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The Future of Work
And What It Means For Your Small Business
The experience of 2020 and our forced venture into the new reality of lockdowns, working from home and juggling work, family and life has opened much discussion about what happens next.
Numerous surveys show that a majority of people have found working from home to be preferable to the daily commute to a city office. What was previously a marginal work-style has become almost mainstream, and rapidly evolving technology has certainly facilitated the positive and practical experience of productively working from home.
As a result, the expectation that the CBD of cities will soon return to ‘normal’ is increasingly unlikely. A quick look at what is happening with CBD office space brings this into sharp focus. There are expected to be very high vacancy rates particularly in secondary commercial office buildings for the foreseeable future.
Office space to become apartments?
This has led to much speculation about the potential for converting CBD office towers into residential apartments. On face value, this may seem a great opportunity for developers, but let’s consider the rationale for this.
In an already over-supplied inner urban market of high-rise apartments, what would an influx of new, recently converted, additional residential accommodation do to prices and rentals? They would plummet, wouldn’t they? So, where is the economic incentive for that?
Living and working in the CBD
Putting aside the rental/ROI scenario for a moment, who is going to take up all these new apartments? People always prefer to live close to where they work (no-one likes a long commute). But if more and more people are able to work remotely and there are way fewer jobs in the CBD because of it, why would people choose to live in the city?
Sure, the CBD has much amenity – social, entertainment and cultural drawcards – but again, with a diminishing local workforce and therefore customers, businesses that rely on CBD workers will be forced to re-think their business model. The CBD is also a hub for international students and in-bound tourists, but it could be quite a while (perhaps years) before these return to pre-Covid numbers.
Investing in a CBD business
The lifeblood of inner city businesses, particularly retail and hospitality, is this daily tide of workers. But in a future scenario of dramatically reduced numbers of people working in the CBD or travelling to it, the viability of these small businesses must be called into question.
Even without converting offices into apartments, any oversupply of commercial and retail space in the city would possibly lead to a downward spiral in rents. But this is of little help when there are dramatically fewer customers to ring the cash registers for these businesses.
So, what does this mean for the business investor who is considering the best locality in which to purchase a retail or hospitality business?
1. Inner city businesses and retail space may become very cheap, but they will not be delivering an acceptable financial return any time in the near future, and who wants to own a business in a locality surrounded by empty shops?
2. People working from home, or at least not in a traditional office, will choose to live and go shopping where the lifestyle best suits their preferences and desires. They won’t need to commute so they won’t be shopping in the inner city. They will, however, go shopping in the suburbs close to where they live – and this is increasingly in the fast-growing, outer, family-friendly suburbs in a new, spacious, modern home with every local amenity including ease of shopping.
3. Massive government spending on infrastructure and economic stimulus will create thousands of new jobs and almost none of them will be in the inner city. They will predominantly be in the expanding outer growth regions surrounding the metropolitan area and in regional parts of the state. And the people taking up these jobs will want to live and go shopping close to where they work.
Where to buy or establish a retail business
In summary, the question of where to purchase or set up a new small business is becoming self-evident:
• An inner city (CBD) shop front in an over-supplied market with a diminishing surrounding workforce providing questionable sales turnover and the risk of zero or negative capital growth in the years ahead.
• A new retail outlet in a high growth, purpose-designed, shopping precinct with a dynamic local catchment of home-based workers and their families who have more time (less commuting) and are drawn to the vibrancy of their lifestyle-focused local community.
Which one would you choose?
If you would like to find out more about small business opportunities in a post-Covid world, contact Colin Crawford, National Franchise Manager at
The power of empathy with intelligence
Good business practice defines management as the art of ‘getting things done through other people’. This is absolutely true in well-run, complex organisations. But it is equally true in the most simple of business relationships – that of a franchisor and its franchisees.
The essence of franchise management is that the franchisor (or parent organisation) refines and packages its proven operating systems, together with its brand profile, into a business system. This they make available to other people (who buy their franchise) who then simply follow the procedures and systems to maximise their chances of success.
It works in theory and it works in practice. But not everyone ‘gets’ it. Some franchisors think that they are in a relationship with their franchisees whereby they can dictate and manipulate the lives and the well-being of their contracted business partners (their franchisees) to their own self-centred ends. The result is almost always a disaster – and usually ends in penalties from the regulator, possible litigation, followed by brand damage and franchisee dissatisfaction.
A smart, intelligent franchisor, on the other hand, recognises the synergistic power of the win-win in good franchise management and sets out to fully support their franchisees.
It’s an attitude thing! A desire on the part of a franchisor to genuinely help others build something for themselves. Smart franchisors understand that there is no greater motivation in a franchisee than seeing real, tangible rewards by working hard to build a business, and a life, that they can control and be proud of.
