Fitness is a multibillion dollar industry that continues to grow. If you’re considering joining the industry or expanding your own gym business, it’s important to understand your obligations.
Whether you’re a franchisor looking to expand their business or a franchisee willing to participate in the expansion, you should always be well-equipped with useful knowledge. At Sprintlaw, many of our clients are from the fitness industry and our lawyers are well versed in meeting their specific needs. If this sounds like you, you’ve come to the right place.
What Is A Franchise?
The best way to define a franchise is to think of some common examples. Let’s think of McDonald’s, KFC and Plus Fitness.
These are all commercial businesses with various branches spread out across the country (and some globally, too!).
The main idea is that there is the main business (franchisor) and the various chains that operate under their rules (franchisees). The world of franchising is not so simple, however. Franchisors and franchisees need to be familiar with their obligations under the Franchising Code of Conduct (the Code), and have a well-written Franchise Agreement that is carefully reviewed before finalising any decisions.
It can be a complicated process if you’re not familiar with franchising laws, so it’s always a good idea to do some research and seek legal help. Let’s go through this in a little more detail.
What Is The Role Of The Franchisee And Franchisor?
As the franchisor, you are the owner of an established business. You have set up your business, structure, models, business plan, trademarks and a clear goal for your franchise.
When a franchisee buys into this business, they will need to operate their branch according to the franchisor’s rules and regulations. In other words, the franchisor will decide what the franchisee can and can’t do with the business. The relationship between the two is dependent on clear communication and mutual respect between both parties. This is particularly important when it comes to avoiding disputes and conflict.
The franchisee has a number of obligations to comply with to ensure the franchise relationship remains smooth, and these should be set out in both the Franchise Agreement and the Code.
Ultimately you have the same goal, which is to make the business as successful as possible.
What Are The Pros And Cons Of Starting Or Buying Into A Gym Franchise?
Whether you’re a franchisor or a franchisee, there are a number of things to weigh before investing your resources into this business.
- Franchises are generally already established businesses which saves you the extra work associated with starting from scratch
- There is likely already a brand name and reputation associated with the business, which can alleviate stress from your marketing efforts
- You are buying into an already existing business plan and structure that has already experienced market exposure
- Having an already established business does not guarantee the franchise will be a success.
- For a franchisee, it does not give you the same mobility as owning your own business- you are still required to follow predetermined procedures and processes.
- As a franchisor, you may experience hiccups down the track with your franchisee with upholding all of their obligations and meeting your expectations
Clearly, there are both good and bad sides to starting a gym franchise. Much of this will depend on who you go into business with and the varying factors surrounding commercial growth.
However, what you are in charge of is giving your gym franchise the best possible start by seeking the right professionals to help you. The legal team at Sprintlaw has plenty of experience giving personalised advice to franchisors and franchisees alike.
Franchise Code In Australia
The Australian Competition and Consumer Commission (ACCC) details and enforces the Franchising Code. The code regulates the conduct of both franchisees and franchisors, and is an integral part of ensuring your gym franchise is off to a smooth legal start.
The code is lengthy and can be quite a lot to absorb at first, but the penalties can be harsh. This is why it’s always good to consult franchise lawyers.
I Want To Franchise A Gym – Where Do I Start?
Many who have gone before will say, franchising a gym is no simple task however, this should not dishearten you. Much like fitness, there is a lot that goes on beyond the surface to achieve ideal results.
What Documents Do I Need?
When employing others to franchise your gym along with contracts, non-disclosure agreements, working with children checks or any other relevant checks need to be determined, qualifications for trainers as well as gym membership contracts need to be sorted.
What Fees Do I Need To Pay?
A franchisee pays fees to the franchisor in turn for use of their business name, structure, trademarks and module. It is upto the franchisor to determine what this fee will look like, what kind of instalments they will be in and the amount of fees they will charge. There are also ongoing costs a franchisee will need to pay the franchisor, therefore this should all be determined prior to the start of the agreement.
Financing a franchise is on the expensive side. When looking at expanding you gym into a franchise, expenses such as lease, lawyers and marketing all need to be considered. This goes into more detail below.
As mentioned above, the franchisee will have a number of fees to pay the franchisor. It is a franchisors duty to ensure they have been clear on all the payment responsibilities and
What Is In A Franchise Agreement?
A franchise agreement is the contract that will bind a franchisor and a franchisee together in business. This agreement will outline the obligations of both parties, the main aspects of the business and the overall structure of the business. Generally speaking, those are the basic aspects of a franchise agreement.
This could include some of the following matters:
- Who owns the intellectual property?
- Who can use that IP (for example, can it be licensed to a third party)?
- What rules do we have around confidentiality and disclosure of trade secrets?
- How will payment work?
- Will franchisees have the right to change some parts of the gym?
- Do the terms of the gym membership have to remain the same for all branches?
