How Do I Franchise My Small Business in Australia?
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Our regular readers know that the whole purpose of our blog’s existence is to help startups and small business owners in Australia grow their businesses with easy-to-follow guides.
(FYI: Our Free Online Entrepreneurship Development Course that contains six valuable lessons on startups has been warmly received by our readers and has helped them deconstruct the process in simple and easy steps.)
So, if you are one of those lucky startups and small business owners, who have passed through the initial rigours of the establishment phase and are now thinking about expanding your business through franchises, you have landed at the right place.
This blog will give a step-by-step guide on how to franchise your small business.
We will cover all the legal and non-legal requirements in this easy-to-follow franchising guide.
Before starting, let’s have a look at the franchising basics and see the prospects of franchising business in the Australian economy.
Franchising is a business model in which a business owner first develops a local business model, which is later systematized so that the same business model can be replicated elsewhere while maintaining the same product quality and service standards.
The owner of the business, who sells their brand name under an agreement to be run by someone else, is called the franchisor.
The brand name, and the business model, etc. all belong to the franchisor. This agreement is usually time-bound and is required to be renewed periodically.
Likewise, someone who purchases the rights to run the franchise of a business is called a franchisee.
A franchise has to generally pay a fixed amount at the start of buying a franchise and a recurrent royalty fee to the franchisor.
Franchising Business Market Size in the Australian Economy
The good news for you is that Australia has the highest number of franchises per capita in the entire world except for New Zealand.
And when starting this journey, you will become part of an elite and robust community of 1100 franchisors across the country.
There is an estimated presence of 65,000 franchise outlets in the country. (Source: International Trade Administration)
The franchising sector in Australia is as diverse as the following industries which have expanded their business through franchise operations:
- Food retail industry
- Home Building stores and outlets
- Carpet Cleaning services
- Repair systems and services
- Health and physical activity brands
As per the latest estimates, the franchising sector’s current market size is $172 billion. (Source: IBISWorld)
So, going by these numbers, you can surely hope to get off to a good start.
So, now that you know the basics about franchising and the Australian franchise market, let’s get down to the step-by-step guide on how to franchise your small business.
How do I Franchise My Small Business in Australia?
Evaluate if your business is ready for franchising
It may sound obvious, but evaluating your business for its readiness to open a new franchise is the first step in the process.
A word of caution here though!
Australian franchise laws are one of the strongest laws in the world. These were recently reviewed in 2021 to introduce various reforms.
We’ll discuss this more later in our blog.
As per Australian government sources, an average small business has an 80% chance of failure in the first five years of its launch. (source: Franchise Council Australia)
So, if you have crossed that hallmark, accept our heartfelt congratulations!
But, if you are still behind that time-related benchmark, you might want to wait a little further before going the franchise route.
Other than that, here are some other aspects which you will have to consider before starting a franchise operation.
Is your business model replicable?
While you may have a thriving business in your local setting, the first question you need to ask yourself when thinking about franchising is, can your business model be replicated elsewhere without your presence?
For franchising, you need to critically review and analyze your business model, the procurement and supply chain process, the equipment and human resource requirements, the replicability of the product quality, any bottlenecks in the process, and all the related questions regarding the replicability aspect.
Developing a business model, that can either be automated with machines or replicated through easy-to-teach procedures, is the foremost requirement for launching your business franchise.
Here are some example businesses which are appropriate for franchising:
- Auto rentals
- Postal/ shipping companies
The next question in evaluating your small business franchising would be to consider the profitability margin.
As mentioned earlier, your small business may be running smoothly and giving you a reasonable ROI in your localized environment.
Nonetheless, it must be evaluated to gauge the probability of its success in a wider geographical framework.
It is quite important that your product or service must have made a considerable name in its market for it to have any chance of gaining customers and investors attraction.
This aspect can be evaluated by comparing your product or service to the other players in the market and rigorously judging the competition through market research.
Continuous Support Mechanism
After launching a franchise, you will have to provide sustained support to the franchisee in ensuring that all the brand standards are met and the business model is followed in the best possible manner.
This might add logistical and administrative costs which must be evaluated first-hand before seriously getting into the franchising operation. Some of the support activities which you may have to provide to your franchises include:
- Staff training – both initial training for the launch and continuous training support for any newer processes or introduced in your business
- Marketing and public relations
- Support for site selection and construction
- Support for supply chain mechanisms or even maintaining a supply chain yourself, if your business model requires it.
Take professional advice
While you may feel up to the task of launching the franchise operation on your own, it is highly recommended that you seek professional advice on the matter.
Even the Australian Govt and the Franchise Council of Australia recommend that you take professional advice before launching your own franchise.
The whole process is a complex affair and is riddled with govt laws and regulations on top of business and market dynamics.
Executing the whole process on your own may run you into deep-rooted problems at a later stage.
The professionals that you may need to consult include lawyers or financial solicitors, bankers, accountants (if you need advice on good bookkeeping), and even a franchise consultant who has experience in sorting out all the basics of launching a business franchise in Australia.
Here we must add that you do not need to drop this step for the fear of paying high fees.
A lot of such solicitations can be received online starting from $2,000 to $10,000 depending on the type of consultation services required. (Source: SavvySME)
Even the Australian government offers such professional advice through its official websites and digital platforms.