Disempowering a franchisee by a franchisor will create a compounding negative synergy. However, a practical helping hand, together with a sincere desire to work collaboratively with a franchisee will generate the multiplier effect that franchising is renowned for.
Think about it the next time you hear or read negative media stories about how badly some franchisors have treated their franchisees. They do themselves no favours. Poor franchisors are the opposite of good managers and, at the end of the day, they are only harming their business, themselves and their Franchisees.
Franchising has a 50-plus year history of building personal and business prosperity by recognising the duality of company systems being utilised by local-area owner-operators. This model is continuing to grow and evolve. It still can, and will, create prosperity for those who understand its power. Implementing it properly benefits all stakeholders – franchisor, franchisees, employees, customers and the whole broader society.
Covid-19 Lease variation - Who pays the legal costs?
Can the Landlord (or their agent) ask a tenant to pay its legal costs for preparing a Deed of variation of the lease if an agreement is reached arising from a tenant’s request for rent relief under the Covid-19 regulations ?
This is coming up in practise with the Covid-19 Leasing changes and there have been differing views.
1. The Retail Leases Act 2003 (Vic)
Section 51- is the starting point and provides a Landlord may not charge a tenant legal and other expenses for negotiation, preparation or execution of the Lease, obtaining the consent of a mortgagee or the landlord's compliance with the Act.
Entering into a new lease means the Landlord cannot recover its legal costs and each party pays their own costs
However, Landlords can claim their reasonable legal or other expenses in relation to
an assignment of the lease or a sub-lease, and investigating a proposed assignee or sub-tenant and obtaining any necessary consents to the assignment or sub-lease.
Therefore, if its arises out of an assignment the landlord can claim its costs
What about varying the lease under the new Covid -19 Regulations?
At first thought it would seem the Landlord can ask the tenant to cover its legal costs for preparing the deed of variation where a negotiated agreement has been reached as a result of a request for relief under the Code, but is that correct ?
We asked the SBC and they have confirmed that in their view if the parties reach an agreement regarding Covid-19 rent relief, generally speaking (SBC words), each party will be responsible for their own legal costs.
Why? They state that as the Victorian Regulations for a Commercial Tenancy Relief Scheme (the Scheme) do not ask ( read nor require) the parties to formalise the agreement by a deed of variation and do not address this issue, who is responsible for the legal cost is up to the parties’ negotiation.
So, there you have it the party that seeks to formalise the agreement must pay its own costs.
Robert Toth/ Partner - Accredited Commercial Law Specialist
Can a lease be terminated if there is a force majeure clause?
Force majeure is a legal principle where unforeseen circumstances prevents a party from fulfilling obligations under a contract. Protection under the principle is only granted if the contract or lease includes a force majeure clause.
Force majeure clauses are not common in leases and virtually unheard of in an Agreement to lease.
If the lease does include a force majeure clause, the applicability of the clause will turn on whether the COVID-19 pandemic falls within the scope of a force majeure event.
If due to government regulation it classifies the pandemic as a national emergency, at that time the clause may become applicable subject to the wording of the clause.
If the lease or agreement does not have a force majeure clause then the other principle a party may be entitled to rely on is the common law principle of “Frustration”.
This occurs when the obligations under a contract or lease cannot be completed due to unforeseen circumstances or an uncontrollable event. If the lease is frustrated, it is terminated, and each party is released from its obligations under the lease.
There is an extensive body of law that relates to the doctrine of frustration and it is often a misunderstood concept. It is a difficult principle to rely on and often misunderstood.
The principle cannot be relied on where:
• there is a force majeure clause in the contract that applies to the uncontrollable event.
• the party is merely suffering an unforeseen loss or the burden for it to perform its obligations has increased; or
• a delay in being able to perform an obligation under the contract (that is not an unreasonable delay).
Where a resident moved out of their home for 10 days to comply with an isolation order from the government, the Court held that the interruption did not frustrate the lease because it was not expected to last for the term of the lease or for a long period of that unexpired term.
There is no case on this point in Australia and recently, the High Court of England and Wales found that Brexit was not sufficient to frustrate a lease as the tenant could continue to lease the premises (even though under less-desirable circumstances).
In the case of COVID-19, the orders imposed by the government may prohibit the conduct of the permitted use under the lease which may be cause the lease to be frustrated however it remains untested and depends on the circumstances .
The payment of rent is a material term of a lease and failure to pay, gives the Landlord the automatic right to terminate the lease and re-enter the premises if the non-payment extends for 14 days after notice is provided.
It may be a better option for both parties to enter into discussions as to a rent abatement or reduction for a period of time.
