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LEGAL GUIDE FOR THE FRANCHISEE FROM BEHAN LEGAL IN MELBOURNE

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Behan Legal Guide to Australian Franchising for the Franchisee

A franchise is ‘a business system’ under the Franchising Code of Conduct 1999.[1] In order to understand franchising, it is important to recognise that McDonald’s does not ‘franchise’ hamburgers, nor does Jim’s Mowing franchise mowing services.

What they both franchise is a business system – and it is this business system that delivers the products or services. The franchise is the entire method of doing business.

Franchising is a successful model that provides support for new business entrants while letting them run their own businesses. Most small businesses in Australia fail because of lack of money, expertise, and training. [2] Buying a franchise is a good way to start a business because you are buying a tried and tested business.

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ADVANTAGES OF THE FRANCHISE SYSTEM

There are significant advantages to adopting a franchise system of business. Franchisees usually require less capital than they would if they were setting up a business independently, because the franchisor, through their pilot operations and buying power, will have eliminated unnecessary expenses.

The franchisor can also provide advice and help in identifying suitable trading locations for the Franchisee. Defined territories of operation within the franchise can help protect the franchisee from competition. The franchisor can help the franchisee obtain occupation rights to the trading location, comply with planning (zoning) laws, prepare plans for layouts, shop-fitting and refurbishment. Better rates of finance or more favourable conditions with financial institutions for franchisees may be negotiated by the franchisor.

The franchisee taps into the bulk purchasing power and negotiating capacity made available by the franchisor because of the size of the franchised network. The franchisor provides training for the franchisee (and very often, the franchisee's staff as well) in all areas of the business such as; manufacture preparation, accounting, business controls, marketing, promotion, and merchandising. The franchisor’s field of operational staff are there to assist with any problems, which may arise from time to time in the course of business.

A franchisee can always speak to their franchisor, a fellow franchisee to discuss their business challenges, or problems - something a non-franchised business can almost never do.

The franchisee benefits from operating under the well-established brand image and reputation of the franchisor; and has access to use of the franchisor's patents, trademarks, copyrights, trade secrets, and any secret processes or formulae for the duration of the franchise.

The franchisee receives the benefit of the franchisors advertising and promotional activities at a lower cost than if they were to attempt such marketing themselves. Therefore, the support and benefits provided by a franchise system greatly reduce a franchisee's business risks.

IMPORTANT ISSUES TO CONSIDER BEFORE FRANCHISING

Most franchisors encourage franchisees to contribute to the development of the business of the franchised chain, which their individual talent and qualities permit. Nonetheless, inevitably, the relationship between the franchisor and franchisee must involve the imposition of controls.

These controls regulate the quality of the service or products provided or sold by the franchisee to the consumer. The franchise contract will contain some restrictions against the sale or transfer of the franchised business. It is important that you understand your franchise contract fully before committing to the franchise, and carefully considers the following points:

1        Ask yourself if you can work according to someone else’s rules and systems. The degree of personal control over decisions of the business is narrower.

2       Choose the industry carefully and talk with existing franchisees in your area of interest.

3       Obtain their disclosure documents and check it thoroughly.

4       Ask yourself if you have a history of success in dealing and interacting with people

5        Do not underestimate the planning, capital, and operating commitment involved. Allow at least twelve months to plan and consult with experts.

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 your business from its very 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]   Trade Practices (Industry Codes – Franchising) Regulations 1998  (Cth), s 3 ‘definitions’

[2]  ‘Reasons for Going into Business’, Business in Victoria, Victorian Government Department of Innovation, Industry and Regional Development 2005,  http://www.business.vic.gov.au/CA256E36001D1550/BSU/00283358ACB339ACCA256E4B00005E25?OpenDocument , accessed 11 August 2005.