FRANCHISE GUIDE 15th EDITION

See inside for essential information required for buying, owning and running a franchiseauthored by industry experts.

Welcome

Cha P ter 1: Fran C hise Coun C il hel P s business FaC e new C hallenges 3

Mary Aldred, Franchise Council of Australia

Cha P ter 2: w hat is Fran C hising? 7

Jason Gehrke, Director, Franchise Advisory Centre

Cha P ter 3: aCCounting essentials F or F ran C hise buyers 15

Kate Groom, Franchise Accounting and Tax

Cha P ter 4: u nderstanding the l egal d o C uments 23

Robert Toth , Special Counsel, Sanicki Lawyers

Cha P ter 5: t i P s to hel P you get your tax right in the 2022–23 F inan C ial year 33

Andrew Watson, Assistant Commissioner in the Small Business area of the ATO

Cha P ter 6: i nsights into l easing 39

Samuel Rees, IP Partnership Lawyers

Cha P ter 7: what to be aware o F in relation to F ran C hising in new Z ealand 47

Stewart Germann, Franchising Lawyer, Auckland, New Zealand

Cha P ter 8: Fran C hise l aw 101 57

Esther Gutnick, MST Lawyers

Cha P ter 9: o btaining Finan C e, i n F lation and r ising i nterest r ates –w hat you need to know 69

Phil Chaplin, Chief Executive Officer, CFI Finance Group

Cha P ter 10: t hinking o F b uying a Fran C hise? Choose your Parents w ell! 75

Roger Dickeson, Senior Franchise Consultant, Wollermann Franchise Developments

Cha P ter 11: haV e you got the guts? 81

Doug Downer, The Franchise Guy™, Franchise Ready

Fran C hise l istings: 88

Pro F essional s er V i C es l istings: 95

h el PF ul o rganisations: ib

The Franchise Guide 2022 is published by CGB Publishing Pty Ltd PO Box 17 Pomona QLD 2704 Australia

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The information and contents in this publication are believed by the publisher to be true, correct and accurate but no independent investigation has been undertaken. Accordingly, the publisher does not represent or warrant that the information and contents are true, correct or accurate and recommends that each reader seek appropriate professional advice, guidance and direction before acting or relying on all information contained herein. Opinions expressed in the articles contained in this publication are not necessarily those of the publisher.

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© 2022 CGB Publishing Pty Ltd all rights reserved. ISBN 978-0-6487795-3-7

Preface

Vikki Bradbury | Publisher

CGB Pu B lishin G Pty ltd

Welcome

to the 2022/23 edition of Australian and New Zealand Business Franchise Guide 15th Edition.

If you have chosen to buy this Guide, chances are you’re thinking about embarking on a lifestyle change and a major investment in your future.

Franchising has many advantages over independent business ownership and is a valid option for the budding entrepreneur. Becoming the owner of a franchise is a big decision and the guide is full of helpful advice and insights to get you started.

Franchising has helped many realise the business dreams of many thousands of Australian and New Zealander’s and with many options to choose from franchising offers anybody the opportunity to own and operate their own business.

In this publication we bring together a collection of franchise sector experts who have imparted their knowledge to help you become you own boss and start your franchise journey well-armed with the knowledge you need to make an informed decision.

Each chapter has been written by a specialist within the franchising community, such as specialist lawyers, business advisors, accounting, Franchise council of Australia, ATO, Leasing, marketing specialists etc.

No matter where you are on your franchising journey, this book will help you to make informed Descion’ s about your entrepreneurial journey. Enjoy the read.

fran C hise C oun C il helps business face new challenges

Mary Aldred | CEO Fran C hise Coun C il o F australia

About the Author

Mary Aldred commenced as the Chief Executive Officer of the Franchise Council of Australia in April 2018. Mary brings to the role extensive experience across government, industry and the corporate sectors as well as a very strong focus on membership engagement, stakeholder collaboration and effective advocacy.

The Franchise Council of Australia (FCA) is the nation’s peak body for franchising, representing franchisees, franchisors and service providers to the sector. The FCA provides a strong voice for franchising and is focused on raising the awareness of the benefits of franchising and educating governments, regulators and key decision makers, as well as the broader community, on the important economic and social contribution that franchising makes within Australia. Membership of the FCA is voluntary, and open to any organisation or individual involved in the franchise sector, including franchisors, franchisees, and suppliers to the sector. The FCA strives to add value to the businesses of its members by advocating on their behalf, and by providing education, information and networking services and opportunities that support a prosperous and growing franchise sector.

As per IBISWorld Research Report July 2022, franchising in Australia contributes $172bn annually to the national economy through 94,524 individual business outlets employing 565,251 Australians.

Continuing staff shortages and escalating interest rates and inflationary pressures in the wake of the COVID pandemic caused major concern for Australian small businesses in 2022, according to FCA research.

The COVID pandemic reshaped the business landscape and anecdotal evidence is that franchising emerged from the impacts faster than most of the small-medium business sector.

However, the FCA’s 2022 series of Business “Pulse Check” surveys highlighted that although pandemic trading restrictions had gone, significant new obstacles were hindering Australian business recovery.

The 2022 Franchise surveys, which included responses from diverse brands with thousands of business outlets across the nation said finding suitable employees for Franchisees and staff for support offices was a significant challenge.

For the first time since the surveys began in March 2020, rising interest rates and inflationary pressures were also identified as a growing challenge, followed by supply chain issues and Franchisee recruitment were also in the top key concerns and challenges.

There has never been a greater need for the Franchise Council of Australia in its support and assistance to our members, underpinning franchising as the preferred model for small business success.

the role of the FCA

The Franchise Council of Australia (FCA) is the peak body for the $172 billion franchise segment in Australia and covers a range of organisations and individuals, including franchisors, franchisees, professional advisers and suppliers.