Secure your business trademark and intellectual property (IP) rights
Intellectual Property (IP) can be anything from a business name to a product or even an idea.
Getting your business or brand name registered as a trademark is probably one of the most obvious, yet often neglected, steps in the process.
Most small businesses avoid going the IP protection route to cut costs.
Launching a franchise, however, is an important legal activity and would require you to first protect your intellectual property by registering your brand name as a trademark.
Here are some of the other things that can be (and probably should be) protected through IP rights with the Australian government.
- Patents – to protect your idea under development
- Trademarks – protect logos, tag lines, and other branding aspects
- Copyright – to protect any form of art, including music, film, or software
- Registered Designs – To protect the design aspects of your brand or product.
Pilot test your first franchise
If we were to exclude all the other steps from the list and give you only a one-step guide on launching your business franchise, it would be this step.
The best approach to starting your franchise operation is to pilot-test a franchise under your ownership.
This will bring you head to head-with all the ins and outs of running your business franchise.
You will understand the hurdles that your business model may present in executing a franchise operation and then allow you to correct them along the way.
This step is so important that both the Australian Govt and the Australian Franchise Council strongly recommend it before going further down the franchising route. (Sources: Australian Franchise Council Australian Govt)
Operating your franchise will also help you understand the legal, logistical, financial, and administrative aspects which you may not have considered earlier on.
It will also give you hands-on experience in running the franchise which will come in handy in assisting, training, and supporting your future franchisees.
Develop your Franchise Operational Manual
You, being the sole owner of your business, may know all the details of running your business including the spirit behind its launch to the everyday nitty-gritty affairs of the business.
Expanding your business through franchises would require you to transcribe all the information in a document that comprehensively describes all the aspects of your business to someone completely new to it.
It is basically a ready-reckoner and a go-to guide for your franchisee to run the day-to-day affairs of the business.
The Franchise Operations Manual may include the following aspects of your business:
- Your business goal, history, and vision
- Perimeters for your brand’s preferred franchise location
- Standard Operating Procedures for the security of the franchise
- Brand ethics, employees relations
- Payroll and accounting-related guides
- Incident reporting mechanisms
- Quality control routine and checks
Once you have run a pilot test of your franchise, developing the franchise operation manual will become a lot easier.
Familiarise yourself with the Australian Government’s Franchising Code of Conduct
As you would have probably guessed by now, launching your small business’s franchise in Australia would require you to follow a host of government laws and regulations.
But if we could give you one point of entry into the complete legal requirements for your franchise operations, it would be this code.
Just get yourself familiarised with the Australian government’s Franchising Code of Conduct and you’ll have unlocked a lot of the legal details associated with franchise business.
Launching a franchise in Australia after the year 2021 is governed by the Australian government’s Franchising Code of Conduct, amended in June 2021.
The Franchising Code of Conduct is a mandatory industry code under the Australian government Competition and Consumer Act 2010.
The Minister for Employment, Workforce, Skills, Small and Family Business is responsible for the policy code of conduct. (Source: Australian Govt)
The latest amendment to the act in the year 2021 brought a lot of reforms to the franchising business industry including the new digital Franchising Disclosure Register, which is the next step in our guide.
Getting a good grasp of the Franchising Code of Conduct will go a long way in enabling you to launch a smooth franchise operation.
Publish Your Franchise Disclosure Document
As per the newly introduced Franchise Disclosure Register, all the franchisors in Australia must register themselves to the register by 14 November 2022. (Source: Australian Govt)
To register and log in on the platform you must have an Australian government Digital ID, known as myGovID.
On the Franchise Disclosure Register, you will need to provide the following information which is mandatory for the public listing of the franchise. (Source: Australian Govt)
- Name, trading name, and Australian Business Number (ABN)
- Business email address and contact phone number
- Address(es) of the franchisor
- Industry division and subdivision
- Financial year in which the franchisor operates
- Other than these documents, additional profile information will also be required to be presented.
Through the register, franchisors can share their profile with prospective franchisees.
Decide on the upfront franchising fee and the recurrent royalty
All the costs of setting up the equipment, and stores and hiring the manpower will be the franchisee’s investment.
However, you as a franchisor will need to decide on two types of franchising fees which will be paid to you by the franchisee.
These are the upfront franchising fee and the recurrent royalty fee.
The upfront fee is the franchisee’s fee for entering your business and getting the rights to use your business trademarks, products, and services.
The royalty fee is a recurrent profit that you earn from your franchisee. It may be received on a weekly or monthly basis. Generally, it is based on 5-9% of the profit earned by the franchise.
Deciding on these two fees is a crucial step in projecting your franchise as a lucrative investment option.
While charging a high entry fee may seem tempting, it may prove counterproductive in gaining the attention of the investors.
The last step in launching your franchise is developing a franchise agreement which will be signed by the prospective franchisee while acquiring your business franchise.
The franchise agreement is a legal contract document through which you will grant all the rights to the franchisee to operate your business franchise under your trademark.
The Franchise Council of Australia recommends that the franchise agreement must be written by an experienced Franchise Solicitor. (Source: Australian Franchise Council)
The agreement, among other things, also includes the franchising fees which you should have worked on by now.
With this last step, you will be ready to launch your franchise operation anywhere in Australia.
We’ve tried to break the process down into easy-to-follow steps so that you can sort out your planning process accordingly.
We wish you all the best for your first franchise launch.