For Franchisors

1. Before you even think about it - You cannot franchise your business unless you have already achieved the following: (a) You must have a business that is profitable. It must be profitable enough to produce a good profit to your franchisee even after you deduct franchise fees, not only those ongoing fees but, the initial fee also. (b) Generally the business must have been in existence long enough to know that it can survive a range of economic environments. (c) The business must be systemised and the systems must be recorded in a detailed and professionally drafted operations manual. It is better that you complete this job yourself, but you will need someone to proof the document. Let me repeat. Detail is critical. (d) The business must be unique.

The Trade Practices (Industry Codes - Franchising) Regulations 1998 provides at section 6 that – “A franchisor must, before entering into a franchise agreement, and within 4 months after the end of each financial year after entering into a franchise agreement create a document (a disclosure document) for the franchise in accordance with (the code)” The effect of section 6 is that all franchisors must update their disclosure document no later than 31 October each year. We strongly recommend that franchisors obtain advice from usbefore issuing an updated disclosure document. It is however possible for franchisors to consider for themselves what amendments might be necessary. By going through this process before seeing a lawyer it should be possible to save legal costs. Step 1 – Have there been any changes to the Franchising Code of Conduct? It is important to again realise that the content of the disclosure document is driven by the requirements of Annexure 1 of the Franchising Code of Conduct. Before you make any changes to the disclosure it is essential to check the current version of the code to ensure that changes have not been made to the requirements of the code. Most franchisors will know that in 2010 changes were made to the Franchising Code and the Annexure. These changes had the effect of requiring franchisors to amend their disclosure documents in July and October. If in any year the code requires additional information, then a careful note should be made of the required amendments.

Firstly, let’s consider where this step fits in the overall process of establishing a franchise system. If you are preparing a disclosure document for the first time, then you are not yet in the business of franchising. You can’t sign up your first franchisee to your system until you have prepared a franchise disclosure document. In the scheme of things, the disclosure document is the third document that you will prepare. The operations manual is the first document to prepare. The next is the Franchise Agreement, then the disclosure. How do you prepare your Franchise Agreement? Well, that is a job for a lawyer. You will need to use a lawyer who does this kind of work all the time. We can help you with this job. The industry is constantly changing, as is the code which governs the industry. You can buy template franchise agreements online. A search in Google will produce a number of results. Most of these websites will not produce documents that are current or relevant to Australia. Of course everyone starts the task of drafting any document with a template. The most difficult and time consuming part is making sure that the template is modified to cover the correct issues in the way needed in your particular industry and, in your particular franchise model.

The most commonly asked question that we receive is - what are the steps in setting up a franchise? The short answer is that you will need a good team of people to help you with each of the steps set out below. The first step is deciding if you should move ahead with the idea at all.

Step 1 - Determine if your business is ready for franchising: • Is the business well established? • Is there potential for expansion? • The business needs to be thoroughly market tested and proven to be successful. • Is the business adequately differentiated from its competitors? • Are systems in place to allow it to be duplicated? Each Franchised business can’t rely on you personally in order to operate successfully. • Is your business profitable? • Can the average Franchisee make a good return on their investment after paying Franchise fees