What is a franchise?
A franchise business is a business in which the owners, called the Franchisor, sell the rights to their business logo and business model to third parties, called the Franchisee.
Some examples of common franchises are:-
- Jims Mowing
- The Cheesecake Shop
- Hungry Jacks
- Pets Paradise
- Baskin & Robins
- Michel’s Patisserie
To invest in a franchise, the Franchisee must:-
- obtain sound legal advice before signing a contract
- pay an initial fee for the rights to the business, training, and the equipment required by that particular franchise
- pay the franchise business owner an ongoing royalty payment, usually calculated as a percentage of the franchise operation’s gross sales.
The Franchisee then has the right to open a replica of the franchise business, under the direction of the franchiser.
Q. What are the Top Advantages of owning a Franchise?
- Established business brand and reputation
- Established business product or service
- Established product suppliers
- For new franchises – assistance with site selection & development, builders & shop fitters, outlet design and equipment purchasing
- Initial management training and continuing management assistance
- Access to group marketing & promotional campaigns
- Access to standardised procedure manuals and stock control systems
- Access to established financial systems
- Access to a pool of new staff already trained in the business model
- Established goodwill to sell
Q. What are the most important things to know before you buy a Franchise?
- The Franchisee is restricted in how to operate the business by the business model of the Franchisor
- Restricted territory in which to operate and market
- Ongoing fees to the Franchisor
- No control over marketing and promotions
- The Franchisee’s goodwill is reliant on the success of the Franchise
- As a Franchisee you will have less control if you decide to sell your franchise business as there will be a set of procedures for you to follow, including obtaining the Franchisor’s approval of the buyer
- If you sell the business you will usually have to pay a fee to the Franchisor as outlined in the franchise agreement
- Restraint of trade provisions on the sale or termination of the franchise may be more onerous than where a non-franchised business is sold
- At the end of the franchise term, the Franchisor is not obliged to renew the franchise, in which case the business and its goodwill revert to the Franchisor
At Cyngler Kaye Levy Lawyers we are able to advise you in the many aspects of law that relate to the purchase and operation of a franchise, including:
- Business law including negotiations regarding the contract & commencement date.
- Lease (tenancy) law including negotiating a new lease or transferring an existing lease with both the Franchisor and the Lessor of the premises where the franchised business is to operate (ask our Accredited Specialist in Tenancy Law)
- Equipment finance and transfers if equipment is leased
- Employment law
- Legal operating entity to purchase and run the business eg. Partnership, Trust, Company
Please see our specific sections in this website for details of how we can assist you.
Jack Cyngler is an Accredited Specialist in Commercial Tenancy Law (Retail & Commercial Leases) with the Law Institute of Victoria. He is as a Member of the Commercial Leases Committee at the Law Institute of Victoria, which is a group of specialist practitioners that consult in this area of practice to make submissions to Government.
Please do not hesitate to contact our experienced Commercial Lawyers and our Accredited Specialist in Commercial Tenancy Law on +61 3 9500 1722, request a cost estimate or email an enquiry.