What is a franchise?
Under Australian law, an agreement that includes ALL of the following elements is deemed to be a franchise agreement.
1. A person (the franchisor) grants another person (the franchisee) the right to operate a business under a system or marketing plan substantially controlled by the franchisor; and
2. Where the business is substantially associated with a brand name or trademark controlled by the franchisor; and
3. Requiring the franchisee to pay money to the franchisor as an initial capital investment, or payment for goods or services above the wholesale price of those goods or services, or a fee based on gross or net revenue, or a training fee.
Therefore, as a franchise agreement, such a business arrangement is governed by the Competition and Consumer Act 2010 – Franchise Code of Conduct.
What is the difference between licensing and franchising?
This question is best answered by reference to the definition of a franchise under the Franchising Code. A franchise is a business arrangement that includes each of the components described in Q.1 above. A similar arrangement that does not cover all these components can become a business license. This is generally a close commercial association where a company (the licensor) has a product, service or a technology that it licenses-out to other parties (the licensees), who typically value-add to it by installing or on-selling it to the end-consumer. A licensee does not always operate under the licensor’s trademark, but may include the licensed and branded product, service or technology in its own-brand business offering to customers.
What are the ‘must-haves’ for successful franchising?
Before everything else, a franchise system needs to be able to offer each franchisee three fundamentals:
1. Better buying on business essentials such as equipment (eg, a trailer for a mobile home services franchise), stock in trade (such as coffee beans for a café or flour for a bakery), or media advertising (for a franchise using radio and TV).
2. Marketing for the franchisee, especially where a levy is paid into a marketing fund. Franchisees will look for activity and value from their marketing money in a way that directly drives customers to their business.
3. Support for the franchisee. Franchisees buy into a franchise system to gain the benefits of established proven systems and support from their franchisor. Where support is lacking or inadequate, franchisees will have grounds for discontent. On the other hand, excellent franchisee support leads to happy franchisees.
Why is training important in a franchise system?
Training, both initial induction and later, refresher training, ensures the system at the core of your franchise is communicated and delivered to your franchisees in a manner that is controlled, uniform and fully understood. New franchisees expect to be fully inducted into your business and this includes the detailed how-to’s of operating their franchise without them having to learn by trial-and-error. Good training also builds a team spirit and a positive relationship between the franchisor and each of the franchisees.
What royalties should apply in my franchised business?
Royalties provide the franchisor with an ongoing revenue stream that funds the delivery of franchisee support services over the term of the franchise. What percentage it should be and how it should be calculated depends on many factors including whether the franchisor makes money on the supply of goods to the franchisee among other things. Determining the formula for calculating the royalty is an important component of the Franchise Implementation Strategy Plan.
Should I use Master Franchising to expand interstate or overseas?
Master franchising can be a very effective means of expanding your business into geographically-distant markets. But it is very much a numbers game. By appointing a master franchisee, you are effectively appointing someone else to take on your role of franchisor. So, in order for this to be financially viable, the revenue streams from the master franchisee’s territory must be sufficient to profitably sustain all three parties – the franchisees in that territory, the master franchisee you appoint and your business, as franchisor. In Australia, the best examples of master franchising are in-bound overseas franchisors entering Australia and out-bound Australian franchisors expanding overseas. In both cases, the major motivator for master franchising is the appointment of a party with local knowledge of, and access to, a new market in a foreign country.
How can I best recruit new franchisees?
Franchisee selection and recruitment is so fundamental to successful franchising that it should never be left to chance. Large corporate franchise groups with extensive resources often have full-time, in-house franchisee recruitment personnel and well-proven recruitment methodologies. But for most smaller, newer franchisors the best option is to engage the services of a specialist recruitment firm. Wollermann Franchise Developments provides this service to a wide range of franchisors and with over 20 years in the franchisee recruitment business, we know how to select the best new people for your particular franchise.
How do I expand my franchise overseas?
Ten questions Australian franchisors must consider before expanding overseas.
1. Have you established and commercially exhausted your local market before heading overseas? Don’t be led or tempted by a lead from one person overseas. Don’t go overseas and grant rights until you are ready. This includes having established a strategy and entry plan for the market of interest.
2. Talk to the Franchise Council of Australia and the CEO of at least one well-known Brand that has done it. Learn from their experience, and mistakes. It will save you a fortune.
3. Have you got the resources (working capital and personnel) to support the overseas opportunity without impacting on your local franchise business? Don’t spread yourself too thin. Granting rights may be limited to a state or only one major city as an entry point if you are looking at the US, China or Europe.
4. Protect your IP before you enter the market. Is your trading name and brand protected in this foreign jurisdiction?
5. Will you develop an international strategy plan to expand via a master franchise, joint venture or local partner? The choice can often mean the difference between success and failure.
6. Do you have local people you can trust on the ground? This includes trusted advisors, legal advisors and consultants to ensure the right model, corporate structure and compliance with local laws.
7. What rights will you be granting: exclusive or non-exclusive? What will the minimum performance criteria be for the party taking up the rights?
8. Will your products and services be adaptable to the local market or will they need to be changed to suit cultural or other differences?
9. Can you afford to withdraw from the market if all does not work out without impacting on your local business financially? If not, maybe you are not ready.
10. Is there a local franchise association in the country of interest who may be able to assist you with resources and referrals? Contact them early, as part of your strategic planning.
WFD has a network of global franchise and license law firms that can assist Australian franchisors seeking to enter foreign markets. Contact Robert Toth, WFD’s legal specialist, at or Telephone +61 3 99995488
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