The FCA is committed to building a strong franchising culture that upholds standards and looks to meeting compliance obligations as a minimum standard – always striving for best practice in the franchise relationship and business conduct.

The FCA’s support for members and broader advocacy in the COVID pandemic has earned respect across business and politics, and we are seen to have taken a strong stand to support Australian small businesses.

The FCA continues to advocate strongly for franchising as the best model for small business, by promoting the needs and concerns of all small businesses, whether franchisors or franchisees, and by highlighting franchise network support for franchisees during COVID and recovery in 2022.

In one of the most difficult economic environments ever experienced by Australian business, both franchisors and franchisees have had to demonstrate resilience, adaptability and determination to push their businesses through the challenges.

Looking ahead

Moving forward, the will FCA continue to focus on two key priorities: • advocating and representing the interests of members to all levels of government on the issues, concerns and needs of our members and the small business sector

• and through the media, enhancing the standing and reputation of franchising as the preferred model for small-medium business success, including highlighting the resilience of franchise systems in a tough economic environment.

The FCA is committed to ongoing engagement with government and policymakers to ensure that franchising remains the most successful model of small business ownership in Australia. Towards achieving that, the FCA will maintain focus on public advocacy and business support on the issues that are important to our members.

The FCA continues to provide a dedicated program of education and information through a series of topical webinars focussed on industrial relations, wellbeing, business and legal issues, featuring industry experts, franchisors and politicians who have all generously shared their time and knowledge to educate and inform members.

After many months of restrictions on events, we held our first National Franchise Convention for three years in Melbourne in April 2022 and another standout event in 2023 will be an even bigger NFC program.

This really will be an unmissable opportunity to gather to share ideas, experiences and knowledge of strategies for consolidation, revitalisation, innovation and growth in a vastly changed business environment.

The FCA will also build on its successful 2021-22 webinar program to again provide the opportunity for members to meet at face-to-face to events for networking and information exchange, as well as continuing to offer online events.

We know that whether they are located in metropolitan or regional Australia, businesses that are part of a franchise network continue to outperform many other parts of the small-medium business sector.

The FCA is optimistic that the innovation and resilience demonstrated by franchised businesses in recent years will ensure that they will continue to lead national recovery in 2023.

What is f ranchising?

Jason Gehrke | Director Fran C hise a dvisory Centre

About the Author

Jason has more than30 years’ experience in the franchise sector and is the founder of the Franchise Advisory Centre, a leading provider of education in franchising best practice.

He is a former director on the boards of two franchise brands, and a past chairman of the World Franchise Council. He is a regular contributor to franchise magazines, and publishes Franchise News, Australia’s leading email news bulletin on franchising trends and issues. For details about upcoming franchise education events presented by Jason go to www.franchiseadvice.com.au

Copyright © Jason Gehrke, 2022.

Asyou read these words, you are surrounded by franchising. It is highly likely that today you have bought (or will buy) a product or a service from a franchised business.

As you read these words, you are surrounded by franchising. It is highly likely that today you have bought (or will buy) a product or a service from a franchised business.

Franchising touches our lives so frequently in so many ways that we often fail to see the wood for the trees. We live in homes bought from or rented by franchised businesses. We maintain these homes with the help of franchised lawnmowing services, gardeners, handymen, pest controllers, and so on. We furnish these homes with furniture from franchised retailers, clothe ourselves in goods from franchised businesses, and entertain ourselves with the latest gadgets, games and videos from franchised stores.

We drive cars bought from franchised dealerships (or made by auto franchisors). These are also maintained by franchised repair specialists. We buy fuel from franchised fuel retailers, pick up last minute supplies from franchised convenience retailers, and buy food from franchised eateries.

Franchising is everywhere and we interact with it constantly without even realising how it works. It surrounds us in almost everything we do, buy or consume. It exists in almost every business sector and industry around the world, and yet it is commonly misunderstood by the very people who rely on it to provide them with the goods and services they need to live.

Franchising in Australia is big business. According to the Franchise Council of Australia, the sector generates $172 billion in revenue each year through more than 94,000 outlets across approximately 1,300 brands, and which employs more than 565,000 people in total.

To understand franchising is to understand one of the most dynamic forms of business in operation today. As a concept, franchising is remarkably simple, but in execution, it can be incredibly complex.

This article looks at some common perceptions of franchising and highlights what franchising is, as well as what it is not.

What is a franchise? – Definition

In simple terms, a franchise is a conditional grant. A franchisor offers a grant to use its brands and business systems to the recipient of the grant (the franchisee). The grant is conditional upon the franchisee meeting certain standards to maintain the integrity of the brands and business systems. The grant is usually limited by time and can be withdrawn if the conditions under which it has been provided are not met by the franchisee.

The table below outlines some common perceptions of franchising held within and outside the franchise sector.

Fr ANC h ISING IS…

Fr ANC h ISING IS NOt…

a way to get into business without reinventing the wheel just fast food small business that can take on big business a license to print money a method of growing a business not suited to everyone or every business a business unlike any other not for the unprepared a structured and regulated business partnership an interdependent relationship

these perceptions vary according to the perspective of the beholder (eg. franchisee or franchisor). each are considered in more detail below:

Franchising is a way to get into business without reinventing the wheel

This view is commonly held by most potential franchisees, who are drawn to franchising as a way of starting out in business but with the guidance and support of a larger organisation to fall back on. The oft-repeated cliché is that franchising offers a way to be in business for yourself, but not by yourself.

Starting a new business is a daunting challenge and there are no guarantees of success. For new, non-franchised businesses, almost every step of the way breaks new ground for the business owner who can often be overwhelmed by the sheer complexity of the task they have undertaken. As a result of their lack of business experience, independents can easily overlook critical details which may be essential to the success of their business. Most commonly, these include mistakes in estimating the capital required to set up the business, the working capital needed to support the business in its growth phase, as well as the product or service mix, marketing, supply chain management, site selection and many other factors.