Any agreed rental reduction should be documented to avoid a tenant later arguing the landlord is “estopped” from enforcing the rent determined under the lease at a later time.
Leases require tenants to comply with any applicable laws, requirements, regulations or orders made by an applicable authority and a failure to comply with the government (whether federal or state) can be the basis of a breach of the lease.
Landlords and tenants should review their insurance policies to determine whether their losses are covered in cases of pandemics.
Time for a reality check, Mr. Landlord
In the wake of the Covid-19 restrictions that have seen retail shopping traffic decimated, there has been a lot of debate, and argument, about who should bear the brunt of falling sales in shopping malls.
The argument from the centre operators (landlords) is that rents should be fixed, regardless of fluctuations in retailer’s sales. The retailers, on the other hand, say that rents should be proportional to reflect changing conditions. Proportional rents are those tied to sales, so that in good times retailers pay more, in dollar terms, and in tough times they pay less. Paying less when there are few, if any, in-store customers means that at least they can stay open and ride out the lack of patronage. A shuttered retail store benefits no-one.
The counter argument that fixed rents are essential because investors in shopping malls need certainty of returns on their capital is reality-denial at its most desperate. This practice of demanding only fixed rents is born out of a ‘take everything, give nothing’ approach to business and investment and is ultimately self-defeating.
This 2020 pandemic is changing everything – the way we work, earn and spend our money; the way we communicate and socialize; and the way we go shopping for necessities and non-essentials alike. It’s time shopping centre landlords, and their investors, started to realise that the consumer’s experience of shopping is changing and will inevitably move substantially on-line and into other yet-to-be-formulated methods of consumption.
One thing is for certain, the old argument that shopping malls represent a magnet that attracts consumers to brands is just not true. If anything, it is the other way around. Brands gain their profile and their appeal through the endlessly evolving media and marketing channels that so captivate consumers who then have the choice of either seeking out their favourite brands on-line or in-store. Increasingly, they are going on-line.
So, wake up, shopping centre operators and landlords. Your business model is becoming a dinosaur. If you want to retain an acceptable return on capital into the future, stop punishing your tenants and start investing in new ideas that will support, for once, the people who provide you with your cashflow.
Instead of pretending that fixed rents are an unchangeable, non-negotiable fact of retail life, try instead to bring some fresh ideas and a less confrontationist attitude to the negotiating table.
Your future, and that of your paying customers (your retail tenants), depends on it.
Now is the time to plan for an on-line future
A survey in 2019 by Australia Post charted the increasing growth in on-line shopping and the resultant increase in parcel delivery services in Australia. The survey showed Australian shoppers over the age of 18 years received an average of 1.9 parcels a year in 2017. This increased by 21% in 2018, and back then was forecast to grow annually by about 20%.
This, of course, was before COVID-19. Since then, with the massive restrictions on physical shopping, more and more people are going on-line to make their purchases. Behind these statistics is another important observation. As more and more people try on-line buying for the first time, the novelty of doing so progresses to a point where the average person becomes very comfortable with this form of shopping.
Generally speaking, people’s experience of on-line purchases has been positive, leading to more frequent purchases of a wider variety of products and product categories. At first, Department and Variety stores were the fastest growing retail sector on-line, with rapid year-on-year growth. But now that growth rate is slowing as more and more retailers enter the on-line marketplace and compete for on-line customers – notably fashion, homewares and appliances.
As the variety of retailers moving on-line continues to broaden, and consumers continue to embrace this new channel, it becomes imperative for virtually every retail business to have an on-line, e-commerce presence. COVID-19 has devastated many retail businesses and the traditional business model of physical shop fronts (bricks and mortar) is rapidly becoming less viable for many retailers.
Those that are able to develop a new strategy of on-line retailing will be those who will be most likely to survive and prosper, post-COVID. This does not necessarily mean dumping the old and moving totally to the new. There will always be a place for in-store shopping and once we come out of COVID, there is likely to be a huge pent-up demand for some ‘retail therapy’ as people hunger to get out and about again.
But the on-line world is no longer a niche corner of retailing. It is becoming mainstream with Covid-19 accelerating this transition at a rapid rate. Online sales will continue to make up an increasing percentage of retail sales. The world will not be the same beyond 2021 and so now is the time to prepare for the new reality, and on-line e-commerce will be a big part of that.
If you would like to explore how to transition to on-line retailing for your business, either partially or fully, call the retail strategy experts at Wollermann Franchise Developments for an initial, no-obligation discussion and make sure your business is one of those to prosper in the very near future.
Roger Dickeson – Wollermann Franchise Developments
Franchising, COVID - 19, 2020 and Beyond - The Desk of Toth - July 2020
What do Franchisors need to consider?
