The keys to setting up a franchise business

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Once you have decided that franchising is the right option for your business, you need to consider the first steps for setting up a franchise system. It is essential to make sure the basis of any business arrangement is well thought out and structured. It is in everyone’s best interests to speak with a franchising lawyer and your accountant early in the process to determine what steps your business must take to set up a franchise system and to get the legal structures correct at the start. A franchise business is a complex legal process and it’s important to get the right information from the beginning.

The following are some general steps that all businesses should take for setting up a franchise system.

Developing a Franchise Model

It is recommended that a franchise model be established, including a suite of legal documents, before going to market to start to find potential franchisees. In developing a franchise model it will be discovered that there are manner ways in which the business can improved and create management processes, all of which can be incorporated into the franchises.

Operations Manual

It is our experience that it is at the start when the Operations Manual needs to be developed or at least started. We would hope that by this time a successful business would have detailed operational systems and flows and processes documented. Often they are documented, but they are spread throughout the business without actually being documented in one document called an Operations Manual.
A comprehensive Operations Manual ensures that all the franchisees will be working together in accordance with the same principles and procedures as originally developed to set up an efficient franchising business. This can be as detailed as how the receptionist answers the telephone when a call is received into the business.

Relationship with Potential Franchisees

It is important that careful consideration be given to future franchisees. It is important for your franchisees to share the same business vision and have all the necessary skills and attributes that may find important or valuable, not simply do they have sufficient money to buy a franchise – something which happens all too often. The Franchisor must have a working relationship with franchisees since building a franchise system is very much a team effort. While the Franchise Agreement and relationship is often seen as adversarial this does not lead to a really successful franchise business. You as the Franchisor will be effectively leading your business, and will require the support and cooperation of your franchisees throughout the entire process.

Preparing a Franchise Agreement and Disclosure Document

The next most important step in setting up the franchising system is to create a Franchise Agreement and Disclosure Document. The Franchise Agreement will set out the rights and obligations between the Franchisor and the Franchisee in relation to the business and is the key legal document. The purpose of the Disclosure Document is to give sufficient information to the Franchisees so they can make an informed decision about whether to enter into your particular Franchise Agreement and business.

These Agreements are lengthy and quite complicated and it is imperative that sufficient legal resources are invested in their drafting to avoid the risks of conflicts or dispute in the future. A franchise lawyer will be able to prepare a comprehensive and detailed Franchise Agreement that will protect your rights and obligations as well as ensure that your Disclosure Document complies with the Code.

Obtaining legal advice will also ensure the protection of one of your most valuable assets, the IP of your franchise, whether in the form of brand name, business concept, trademarks or logos.

Taxation Obligations and Requirements

As a Franchisor, the business earnings will be subject to a range of taxes including Income Tax, GST withholding tax, superannuation surcharge, payroll tax and Capital Gains Tax. It is essential that the Franchisor knows the legal and accounting obligations with what taxes the business will be subject to and the reporting requirements. Since the taxes that apply to the franchise business are largely dependent on the business structure, including grouping issues for payroll tax, legal or financial advice on the various tax obligations should be sought.

Want to start or own a franchise business?

We recommend obtaining an experienced franchising lawyer to review your intended set up and FC Lawyers will assist to ensure your business is ready. Contact us should you have any questions regarding franchising your business.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


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