In a franchise, the franchisee pays to access the experience of the franchisor and to access the cumulative expertise the franchisor has developed across the spectrum of business operations through the establishment of its own outlets, as well as those of all the current and former franchisees in the group.

Franchising is small business that can take on big business

A key disadvantage of independent small business compared to a franchise is the lack of strength behind the brand. The brands of franchise networks grow stronger as the networks grow larger. The marketing clout of the brand becomes more and more substantial. The collective purchasing requirements of the group provide a substantial lever to negotiate better prices, quality or terms with suppliers not otherwise available to independent operators.

Franchisees are able to call on the resources available in the centrally co-ordinated head office of the franchisor to access advice, expertise and experience not available to stand-alone independents. Not only does this give franchisees and franchise groups greater economic force compared to independent small businesses, but it also helps franchised networks take on corporate chains in the same market place. Franchise groups can match corporate chains for marketing clout and buying power, but press their advantage further due to the profit motive of each franchise owner at individual store or territory level – a motive generally lacking among salaried corporate branch managers.

The ownership of a franchised outlet provides the operator with not only a profit incentive, and an opportunity for capital gain, but a greater level of focus on customer service and greater sense of achievement in building a business asset compared to that of a branch manager.

Franchising is a method of growing a business

Franchising offers budding franchisors with an idea or an existing business the opportunity to grow into a household name. (At least, that’s the hype.)

Franchising is a method of growth suited to existing businesses that are both profitable and sustainable, and which have owners and management teams committed to the long term enhancement of the brand. Ideas can’t be franchised – only businesses. So any idea must be converted into a viable business before franchising can even be considered.

Once a business is determined to be viable, growing it to the next level might involve an assessment of a number of options, including franchising. If an assessment of the available growth options determines that franchising is the most effective way to grow, a long process of planning, documentation and business process review must be undertaken before the first franchise can ever be granted. After all, if franchising was easy, every business would do it.

Start-up franchisors need to confirm that their original operation is not a fluke one-off by replicating it in several other company-owned operations before franchising. These additional outlets help test the business model and over time serve as the nucleus of the franchise network if they are later converted to become the first franchise outlets.

Franchising is a business unlike any other

Franchising is the Place in the famous four P’s of marketing (Price, Product, Place and Promotion). Marketers recognise that Place (also referred to as distribution) is a key benefit of franchising where a cohesive distribution channel enables individuallyowned and operated businesses in different states or countries to provide consistent services and products. Franchising provides the common thread that binds these businesses together.

In this regard, franchising is unique – the franchisees are individually owned, but act as a collective whole for the best interests of the brand.

Furthermore, franchisees pay for the right to join a franchise group, and are accepted only if they meet specific selection criteria (which of course will vary from one group to another).

And because the franchisees share a common brand and operating systems within a group, the franchisor has the dual role of supporting and encouraging franchisees to maximise performance, while at the same time maintaining system and brand integrity. This can mean that franchisees who are not operating in accordance with the rules of the system (or more specifically, the conditions of the franchise granted), may be required to improve or risk the termination of their franchise.

These factors combine to make franchising a truly unique method of business. As such, both franchisors and franchisees must appreciate from the outset the finer detail of the relationship that binds them together.

Franchising is a structured and regulated business partnership

The entire basis of the relationship between a franchisee and franchisor is outlined in four key documents. These are the Franchising Code of Conduct, the Disclosure Document, the Franchise Agreement, and the Franchise Operations Manual.

The Franchising Code of Conduct is the national set of regulations that govern the franchise sector. The Code applies equally to all franchises in Australia, regardless of size and age and determine the environment in which franchising operates. There are protections under the Code for franchisees, and every potential franchisee should read the Code prior to seeking their ideal franchise. Some of these protections include mandatory disclosure of information by franchisors, waiting periods before and coolingoff periods after signing franchise agreements, and dispute resolution procedures.

The Disclosure Document contains key information about the franchise offer, the franchisor and the network to help a potential franchisee make a reasonably informed decision. A Disclosure Document template in the Code identifies the type of information to be provided, irrespective of the size or age of the franchise system.

The Franchise Agreement is the contract that binds the franchisee and franchisor together in a business relationship. Agreements span an initial term which is five years on average in Australia but can be shorter or longer depending on the system, and may be extended for an optional term usually of the same length.

A franchise agreement is a very broad contract that includes provision for almost everything that might occur during the life of the franchise, as well as a number of provisions that will continue to exist after the franchise has ended (eg confidentiality). It can be likened to the ultimate pre-nuptual contract – an agreement that shapes the commercial marriage between franchisor and franchisee which follows. It is vital that franchisees read these agreements (and get professional advice) before signing so that they are fully aware of the terms and conditions up front.

Finally, the Franchise Operations Manual determines how the franchisee must operate their business. It outlines the systems and procedures and “how to” information for a franchisee to run their business. It is inevitably linked to the franchise agreement, so that a failure to comply with the procedures in the operations manual may result in a contravention of the franchise agreement and possible termination of the franchise.

These three documents combined determine the structure of the unique relationship between franchisor and franchisee. This relationship is a business partnership, but not an equal partnership because the franchisor must always retain control of the brand for the good of the network as a whole.

Franchising is an interdependent relationship

The relationship between franchisee and franchisor is unique. On the one hand, the franchisor provides the brand, business know-how, guidance and support to the franchisee. On the other hand, the franchisee provides the front line customer service and implementation that makes the brand real to its customers. This makes franchising interdependent – the franchisee needs the franchisor and in turn the franchisor needs the franchisee.