Have you diarised the expiry date for every franchisee in your system?
The Franchising Code of Conduct requires franchisors to advise a franchisee in writing at least 6 months before the end of the franchise term whether they intend to renew or extend the franchise agreement. A failure to comply with this clause can attract a maximum financial penalty of $63,000.00
The recent Bob Jane case below is a case on point and highlights the ACCC is active in ensuring that franchisors meet their compliance obligation’s.
Have you reviewed your website, online and social media marketing when you update your disclosure documents?
Franchisors are required to update their disclosure documents annually under the Franchise Code each year, however it is just as important at that time to review your marketing and advertising.
Section 29 of the Australian Consumer Laws (ACL) requires that a business not engage in false or misleading representations about goods and/or services as to their standard, quality, style, or model.
Franchisors will often overlook whether their marketing, website content and social media is up to date and does not contain any misleading representations or statements.
The ACCC will also investigate a breach of Section 29 when investigating franchisee complaints.
The Megasave case below is a case on point.
A breach of the ACL provisions carries far greater financial penalties than for a breach of the Franchise Code and the penalties can extend to the company’s directors and officers.
Financial representations as to turnover to prospective franchisees
When providing a franchisee with financial information which could be in the form of a template profit and loss, cashflow projections or other financial information it is imperative that the source information that supports the data you provide the franchisee can be supported where the franchisee may raise an allegation that they have been misled or induced to enter into the franchise.
This was made clear in the case of Billy Baxter in which the Court stated that the Franchisor failed to be able to produce the assumptions they relied on to underpin the financial information provided to the franchisee and that where financial information is given it takes into account for example whether the financials related to an existing going concern or a greenfield site.
Penalties for breach of the Code and ACL provisions
A breach of the Franchising Code can incur penalties of up to $66,000 whereas penalties for breach of Section 29 of the ACL for a corporation is the greater of $10 million, three times the value of the benefit received or 10% of annual turnover in the preceding 12 months if the court cannot determine the benefit obtained, and for individuals, $500,000.
On the back of the Franchise Parliamentary report on the franchise sector in 2019 the ACCC identified franchising as one of its 2020 Compliance and Enforcement Priorities.
Leases and Occupancy License in the era of Covid-19
The current Covid -19 pandemic has caused great disruption to business and franchise systems with many franchisees having to seek rent relief and many having to close permanently.
It highlights the question -Are Franchisors in a better position if they hold the head lease to the premises.
There are of course pros and cons to each of course however where the Franchisor holds the head lease, they have greater control and decision making than where the franchisee holds the lease in relation to primary sites and locations.
It will be interesting to see how this plays out for Franchisor’s over the next 12 months.
A negative for a Franchisor coming out of Covid-19 holding the head lease is that the Franchisor is primarily liable to the Landlord where the franchisee defaults or is terminated.
In this case the Franchisor will be left to seek recovery against the Franchisee and their guarantor’s who may have little by way of assets left.
The positive is that the Franchisor can control the negotiations for rent relief with the Landlord and maintain its brand and profile.
ACCC action taken in 2020
• Bob Jane Corporation Pty Ltd- April 2020.
In April 2020, the ACCC accepted a court enforceable undertaking from the company to comply with its obligations under the Franchising Code to give the required 6 months’ notice in writing to its franchisees if they intended to renew or extend their franchise agreements.
It also gave an undertaking that it would not terminate any franchise agreements operating under interim arrangements, without providing the 6 months written notice
• GMH Australia NSC Pty Ltd – May 2020
In May 2020, the ACCC obtained a commitment that GMH would negotiate in good faith with its dealers in relation to compensation for their withdrawal from the Australian market under threat of the ACCC taking court action.
• Megasave Couriers Australia Pty Ltd and Mr. Gary Bourne - current
The company operates a national parcel courier service with more than 50 franchisees across Australia. Several franchisees made complaints to the ACCC that they were misled by representations made by the Franchisor and its director Gary Bourne.
The ACCC instigated action in the Federal Court alleging the franchisor and its director misled prospective franchisees with false or misleading promises of guaranteed minimum weekly payments and annual income if they purchased a franchise.
This case is important to note, as the ACCC relied on information on the Franchisors website, online ads, and its documents which represented that:
(a) from at least June 2019 to July 2020, the franchisees would receive guaranteed minimum weekly payments (in most cases $2000.00 per week), and
(b) from at least June 2019 to April 2020, that they would be guaranteed a minimum annual income of $91,000.00.
In late December 2019 Megasave introduced a new condition for payment of the minimum weekly payments, which they did not disclose to franchisees before coming on board.
