Franchising your business is a common decision for a lot of business owners (and an exciting one, too!). So why do businesses decide to franchise?
Franchising is a great opportunity to enhance your business’ visibility and exposure to the market. Having multiple branches in various locations means you get more customers and higher profit-making potential.
There are a number of documents you’ll need to have in place, though. Since franchising is a big step for your business, a lot of the key details and processes need to be set out in writing to protect your business in case things go wrong.
One of your key considerations should be a Franchise Grant Process, which is an essential part of selling your franchise to potential buyers. It allows you to manage enquiries coming in from prospective franchisees.
In this article, we’ll break down the key things you need to know about a Franchise Grant Process and how it fits into your franchising framework.
If you’re thinking of franchising your business, it’s worth understanding how a Franchise grant process will work for you.
What Is Franchising?
Franchising involves allowing another party (the franchisee) to operate under your business name by opening up a separate branch.
The franchisee will have the right to use your branding, IP, marketing and other internal functions for business activities. This is great news for franchisees because they’re stepping into a venture with all the basics already set up, so it’s a bit easier to run things as opposed to starting fresh.
Usually, the franchisee pays a franchise fee in return for using these IP assets, operating systems, training services and basic marketing materials. Sometimes, a franchisee will also need to pay some legal costs associated with preparation and negotiation of the Franchise Agreement.
This Franchise Agreement should also cover the duration of your franchise relationship, which is also known as your franchise term. In some cases, franchisees may choose to extend their franchise term. When this happens, they’ll need to give 6 months notice and you’ll need to renew your disclosure document.
The franchisee will then go ahead and open a business with the same name in a different location.
What Are The Benefits Of Being A Franchisor?
Franchising your business allows you to expand your brand. It can give your business more visibility in different places which is a key factor in dominating the market.
When you start a franchise, you essentially delegate authority and responsibilities to various franchisees. So, you get to maximise your profit while having less on your plate!
You can rely on your franchisees to oversee the day-to-day operations of your business while you stick with the bigger, long-term matters. This gives you space to n focus more on your business’ long-term plans, which may involve building a network of multiple franchises in different states.
You may have also heard of franchise royalties. Since a franchisee is using your IP and branding on an ongoing basis, you have a right to receive royalties for this use. Usually, they’ll cover things like administration, advertising and technical support (this should all be covered in your Franchise Agreement).
If you’ve put in a great deal of effort into your brand and reputation, royalties are a great way for franchisees to compensate you for their use of your brand. A business’ brand is often hard to place a value on, so it’s good for franchisors to receive some form of recognition for this.
At What Point Should I Look Into Franchising?
If your business is stable and you feel there will be a market for it in another location, you may be in a position to franchise your business. You will need to consider things such as marketing, networking, finances, and product demand.
However, it’s always important to closely assess your current position before you decide whether you have the resources to go ahead with franchising your business. For example, you’ll need to consider some of the following things:
- How will I conduct my marketing activities?
- How will I receive payment for my franchises?
- How can I cover my legal costs?
- Product demand
If you decide to go ahead with franchising your business, our lawyers can help you with the following:
- Franchise Agreement
- Franchise Royalties
- Advice on franchising costs
- Compliance with the Franchising Code of Conduct
- Disclosure document
- Franchise grant process
- Extending a franchise term
When you make the big decision to franchise your business, you’re going to expect a lot of enquiries from potential franchisees (or people who want to operate one of your branches). You’ll need to have a process for managing these matters – this is where a Franchise Grant Process comes in.
So, what might this look like for your business?
What Is A Franchise Grant Process?
When you plan on franchising, you may get a lot of interest in the venture. People will be curious about a lot of things, such as fees, location, branding and ownership.
A grant process allows you to manage enquiries coming in from prospective buyers. Franchising means you are sharing the inner workings of your business with someone, so you want to make sure they are the right person. You also want to have the opportunity to communicate key issues or matters with potential franchisees, and have a transparent conversation about how it will all work.
This way, it makes it easier to make the right decisions moving forward.
What Does A Franchise Grant Process Involve?
The Franchise Grant Process might be slightly different for each franchise as every business has its own unique needs.
Generally, however, the process involves 3 main steps:
- Picking the right franchisee
- Sorting out your franchise documents
- Cooling-off period
Picking The Right Franchisee
Firstly, you want to kick off some important conversations with potential franchisees about what the arrangement entails. The grant process should always start with deciding the type of franchisee you want, and then filtering your enquiries to find this person.
In other words, you want to make sure you identify who is willing to invest the right resources into your franchise, and who is willing to help you expand your brand and align with your vision.
A common way to do this is by conducting interviews or even questionnaires. This might look different depending on your business and what you prefer, but the general idea is to decide whether your candidates are financially capable of managing one of your branches, and whether you can count on them to do great things for your brand.
Sorting Out Your Franchise Documents
Your next step is to sort out the documentation you need to kick off the grant process. Let’s say you’ve chosen the perfect candidate and want to get your franchise moving.
To do this, you want to make sure all the key matters are set out in writing. This will protect your business in case anything goes wrong later down the track. It should also clarify key roles and responsibilities between you and your franchisee.
As you may know, laws around franchising can be quite dense and complex, so having your arrangement in writing (and tailored to your business) is extremely helpful.
You’ll need to draft the following:
- Non-Disclosure Agreement: This is something that would be useful particularly in the early stages of your discussions. While things are not 100% final yet, you want to make sure your private, internal matters are kept confidential.
- Franchise Agreement: This is the main document that sets out the details of your arrangement with your franchisee, and if anything needs to be sorted later, this is the first thing you’d refer to
- Disclosure Document: this basically gives potential franchisees a summary of all important information about your business. This kind of transparency will help them make an informed decision about purchasing.
In addition to these, you’ll need to give your franchisees an Information Statement (you can get this from the Australian Competition and Consumer Commission) and a copy of the Franchising Code of Conduct (the Code).
The Code is the main law that governs and regulates franchises in Australia. It has important information about the rights and obligations of franchisors and franchisees, and how you can enforce these if the situation were to arise. It also sets out processes to follow for different aspects of the franchise relationship, whether this be selling, buying or leaving a franchise.
Cooling-Off Periods For Franchisees
The Code sets out a seven-day cooling-off period, which means the franchisee can change their mind about their decision during this time.
If the franchisee decides to exercise this right, they get a full refund of their franchise fee (as the franchisor, you need to pay this to them within 14 days, otherwise there are some penalties under the Code).
How Can I Get A Franchise Grant Process?
Sprintlaw provides a Franchise Grant Package, where our lawyers help you set up a process for managing the enquiries of prospective buyers. This will look different for each business, so we provide the following services:
- Preparing all the necessary documents for the Franchise Grant
- Issuing the Franchise Grant to one prospective Franchisee
- Negotiating any required amendments to the documents
- Issuing of the final version of the Franchise Grant documents for execution
- Organising and assisting in the execution of the documents to ensure everything has been done correctly
Our lawyers work closely with you to ensure we meet your business’ specific needs. This means the Franchise Grant Process will be tailored to you and the nature of your proposed franchise arrangement.
Franchising can be an exciting next step in your business. To ensure it’s off to a smooth start, it’s a good idea to chat to our friendly lawyers about our fixed-fee franchising legal packages.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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