Franchisors often choose franchising as a method of growth because their own experience operating corporate outlets indicates that customer service levels, and therefore customer satisfaction and repeat patronage are higher in outlets which are operated by a local owner. Franchisees choose to join franchise networks to align themselves to the brand, marketing, buying power and support provided by the franchisor. The relationship is mutually dependent – both parties need each other in order to survive and flourish.

But for all things that franchising is, there are a number of things that franchising is not.

Franchising is not just fast food

Franchising encompasses most categories of businesses in the retail and service sectors. It exists also in wholesaling and manufacturing sectors, and permeates almost all aspects of economic activity. Commonly however, franchising is perceived as concentrated on just fast food.

This perception might arise from the prevalence of fast food brands in the economic landscape, their high-profile locations and broad market appeal, as well as their massive marketing budgets.

The overwhelming majority of franchise brands and outlets however, are in the services sector, ranging from lawnmowing to telecommunications and beyond. These brands provide a variety of business models and capital entry points which in most instances are considerably lower than the cost of investing in a fast food franchise.

Franchising is not a license to print money

A misconception that has developed around franchising over the years is that it is somehow a license to print money for either the franchisor or franchisee. No such

businesses exist, or if they do, they don’t happen overnight. Franchisees and franchisors can both enjoy good profits, but first must be prepared to put in the hard work and effort required to build the business to the point that it can be profitable.

Some potential franchisees think that a franchise is a sure-fire iron-clad guarantee of success, and that all they need to do is to open the doors and be flooded by the avalanche of money coming in. Nothing could be further from the truth. While the franchisee’s investment in the brand and franchisor’s knowledge and experience substantially increases their chances of market recognition and uptake, the operation of the business right down to the delivery of customer service is the responsibility of the franchisee. Any single or compound failings by the franchisee to properly execute the business model provided by the franchisor could substantially delay profitability, or worse still, sink the business altogether.

Aspiring potential franchisors are also mistaken if they think that franchising is a license to print money, and that to be extremely profitable all that is required is to sell franchises. The reality is that the time, effort and cost of preparing a business to be franchised is considerable, and often outweighs the financial rewards of franchising for the first few years. As a result, potential franchisors must have deep pockets to commence with, or be prepared to maintain company-owned operations to generate the income necessary to pay for their franchise preparations.

Franchising is not suited to everyone or every business

Not everyone is suited to be a franchisee, and not every business is suited to franchising. Successful franchisees will generally be self-motivated, highly-disciplined individuals who conducted extensive due diligence prior to joining the franchise and who understand how to work most effectively within the parameters of the franchise system. Franchising is not suited to potential franchisees who do not work well with others, who are unable to work within guidelines, who are not disciplined or motivated, and who come to franchising with unrealistic expectations about support or profitability.

Similarly, potential franchisors with unprofitable and unsustainable businesses are not suited to franchising. In some instances even profitable and sustainable businesses may not be suited to franchising if the organisational culture and leadership are not geared towards long-term growth and a continual process of improvement.

Franchising is not suited to the unprepared

The principle of preparation applies equally to both franchisors and franchisees. Businesses that mistakenly believe that franchising is simple greatly underestimate the work involved in preparing a business for franchising.

For example, documenting the business procedures into an operations manual is a considerable undertaking that forces each process to be reviewed and draws heavily from the personal knowledge and experience of the business owners or its key personnel. This requires an investment of time that alone can take many weeks or months to

complete. Shortcuts taken by a franchisor at this stage will place a greater burden on the system later if the operations manuals or training systems are incomplete, causing franchisees to place greater demands on support resources after commencement.

Likewise for franchisees, preparation is everything. Potential franchisees are recommended to spend at least one hour in research and due diligence for every $1,000 to be invested in a franchise. This time should be spent reviewing the franchise documentation provided by the franchisor, using professional advisors, undertaking professional development, contacting current and former franchisees, and spending time working in and familiarising themselves with the franchise business.

summary

Franchising means many things to many people. Franchising surrounds us in our daily lives and exists at all levels in the provision of goods and services. It is a strong economic force in the Australian business environment and continues to grow.

Franchising can provide the well-prepared with opportunities to grow their businesses, and opportunities for potential franchisees to go into business for themselves with the support of a strong brand and more experienced business partner.

Franchising can provide small businesses with the same competitive advantages to compete equally with big businesses, but deliver improved performance at outlet level due to the profit incentive and ownership of the local operator.

Franchising is a unique business relationship where the franchisor and franchisee come to depend on each other. The relationship is documented in the form of a highly-detailed legal contract (the franchise agreement) and shaped by the national regulations that govern the franchise sector in Australia (the Franchising Code of Conduct). Information about the franchise offer is contained in the disclosure document and the knowledge of how to operate the business is provided by the franchisor through training and ongoing support, as well as through its operations manuals.

Common misconceptions about franchising include a perception that it only exists in the fast food sector, and that it will provide unrealistically quick and substantial profits.

Franchising is not suited to everyone and both potential franchisors and potential franchisees must do considerable homework before committing themselves to franchising. The more preparation done beforehand, including extensive reading and research, professional development, and the use of qualified and experienced advisors will bolster their chances of long-term success.

J A son Gehrke | Director

Franchise Advisory Centre

www.franchiseadvice.com.au

aCC ounting essentials for franchise buyers

Kate Groom | Co-founder and Director Fran C hise aCCountin G and tax

About the Author

Kate Groom is Co-founder and director of Franchise Accounting and Tax. She has previously worked for franchisors and as a business adviser. Kate’s focus is on helping clients understand the financial aspects of running a business and on business planning and coaching. She is also a director of a number of ‘not for profits’.