The ACCC also acted against the Director on the basis that he was knowingly involved in the contraventions as he knew the company made or caused the company to make the representations, and personally made the representations to several potential franchisees.
This shows the ACCC is not only enforcing the Franchise Code compliance obligations but also the obligations of franchisors under the ACL provisions.
Further, the ACCC can and will, where it affects many franchisees in the same system take action against a company for breach of the broader ACL provisions.
Many franchisees cannot of course afford to take their own legal action due to the cost and delay in court proceedings.
The ACCC acted in the Megasave case due to the volume of franchisee complaints and the clear evidence available seeking pecuniary penalties, injunctions, compensation for franchisees and an order for disqualification of Mr. Bourne as a director.
Directors Identification numbers (DIN)
ASIC will commence the DIN scheme on 23 June 2022, or earlier when proclaimed by the Governor-General and once a person is appointed as a director, they will keep the DIN for their lifetime, even when the person ceases to be a director.
A person can only have one DIN and the details of the regime will be set out in further regulations with significant penalties for a breach.
There will be a transition period and the requirement will apply to all companies, registered foreign companies and include appointed directors and acting alternate directors (regardless of the name given to their position).
The registrar may also issue infringement notices to individuals or corporations for minor breaches of the DIN regime.
This will hold Directors more directly accountable for their actions.
Robert Toth | Partner | Accredited Commercial Law Specialist |
Franchise Code update – July 2020
Updated version of the Franchise Code
The updated version of the Code Compilation No.2 dated 1 June 2020 and registered 22 June 2020 has been released.
This is a compilation of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 that shows the text of the law as amended and in force on 1 June 2020 (the compilation date).
Any amendments that do not commence on the 1 June 2020 can be checked on the Legislation Register (www.legislation.gov.au).
Franchisors must give to a prospective franchisee 14 days before they sign the agreement or pay non-refundable money the following documents to comply with the Code:
• the new version of the Code.
• their then current disclosure document.
• an executable version of the franchise agreement.
New vehicle dealership changes
New vehicle dealership changes commenced on 1 June 2020 that only apply to franchise agreements for new vehicle dealer franchises in summary they are:
End of term obligations
Manufacturers and dealers must:
provide at least 12 months’ notice when not renewing a dealership agreement when the agreement is 12 months or longer.
discuss, plan and agree on end of term arrangements when not renewing an agreement.
provide a statement to the other party outlining why a dealership agreement is not being renewed.
These new end of term obligations apply to dealership agreements entered into, on or after the 1 June 2020 and will not apply to agreements in force until they are renewed or extended.
Capital expenditure disclosure
Pre contractual disclosure of significant capital expenditure must have greater detail and apply if a disclosure document is created or updated after 1 July 2020 and the dealership agreement is entered into, renewed or extended after the disclosure document was created or updated.
Access to dispute resolution
This now allows multi-franchisee dispute resolution and apply to existing agreements.
Penalties have increased
From 1 July 2020 penalties under the Code and some penalties under the Australian Consumer Law (ACL) have increased.
The value of a penalty unit has increased from $210 to $222.
This means that some breaches of the Code can attract penalties of up to $66,600. and infringement notices of $11,100 for body corporates, $2,220 for individuals and other entities.
The ACL applies to all traders in Australia, including franchisors with penalties since August 2018 of $10 million or more.
Roger Dickeson | Senior Franchise Strategist, Wollermann Franchise Developments
Surviving as a Franchise System in 2020 and Beyond
Harness the internal resources of your franchisee network
In 1936, British author Aldous Huxley wrote his ultra-futuristic book, Brave New World. In it, Huxley describes a globalised society where the population is forcibly nurtured into a dangerously complacent state of contentment, conformity and conspicuous consumption. What happens to this society when an outsider enters and threatens their orderly existence then becomes the focus of the story.
Fast forward to 2020. In Australian and in many other ‘advanced’ societies, economic order and social contentment is being abruptly and rudely shaken with the arrival of an outsider – a threat in the form of a new virus that completely and deeply shatters the status quo.
In both stories, there are winners and losers. The losers are those who fail to adapt to new conditions and states of reality, either through stunned disbelief, or refusal to accept that to continue they must do things differently.
Now, bringing this scenario into the here-and-now, and specifically into the world of franchising and business, let’s consider what’s at stake here and what you can do about it.
Whether you are a franchisor or a franchisee, your business model, and hence your livelihood is dependent on a highly refined set of rules and ways of doing things. But when external forces threaten to overturn the very foundations of those rules and practices, how are you going to survive? The answer is to change and adapt. And changing and adapting in many franchising systems may be easier and less costly than you might imagine.
