps abreast of your business by collaborating with you to ensure its continuity and success.  

NEED MORE INFORMATION

Behan Legal advises and assists on these important issues, however, given the complexity will meet with you personally to evaluate your position. For an appointment, call 03 9646 0344 .

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[1]  Australian Bureau of Statistics 2001, as cited in ‘What is franchising?’ Entrepreneur Business Centre, Information Resource Centre,  http://www.ebc.com.au/artserver/as2.asp , accessed 11 August 2005.

[2]  Franchise Council of Australia, ‘Introduction to Franchising’,  http://www.franchise.org.au/content/?id=182 , accessed 11 August 2005

[3]  Franchise Council of Australia, ‘About Franchising,  http://www.franchise.org.au/content/?id=29 , accessed 3 August 2005.

[4]  Frazer, L. & Weaven, S., ‘Australian Franchise Report 2004’, cited in Franchise Council of Australia, ‘Introduction to Franchising’,  http://www.franchise.org.au/content/?id=182 , accessed 11 August 2005

[5]  Franchising Australia Survey, 2002 (Griffith University), in Australian Government Trade Commission: http://www.austrade.gov.au/overseas/layout/0,,0_S3-1_-2_-3_PWB1992177-4_-5_-6_-7_,00.html.

[6]  http://www.jims.net/win_default.htm? http://www.jims.net/index.asp

[7]  Govil, A., ‘Franchises a Growth Market’,  Next , 9 December 2003,  http://www.smh.com.au/articles/2003/12/08/1070732144352.html?from=storyrhs&oneclick=true , accessed 11 August 2005.

[8]  ‘What to Look for When Buying a Franchise’, Entrepreneur Business Centre,  http://smallbusiness.ninemsn.com.au/article.aspx?id=1821 , accessed 11 August 2005.

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