Over the years I’ve met plenty of franchise owners who have found the accounting side of their business confusing. Often that’s because they have not established a relationship with the right type of accountant for their business. They might have tried to save money by delaying the decision to retain an accountant or thought that business accounting is just like a simple personal tax return (it isn’t).

But the accounting side of business can be understood. It just takes a bit of focus in the first few months — and the right type of advice. As the months roll by, you’ll become more confident with the accounting side of things and will start to understand what your figures are telling you about how your business is performing.

You can get started with understanding the financial side of business right away — before you even open your business. One of the best ways is to ask questions about the accounting side of business.

To get you started, here are some of the questions we are often asked, and how you can turn your questions into a learning experience that will help you throughout your time as a business owner.

Please note that this is general advice and you should seek advice for your circumstances from an accounting and tax professional.

When should i start working with an accountant?

Business accounting isn’t like getting your personal tax done. It’s not a once a year thing. The right time to find an accountant for your franchise is when you are at the due diligence stage. Work with them to complete your financial due diligence and then to correctly set up the accounting processes for your business. This will help you avoid expensive mistakes and financial stress in your business.

Laura approached and her husband, David, had been in business for three years by the time they approached us. They had already used two different accountants. They were behind with their tax returns, their accounting records didn’t correctly reflect the financial position of the business, and the business itself was unprofitable.

Gerry also came to us. He had been in business for six months. Like Laura and David, his accounting files were a mess. In fact, the records were so far behind that he couldn’t tell whether the business was profitable, and he was late with his ATO lodgements for GST and PAYG. By this stage, he’d spent a lot of money and was starting to be concerned about cash flow.

A wise decision for both of these business owners would have been to find an accountant before they started in business. This would have helped them avoid the financial stress they were now experiencing.

But finding an accountant isn’t just about calling one for advice before you buy — important though that is. It’s about working with them, and with their recommended bookkeeper, to set up the accounting system, prepare a financial budget, and set in place the reporting systems that will help your business become profitable and have strong cash flow.

Some people put off getting an accountant because they don’t know how to work with a finance professional. You might associate accountants with year end tax returns, but in a business, the accounting work is ongoing — not just a year end thing.

So, it’s a very good idea to establish a relationship right from the start of your time in business. That way, your accountant can help you in three important ways.

1. Tax and accounting advice that’s relevant for you: Your accountant will be an important source of information and advice as you run your business. When you are in business, there are many tax and accounting requirements you need to comply with. And as your business grows, the financial issues will change. Your accountant knows how to deal with these issues, and the better they know your business, the better they can advise you.

2. Help you achieve your financial goals. Your accountant can prepare quarterly financial reports and discuss them with you. This will help you focus on your financial goals and make progress towards them. Your accountant can also help with cash flow and budgeting, as well as tax planning.

3. Annual financial statements and tax return. Each year your accountant will prepare a set of financial statements for your business. The accountant will also prepare a tax return for your business, and take care of ATO lodgement. unexciting as these things are, they become stressful and costly if you get behind. Expensive catch up work is never the best start for a relationship with an accountant!

What accounting records do i need to keep?

remember Laura and Gerry from our earlier example? Neither of them set up good record keeping systems. They decided to go with a DIY approach that seemed OK to them. Their franchisors gave them a couple of pointers, then they just did what they thought was right. Only it wasn’t right.

You see, there are specific record keeping requirements for business. And your accountant will want you to follow the best practices they have developed over the years. Good record keeping helps keep your books in order, saves you time, and saves you money. And like so much in life, it’s best to get set up right from the start.

When you set up your business, you’ll need to implement a system to keep track of income and expenses. You do this using accounting software. A few franchises specify the software you must use, but if they don’t, you should follow the advice of your accountant.

In our experience, it’s vital to get your accounting records set up before you begin trading. This helps you get into good habits and keep up to date with your accounting.

Here are three accounting things to do before you get started in business. These seemingly small things will make a big difference to the smooth running of your business.

1. Get your accounting software properly set up. You don’t just turn on your accounting software. It has to be correctly set up and that takes a bit of time. And as a business owner you need to learn how to use it properly. The danger with leaving

this to ‘later’ is that you’ll always be playing catch up when it comes to your ATO lodgements.

2. Establish a system to keep track of bills and receipts. When you run a business, you need a copy of every bill or receipt and they need to tie in to the transactions in your bank account. Thankfully, we have apps that take care of this. However, you need to get into the habit of using the apps correctly.

3. Learn about your payroll record keeping obligations. When you employ people there are record keeping obligations that you must comply with. These include employment agreements, working hours, and records of leave accrued and taken. As an employer you must also comply with superannuation payment requirements. In our firm, we help get set up with software that helps them comply with the law. But still, there’s quite a lot to learn. That’s why we recommend every business owner completes the free online training courses offered by the Fair Work Ombudsman.

What does an accountant do?

Your accountant will do the year end work to prepare the financial statements for your business and also the business tax return. But this isn’t all they can do for you.

As a small business owner, you should be working with your accountant in three key areas:

1. Tax planning: This is usually an annual activity that takes place a couple of months before the year end.

2. Financial forecast: A financial forecast is something that every business owner should have. It is a financial model that looks at what you expect sales, costs, profit, and cash flow to be in the next 12 to 36 months. Even at the start of your business life, you should be looking ahead and using the forecast as a way to help you set goals and move towards them. Your financial forecast can also take into account your personal financial needs and the way you expect to use the profit from the business to build your wealth.

3. Business development: An accountant who knows your business can help you develop and grow it. This might involve helping you improve your financial processes, review costs, or create plans for the future. As your business grows, your accountant can help you manage the growth and save yourself time and headaches. Typically, business development discussions take place quarterly or every six months.

These three services are all about adding value to your business. They are about helping you to get the most from your business, and saving you time on record keeping tasks — so you can get on with growing the business.