Franchisors are actually in a rather unique position to change and adapt – more so than many other business system models. As a franchisor, inside your organisation you have a network of franchisees who represent a significant internal pool of talent, experience and knowledge. Your franchisees comprise owner-operators with a vested interest in making their individual business work profitably. These franchisees are not willingly going to just quit and hold out their hand for a short-term government support package, like employees in another business model. They have their entire future invested in their own business. They also have the best, most complete knowledge about who their customer is, what their customer wants, their likes and dislikes and how best to communicate with their customers.
So, when (sorry, I should say, now) the very future of established customer interaction is threatened, through lockdowns, empty shops and shopping malls, restricted movements and heightened fear and frustration, who best to come up with alternative strategies? Your own franchisees, of course.
If, for example, you see the future as moving from shopfront to on-line, or say, replacing socialised hospitality with packaged food deliveries, or shifting your B2B in-person response services to an App-based Help Desk, or any other scenario relevant to your business, then the starting point should be your own people – your motivated, knowledgeable franchisees.
Other companies in other industries may have to invest considerable capital to buy-in or hire specialised solutions to shift from the old to the new ways of doing business. But the franchisor who appreciates the in-house value of its own people will be in a much better position to come up with new ideas, find new solutions, change from one method of selling to another, or try out new products and services. And will be able to do so much faster and at much lower cost than a competitor who is caught with an inflexible, inefficient and costly business model and is reluctantly facing an adapt-or-die future with few or no solutions.
Now, this is not to suggest that a transition from old ways to new will not be without cost or upheaval. Yes, you cannot just move out of retail shopfronts to on-line as if there are no barriers or costs, like premises leases, for example. But the organisation that is able to harness the power of its own internal resources, the intellectual capital and experience of its motivated franchisee network, will be in a much better position to still be in business as we enter the brave new world of 2021 and beyond.
If you would like to discuss how you can harness the internal resources of your network of franchisees, how to rejuvenate your existing franchise model or get advice from industry specialists on new business models for your franchise, contact us at WFD for a free, no-obligation initial consultation.
Roger Dickeson | Senior Franchise Strategist, Wollermann Franchise Developments
7 Reasons To Make Franchising Your Business Expansion Strategy
As a business expansion strategy, franchising provides many benefits to both the franchising company and the individual franchisees. The benefits to the franchisees are well documented in nearly all franchise marketing including franchisor websites, franchise recruitment advertising and editorial discussion in the various media.
Less well understood are benefits to the franchisor. As the decision to embark on franchised expansion takes some time to formulate, it is worth revisiting these benefits. A strategy of franchised expansion is always a major commitment for any company and franchising is not something you can half-do or adopt a “try it and see” approach.
So, let’s elaborate the most common reasons why franchising can be such a powerful strategy for reaching a long-term expansion objective for a franchisor.
1. Investment by franchisees
The Franchisee puts up the money to set-up and operate their franchised outlet or territory.
Typically, this includes plant & equipment, stock, premises, working capital; plus:
An initial Franchise Fee which covers the cost of recruitment and provides some initial profit to the franchisor.
Therefore, expansion for the Franchisor does not require a huge capital outlay.
2. Rapid expansion
The franchisor can open up new outlets and territories very quickly by using the franchisee’s money.
It is best to expand in multiples to maximise efficiencies and to reach a critical mass as early as possible.
In many cases, it costs no more to set up 5 or 10 franchises than it does for just 1 or 2.
By franchising, a franchisor can easily access markets a long way from home base or home city.
This makes franchising ideal for interstate and international expansion.
A franchisee has his or her own money invested in their franchise, therefore they are highly motivated to make it work.
Ownership always achieves a better result than having a manager and staff operate each outlet or territory.
5. Local knowledge
A franchisee is a local in their local market. As such, they can build a client base far better than a company operating a remote branch outlet.
A franchisee’s local knowledge includes being part of their local community.
Local knowledge become critically important for international expansion where customs, culture and language are often very different from the franchisor’s home country or city.
6. Complementary roles
Each party does what they are best suited to.
The franchisor takes a global or macro view and builds the brand profile, while providing support to the franchisee network.
The franchisee has a local perspective, runs the day-to-day operations and is responsible for performance of one business unit.
Franchising is a different business model to full company ownership of distribution channels and requires a different mind set by a franchisor.
Royalties and Franchise Fees replace outlet bottom-line (which is franchisee’s profit).
Product sales are at wholesale to the franchisee therefore the franchisor needs to build a network of multiple outlets/operators ideally all buying from the franchisor.
Franchisor’s profits come from expansion of the network, not selling directly to the end customer.