- What happens if a franchisee wants to raise a dispute with the franchisor?
The agreement should be catered to the specific business and therefore the unique relationship between the franchisor and the franchisee. As a result, no two franchise agreements will ever look the same. As this is a legal requirement under the The Competition and Consumer Act 2010, it is essential to get a lawyer involved when preparing a Franchise Agreement
There are a number of costs involved if you’re looking to franchise your gym or become a franishee for a gym. A brand new lease is one of them. To open your franchise is a new venue, you will need to lease out another space.
Naturally, you will need a commercial lease that permits you to operate a gym. The agreement will need to take into consideration the heavy gym equipment used, potential of loud music and noises, the time frame for the lease and any changes the rental space will require to accommodate a gym.
How Should I Manage My Intellectual Property?
Disclosure and confidentiality is essential when franchising your gym. You are essentially letting someone have access to your trade secrets. Therefore, it is crucial to protect them to avoid future disagreements and litigation.
When thinking of franchising your gym, it is essential to protect your intellectual property starting with the name and trademark of your business.
How Else Can I Protect My Business?
Additionally, you may wish to look into confidentiality agreements and Non-Disclosure Agreements for things such as client information, specific programs that are catered to your gym and any business functions you would rather not become public knowledge to your competitors.
When it comes to franchising a gym, it’s important to read into how you can maintain confidentiality in your workplace, as this is a key aspect of protecting your business.
How Does A Marketing Fund Work?
If you have started a gym and are looking to franchise, it is safe to presume you have led your current business to success. However, the marketing of a franchise can work a bit differently. As you expand your business, your technique will also need to adapt.
Thus, approaching the marketing side of things should differ from when you first started out in the gym business. When expanding to a larger audience, your marketing needs to up its game as well.
Therefore, it is worth considering a marketing fund for things like:
- Your gym’s logo
If you have any concerns around how a marketing fund will work in your gym franchise, it is worth speaking to a lawyer who can answer your legal questions.
Do I Need An Operations Manual?
The operations manual is one of the most important documents a franchisor will provide to their franchisee. This document will contain the functions of the business, training as well as people and culture aspects, all of which are highly important factors when running a successful business. You should always ensure you have an operations manual ready to hand to your franchisee from the outset.
If you’re the franchisee, it’s important that you request this manual from your franchisor in the early stages as it will contain crucial information for your business venture.
Neo has an established business that has been doing really well in the past few years. He’s looking to expand his business by franchising.
Initially, Neo consults a lawyer to better understand the requirements. Once he’s had everything explained to him, he seeks a franchisor that he feels comfortable going into business with.
First, he seeks out a space to lease and ensures he goes through all the details. This involves some discussion around changes to the property and any noise restrictions, which is then put into writing (this is the Commercial Lease).
Next, Neo meets Sharlene, a personal fitness consultant who wants to try the business side of things. Sharlene has spent some time working in the industry, so she has a great reputation and an ability to bring in good clients and trainers. The two have initial meetings where they discuss each other’s expectations, including fees, business structure, IP ownership and cultural aspects of the workplace.
As matters look positive, Neo has a written agreement created by his lawyers (this would be the Franchise Agreement) that Sharlene gladly signs.
Neo trains Sharlene in his business and leaves her with an operations manual. Sharlene handles the new location well and their business relationship runs smoothly.
National Fitness Industry Code Of Practice
The National Fitness Industry Code of Practice details the obligations of all gym owners and their responsibilities towards their clients. The code of practice is a thorough explanation of the standards of practises expected from gym owners, safety requirements, confidentiality practises, gym contracts and memberships.
I’m A Franchisor – What Are My Obligations?
As a franchisor, you have a duty to your clients and your franchisee. Your role is one of leadership, ensuring you have met all the legal requirements towards your clients and passed this on effectively to your franchisee in the form of written documents, training and good communication.
As a franchisor, you will have thought out your business plan with some clear goals, so it’s important that these rules are communicated to your franchisees. Part of your obligations is to also communicate and provide all the relevant information about your franchise to potential buyers (this is where a Disclosure Document comes in).
Your disclosure obligations should be set out in the Code, so it’s worth having a read through before you take any further steps.
I’m A Franchisee – What Are My Obligations?
As a franchisee, your duty is towards the business you are representing and the clients that are coming in as a result of that business. As such, it’s vital that you understand and agree to your franchisor’s terms and conditions.
All of your obligations (including the ones specific to your franchise relationship) should be set out in your Franchise Agreement, so it’s always a good idea to review this with your lawyer before signing. This is because it isn’t easy to get out of a franchise arrangement once you’ve entered into one, as the franchisor has more of a say in what you can and can’t do.
Franchising a gym or deciding to buy into a franchise can be a worthwhile business endeavour. However, there are a lot of factors to consider before delving further into the business side of the fitness industry. It is best to consult the opinions of an expert before proceeding.
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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