What costs can i put through the business?

Despite what some people think, owning a business doesn’t allow you to get tax deductions for a heap of personal expenses. A company structure does give you some tax planning options, but only business expenses that are deductible for tax purposes.

The ATO has clear guidelines for what costs you can put through your business. Their

website states, “You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income.”

The ATO also says that the expense must have been for your business, not personal expenses, and you must have the records to prove it. Some expenses are not deductible even if they were related to your business, for instance entertainment expenses and traffic fines.

For instance, travel to your franchise conference is a legitimate business expense, while your kids’ school books, your grocery shopping, or haircut are not. If you use your business bank account to pay personal expenses your accountant will make adjustments to correctly account for them.

Your accountant or bookkeeper will help you correctly record business expenses and learn what is a business expense and what is not. Part of the accountant’s review work is designed to identify transactions that may not be business related. They will discuss the items with you if needed.

how does Gst work?

As a business owner, it’s your responsibility to register for GST if your turnover exceeds the $75,000 threshold or is likely to exceed it. Your accountant can take care of the registration on your behalf.

When you commence trading you will then:

• include GST in the price you charge for your goods and services

• claim credits for the GST included in the price of goods and services you buy for your business.

The GST a business charges to their customers is shown on the Tax Invoice. This is an important document because it provides evidence of the GST that has been charged and paid.

Your accounting software or point-of-sale system will need to be set up to correctly show and track GST. You must also keep copies of tax invoices for the purchases you make. A tech savvy accounting firm will get you set up with apps that scan receipts and bills, and send them directly to your accounting software. This means there’s no need to keep paper receipts, instead you scan a receipt with your phone, or send it to the software directly from your email.

What payroll records do i need to keep?

Payroll is a complicated area of business and it’s important to get it right. There are significant penalties for failing to comply with the law regarding employee pay and recordkeeping, and if you don’t pay PAYG and Superannuation as required.

From an accounting point of view, you need to record gross wages, tax and super obligations. Your accountant or bookkeeper will help you set up payroll software to track these things, However there are also specific requirements relating to, for instance, recording of hours worked, leave entitlements, pay rates and pay slips.

As an employer you’ll also need to use the ATO’s Single Touch Payroll (STP) system to report each wages payment, and the Superstream process to pay Super.

Your accountant will be able to advise you on the accounting side, including STP and Superstream. As an employer, it’s your responsibility to understand the employment paperwork and payroll aspects of business. Your franchisor may provide guidance, or you can find information on the Fair Work Ombudsman’s Website (www.fairwork.gov. au), or use the services of an employment and Hr specialist.

Each time you pay an employee, you are required to withhold PAYG from their pay. This is then paid to the ATO as part of the BAS process. Each quarter you pay Superannuation on behalf of your employees.

What is a bAs?

Your business will need to submit a Business Activity Statement (BAS) to the Australian Tax Office (ATO), usually quarterly. Your accountant will do this for you as part of their service.

The BAS shows the sales your business has made, the GST charged to customers and the GST paid to suppliers. It also shows wages paid to employees and the PAYG tax withheld from their wages.

You will then pay the ATO the difference between the GST you collected from customers and the GST you paid suppliers, as well as the PAYG withheld from wages. If you paid more GST than you collected, you’ll receive a refund from the ATO.

It’s important to lodge and pay your BAS on time, as penalties apply for late lodgement and interest is charged on overdue amounts.

Do i need a bookkeeper?

You may need a bookkeeper to help you stay on top of your financial record keeping. It’s definitely a good idea to use one in the early stages. A good bookkeeper can help you get your accounting systems running smoothly, which saves time and money later.

A bookkeeper typically takes care of matching bank transactions to bills, receipts and invoices. They can also help with payroll processing. They can also set up the various accounting apps that you will use.

Ideally your bookkeeper will work closely with your accountant. The accountant may be able to recommend a bookkeeper, or may provide that service from within their firm. If you use the accountant’s bookkeeping services, you can avoid the need to recruit, manage and instruct the bookkeeper.

Your accountant should be able to provide advice as to whether a bookkeeper would be helpful in your circumstances.

how can i get money out of the business?

“How do I pay myself?” This is one of the earliest questions a business owner asks. We all have living costs, so the business needs to provide us with a living.

Owner’s Wages

Your first goal is to pay yourself for the work you do. We call this ‘Owner’s Wages’. Depending on the franchise, it might take a bit of time before there is enough business income for you to take a wage. But you should ‘go on the payroll’ once you see that the operating costs are being covered each month. This means you’ll be paying yourself every month and can stop living on your savings or your partner’s wage.

Whatever franchise you buy, your initial investigations should help you identify whether the business can pay you a decent wage for the work you do. This is a bare minimum requirement. For instance, if you are managing a hospitality business, you’ll want to see that the business can generate enough to pay you a manager’s wage. If you’re a handyman or pool technician, you’ll want to receive an amount appropriate for your skills and experience.

Towards the end of the financial year, you and your accountant can assess whether it makes sense for you to receive additional payments on top of the wages you’ve already received.

It’s important to understand that you’ll need to pay PAYG tax and Super on your wages. Just because you’re the owner of the business doesn’t mean you can just take money from the business and not deal with the tax system.

Other ways to get money out of the business

As your business progresses, your accountant will help you decide on tax effective ways to repay any money you have invested in the business.

This might include loan repayments or dividend payments, depending on the structure of your business and your personal circumstances. These payments have tax consequences beyond regular PAYG tax, so it’s important to get advice before you take money out of the business.

this seems like a lot of stuff to know!

Yes, there is quite a bit to the accounting aspects of running a business. remember, an experienced business accountant and their advisory team have spent years developing their understanding and skills. Your goal is not to become an accountant but to learn how to work well with your accountant, bookkeeper and advisers.