It is this duality of roles that makes franchising so effective. It’s a business relationship in which each party does what they do best. For a franchisor, it is about building a network, and with this focus and commitment, franchising can deliver significant benefits to a company that are simply not available by alternate, or traditional, means.
Urgent Advice to Retail Tenants - Practical Considerations
Robert Toth | Franchise Law Specialist, Wollermann Franchise Developments
Prime Minister Scott Morrison announced a six month moratorium on evictions in relation to commercial and residential tenancies, where it arises from financial hardship related to COVID -19.
There were no other prescriptive measures or directives other than landlords and tenants should communicate and reach an agreement whether it be for a suspension of rent or abatement of a part or all of the rent.
If your business has been ordered to shut down then, of course, you have no option to do so.
What to do now
If you have a private landlord or an agent acting for a landlord contact them and confirm you are no longer able to trade.
A call is fine but follow it up in writing (an email is fine) to confirm that is the case.
Ask them for an abatement of rent while you are unable to trade.
An abatement means a reduction of the rent either fully or partially and that the Landlord cannot then later come back to you and ask for that rent to be paid.
A suspension of rent or deferring rent (not a tenant’s preferred option) means you are still liable to pay that rent once the suspension if over so it remains a liability you will have to meet, and the issue is how will that be paid.
A landlord could then at a later stage claim it against the security deposit or bank guarantee so be clear and careful as to what relief you are seeking and what is agreed!
Shopping centre managers will likely try to have you agree to a suspension or deferment- don’t agree to this.
If a landlord or shopping centre management asks you to sign any document whether a letter, authority, acknowledgement be careful and get advice before you sign it, as you may be locking yourself into a long term more difficult position.
We know that some centre’s and landlords are still sending invoices to retail tenants for next month’s rent showing no sign of support whatsoever.
The six month moratorium is on evicting tenant’s it does not address the issue that you are still liable for the rent unpaid.
The Government has not directed that landlords must reduce or hold payment of rents.
The best thing is to have open and immediate communication with the landlord or the agent politely and professionally but ensure it is in writing.
Should I close the doors and remove all my stock?
A temporary closure would not usually involve your removing your stock and vacating the premises.
If you remove your stock fixtures and fittings that would be an indication you have abandoned your lease and puts you in breach.
The landlord may then accept your action and decide to terminate the lease or keep the lease on foot and continue to claim rent.
This places your security deposit or bank guarantee at risk and also enables the landlord to claim for refit fees, loss or rent and other damages.
If closing the store place, a note on the window for customers "temporary closure due to Government direction and Coronavirus”.
Then take a photo of the front of the store with your stock and the sign - Why? It shows you have not abandoned the premises but only temporarily closed.
Can I rely on the Force Majeure clause in your lease?
The answer, in short, is no.
Also, it is unlikely a tenant can rely on the doctrine of frustration to end the lease and who has the time and money to go to court to seek an order anyway?
It is a matter of communicating and reaching an agreement with your landlord.
Be transparent and provide any supporting information the Landlord or agent may reasonably require.
Don’t forget to seek legal advice during these difficult times as your Lawyer is here to help you during the good and tough times
Wollermann Franchise Developments is a relatively new arm to the Wollermann organization, but we have engaged a highly experienced team of people with over 30 years’ experience in the development of new franchise systems, and the sale of existing franchised businesses.
Whilst franchising is not for everybody, buying an existing franchise can often eliminate much of the hard work for an individual wanting to get into business for themselves, and through franchising, we can provide you with the tools to turn your existing successful business into something a lot bigger and more financially rewarding.
A successful franchise needs to recruit the right people to grow their network. In our opinion, the right person is someone that best embraces the culture and group mentality of the brand that they have decided to represent. A franchisee is part of the brand.
At Wollermann Franchise Developments, we are passionate about what we do, we love getting the best result possible for our clients, but also get excited about helping buyers establish themselves in a business, most of those for the first time.
Personally, I have devoted over 40 years of my life to business, and have always worked as long as it takes to get the job done. That doesn’t mean I work 24/7, I make the time to enjoy family and friends, I keep fit and devote as much time as I can to community service.
I invite you to give me, or any of our team a call for a no obligation chat.
Section 52 Form requirements
by Ian Wollermann
Franchisors and franchisees selling an existing business need to be aware that a revised Section 52 statement will be required to be produced from the 2 May 2018. The new rules apply to existing businesses being sold for $450,000 or less, except if they have a liquor licence. This is a change from the previous upper limit of $350,000.
If the Section 52 Statement is not given to a potential purchaser or is incomplete the purchaser may avoid the contract of sale and be entitled to a full refund of any moneys paid.
Section 52 statements are required to be signed by the vendor and their accountant. For further information contact Ian Wollermann at WFD on (03) 9999 5488
What makes a HAPPY network of franchisees
by Colin Crawford
Some franchisors have lost the plot and forgotten that their franchisees are their customer, not the end consumer.
Keeping a group of franchisees happy is pretty simple and just makes good business sense. Recognising that franchisees are the franchisor’s customer, a franchisor should focus on these three crucial components:
1. Providing services that assist the franchisee to run their business. This can be an IT system, ongoing training, preparing financial reports, through to product development and supervisor support – things that a franchisee cannot easily do themselves when their daily attention is running their own business.
2. Developing and implementing a marketing strategy for the group including brand development and local area marketing for individual franchisees. Marketing is always best implemented by the franchisor as the party with the broader group perspective and with the resources to devote to professional marketing.
3. Franchisees need to be able to ‘buy better’ than what they could negotiate themselves for goods and services required to operate their franchisee. For example, this includes the flour for a baker, coffee for a franchisee’s customers through to a mower for a lawn-mowing franchisee.
All this might sound simple and obvious, but they are at the core of why some well-established franchisee groups are going back to basics with the aim of looking after their franchisees.
These three components assist the franchisee to operate a profitable business. If a franchisor keeps these principles in mind when managing their network of franchisees, they will continue to have HAPPY franchisees on an ongoing basis. For further information contact Colin Crawford on 0425 838 800.
Territory pre-planning makes sound business practice for franchisors
by Roger Dickeson
It is not uncommon for franchisors to simply divide up a city or state into blocks or districts as the basis of territories for franchisees, with little or no regard for the demographic composition of each of these territories. This approach can be fraught with problems for both parties down the track.
In any business, franchised or independent, the business owner really needs to know who his customer is, where they live or work and how likely they are to access the business as a customer.
Without this basic understanding, the business is really flying blind in attempting to promote and attract customers.
From a franchising perspective, a franchisor should at the very least, undertake some demographic research of the area surrounding a proposed new franchise territory. This research should be undertaken in the context of what the business is selling, in order to know how many potential customers it can attract, where they will come from and what their likely preferences are.
For example, a pet-care business should be located in a territory comprising a high percentage of households that have pets, or a food service business should be situated in a territory with a population who will find the menu appealing.
For a franchisee, buying a franchise in a territory that is based on solid demographic and socio-economic data, will provide confidence that they will have a good foundation on which to build up their business.
Research-based territory planning also protects the franchisor in the event of a dispute with a franchisee where the franchisee asserts that they were sold a franchise that turns out to be “under-performing”. If the franchisor can show that the territory has been determined based on statistical research into the composition of its local population, is a reasonable distance from other franchisees of the same brand and with consideration given to the proximity of competition, then the franchisor will be less likely to fall foul of its obligations to appoint franchisees in territories that will support a franchised outlet.
Good territory pre-planning is just good franchising practice. It should become one of the elements that goes to support franchisees who, after all, are buying into a franchise based on the experience, credentials and knowledge of the franchisor, who has “been there, done that” for them.
Master Franchising – Does it have a place in my franchise expansion?
by Roger Dickeson
Should I use Master Franchising to expand my business interstate or overseas?
Firstly, let’s consider the role of a Master Franchisee. The master franchisee’s role is to actively recruit and then manage franchisees in their region. Typically, a region is a state or country geographically separate from the home turf of the franchisor.
Master franchisees provide a local presence where a franchisor would find it difficult to effectively recruit and support local-area franchisees.
For their role as “intermediaries” between the franchisor and local-area franchisees, the master franchisee is remunerated with a share of the franchisor’s revenue streams. That is, the initial franchise fees and the ongoing royalties.
So, the first question to ask is: Can my franchise fee structure support paying a master franchisee in exchange for them providing local area services? If the answer is Yes, then the next steps are to define exactly what a master franchisee is required to do (i.e. set some goals and targets), what resources you will need to provide to the master franchisee so that they can operate effectively and how you intend to share franchisee support activities. For example, what role will a master franchisee play in local-area marketing for franchisees and how is this to be delivered to franchisees by the master franchisee?
In effect, a master franchisee becomes the franchisor in their region and takes on all the roles and responsibilities of the franchisor. So, selecting the right master franchisee is critically important. The master franchisee must share the franchisor’s vision and commitment to the business and the brand and demonstrate a capability to grow the franchisor’s business in their regional territory in complete harmony with the objectives of the franchisor.
There’s much to consider before simply assuming that the best way to develop and support a region remote from head office is to delegate to a master franchisee.
Master franchising can and does work where the careful preliminary considerations are well thought out and where the 3-way association of franchisor, master franchisee and franchisee is made a “win-win” for all parties.
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