Today’s accounting technology reduces much of the record keeping burden and allows you and your adviser to focus on profit improvement and business growth. And by getting things done right from the start you’ll be well placed to progress towards your goals.

understanding the legal do C uments

robert toth | SpecialConsultant s ani C ki l awyers

About the Author

Robert is an Accredited Commercial Law Specialist with over 35 years expertise in franchise, license, and distribution law, acting for local and international franchisors and companies, advising franchisees and master franchises with extensive experience in dispute resolution and mediation.

Robert joined Sanicki Lawyers in January 2022. Sanicki Lawyers is a dynamic and progressive law firm that has a talented team of lawyers. The firm acts for well-known brands and has expertise in Intellectual Property and Franchising.

Robert regularly publishes articles online and internationally on Franchise Licensing and Distribution and is a Member of the Franchise Council of Australia (FCA) the International Franchise Lawyers Association (IFLA). He was recently named as a Leading Franchise Lawyer in Australia in Who’s Who Legal: Franchise 2021 and is on the Advisory Board of a number of clients, as well as acting as a resident director for overseas companies.

Alot

has changed as we all know over the past few years for businesses with online sales, mobile home service delivery for products and services. Retail business has changed and evolved, as has customer needs and expectations.

For anyone looking to establish a business for the first time, it is still the case that starting out as a franchisee is regarded as a safer way to get into business and build up some experience utilising the systems and support of the franchisor.

In the period from 2019 to 2022, the Franchise sector has undergone considerable scrutiny, another Parliamentary enquiry, and a revised Franchise Code, placing greater disclosure and compliance obligations on Franchisors.

For prospective franchisees the process of finding and then selecting a franchise is exciting on one hand and no doubt downright scary on the other.

The purpose of the Franchise Code is to provide a franchisee with all relevant information they may need to make an informed decision as to whether to take up the franchise.

Franchisees often see the franchisors shmick online promotion and website marketing and can easily get caught up with the hype, but the devil as they say is in the detail.

How can a franchisee make the right decision and really get to understand their rights and obligations before signing on the dotted line?

The best way to limit your risk and avoid making the wrong decision is to ensure you have a franchise specialist lawyer on board who can advise you and ensure you have independent financial advice.

Do your due diligence on the franchisor just as they do their due diligence on you!

Get feedback from other franchisees and don’t be rushed into making a decision as once you have taken up a franchise it is not so easy to exit.

how do you find the right lawyer?

Seek a franchise law specialist or contact the Franchise Council of Australia (FCA) who will recommend a lawyer who is a member of the FCA.

Irrespective of how attractive and compelling the franchisors marketing and sales pitch may be, the primary decision should not be emotional, it should be financial. That is, will you be able to take a reasonable wage, pay your expenses and interest on loans and get a return on your investment?

Franchise lawyers who are members of the Franchise Council of Australia (FCA) are best placed to give you advice to minimise your risk, as we know what’s going on in the franchise sector, the good, the bad, and the downright ugly!

Due to the Franchise Code changes, there are now even more documents for a franchisee to review and seeking a specialist franchise lawyer who knows the tricks and traps will save you a lot of time and stress!

the Franchise Code regulations

On 1 June 2021, the Australian Government made amendments to the Franchising Code following the Government’s response to the Fairness in Franchising Inquiry in 2019.

Many of the changes affect agreements entered, renewed, or extended on or after 1 July 2021, with some changes to dispute resolution for a dispute notified on or after 2 June 2021, even if the franchise agreement was entered into, extended or renewed before 2 June 2021.

Most of the regulations deal with further disclosure obligations for franchisors in the disclosure document and apply to disclosure documents given from 1 November 2021.

There is an updated information statement and new key facts sheet which is a summary of the key terms of the arrangement and highlights important information in the disclosure document.

The irony in all this is that franchisees now have more, not less documents to review and absorb before deciding whether to take up a franchise.

key Documents:

Franchisors are required to provide a prospective franchisee on enquiry an information statement.

Franchisors will usually ask the franchisee to sign an NDA or confidentiality agreement before releasing further details or any financial or other confidential information about the system to the Franchisee.

Once the franchisee is approved a deposit or document fee is paid to the franchisor (or their lawyers) who will then issue the suite of franchise documents which should include:

• A disclosure document with attachments including trade mark certificates, copy lease/licences and financial statements and copy of the Code;

• The proposed franchise agreement in the form required to be signed by the franchisee;

• Any lease or offer to lease negotiated by the Franchisor or sub-lease or occupancy license;

• A receipt for the franchisee to acknowledge they received the suite of documents which starts the 14-day disclosure period;

• The legal, accounting and financial advice certificates the franchisee should complete and return with the signed franchise agreement.

the “no Prior representation” statement

The franchisor may ask the franchisee to sign a no prior representations statement. The significance of this document is often overlooked by franchisees and their advisors. The statement in effect states that the franchisee must set out in the document any representations, promises or statements made by the franchisor or their agent in the course of the negotiations on which they relied to enter into the franchise and the franchisee cannot later rely on any representations or statements made unless they were specifically set out in the statement.

It can be a vital document that can be relied on by a franchisor or franchisee down the track if a dispute arises as a franchisee will often allege, they were verbally promised

something by the franchisor before they entered into the agreement. unless those verbal promises or representations are then set out in writing in the document then the franchise will not be able to rely on it.

So franchises should ensure that any promises or representations that are made which are not set out in the franchise agreement (even in the special conditions) are clearly set out in the representations statement.

seeking legal advice

Although the Franchise Code changes did not make it compulsory for franchisees to seek legal, accounting and financial advice before entering into a franchise many franchisors are now insisting that their franchisees seek independent advice to protect themselves.

Franchisees lawyer’s role

Seeking legal advice from a franchise law specialist is not only good insurance to help you make the right decision, but your lawyer will focus on the important commercial issues and highlight areas of particular concern where there may be room for negotiation, rather than recommending wholesale changes to an agreement which are unlikely to be accepted. And which may aggravate the relationship from the very beginning

We often see inexperienced lawyers asking for a myriad of unnecessary “rats and mice” changes or even asking for thee fees and charges to be varied which can aggravate the relationship at the outset.

some basic rules for franchisees

Rule one: Whether you seek proper legal advice from a franchise law specialist or not you should still read and become familiar with the documents. The franchise agreement is your contract, so you need to be clear about your rights and obligations.

It will also assist you to identify any issues of concern which you can then raise with your lawyer.

Rule two: Do not rely on advice from your suburban conveyancing lawyer, next-door neighbour, or your mate at the pub! That’s not advice.

Rule three: realise that entering a franchise is one thing but exiting a franchise is not so easy.

Franchise agreements are typically 50 to 100 or more pages and can be difficult going without a glass of red wine in hand!

There are many tricks and traps and more so with the recent changes to the Code which give franchisees additional rights to exit which your franchise lawyer will point out as well as any unusual or unreasonable commercial aspects in the agreement.

Rule four: Franchisors will often say their agreements are not negotiable – that is not always the case and in fact we will often seek to negotiate reasonable concessions for a franchisee that can be included in the special conditions.

There may be greater room to negotiate if the franchise is a new system and the franchisor is keen to roll out.

Things to reasonably negotiate might be a royalty free period while building the business, reduced establishment fees, reduced minimum performance criteria, further renewal terms, removal of restraint of trade provisions, franchisor finance towards the set-up costs.

Any concessions offered or negotiated with the Franchisor should be set out in the agreement or some other written form, signed by both parties and dated prior to or on the date the franchise agreement is signed.

Disclosure Document

under the new Code franchisors are required to provide greater disclosure than previously and provide the franchisee a disclosure document with the key fact sheet at least 14 days before they either enter into an agreement or make a non-refundable payment.

The 14-day disclosure period will only start once the franchisor has made the full and proper disclosure required and the key fact sheet is lodged by the franchisor on line with the ACCC.

the key changes to the Disclosure document are: Lease information

The franchisor must provide full details of the lease and occupancy rights with a copy of any lease documents for example - offer to lease - agreement to lease – lease – sublease - occupancy license and lease disclosure statement issued by the landlord.

If the franchisor does not provide full and accurate information about the lease rights in the disclosure, the 14-day disclosure period does not start until they provide that information.

If the final lease details are different to the information in the disclosure document previously given, the 14 cooling off period only starts when that information is given, so the franchisor risks a franchisee being able to walk away.

This means the days of signing up a franchisee without a site or while in negotiations for a site are fraught with risk.

Franchisor’s must also disclose if they have any interest in the lease or freehold and disclose any rent incentives offered.

Rebates and financial benefits

The percentage of rebates the franchisor receives (financial benefit) from each supplier over the last financial year as a percentage of all purchases by franchisees in the group (this excludes supplies by the franchisor or associate of a franchisor) now must be provided.

There is no need to disclose this information if the agreement allows the franchisee to

buy from non-approved suppliers or the rebate is paid to a cooperative fund controlled by the franchisor.

rebates do not include payment by a franchise to the franchisor, master franchisor or associate for a wholesale supply and a lease incentive is not a rebate, but franchisors still need to disclose the lease incentives.

Earnings information

Franchisors must if they give earnings information give it in the disclosure (not before or after signing the agreement) and include a statement that the information is correct to the best of their knowledge or state that the information may not be accurate.

A breach may attract a civil penalty of $66,000 and failing to provide the information means the 14-day disclosure period would commence only when the information is given and attached in the disclosure.

Capital Expenditure

Franchisors can only require a franchisee to undertake capital expenditure if a majority of franchisees agree where it affects the majority, or the express consent of the individual franchisee is given.

Term and restraint

Franchisors need to disclose if the franchisee has any right to goodwill at the end of term and if the agreement has a restraint or non-compete clause.

The Code has been amended to provide that a franchisor can only rely on a “serious breach” of a breach of a restraint of trade clause (serious breach is not defined and the breach would have to be before the agreement term ends.

This sounds the death knock for restraint of trade provisions for Franchisors to a large extent and they will be left with their right to protect their IP, know-how and confidential information.

Termination Rights

The 7 grounds for a Franchisor to terminate for “special circumstances” now require the Franchisor to give a franchisee 7-day prior notice of termination even for special circumstances and then allows the franchisee to raise a dispute.

The franchisor cannot terminate the franchisee if the franchisee raises a dispute, and the parties must try and resolve the matter in that period or refer the matter to the ASBFEO for mediation or arbitration.

In the meantime, the Franchisor can require the franchisee not to operate the business in the 28-day period.

All franchise agreements will need to be amended to comply with these new provisions however these provisions do not apply to pre-1 July 2021 agreements until they are renewed or extended.

Cooling off rights and 14-day disclosure period

The previous 7-day cooling off period was extended to 14 days and the 14 day disclosure period gets reactivated from when the franchisee receives the final lease documentation.

The 14-day disclosure commences only if all documents and information are included in the disclosure at the time it is given, this includes earnings information and lease details.

If lease information is given later or differs the franchisee has another 14 days disclosure period.

Neither the franchisor nor franchisee can reduce the 14-day disclosure period, as this is a mandatory period set by the Code

Early termination rights for franchisees

Franchisees have a right at any time during the term to write to the franchisor and seek an early termination (with reasons) of the agreement

The franchisor must then respond in writing in 28 days stating whether they agree or not.

If the franchisee does not agree (which is most likely the case) the franchisor must set out reasons in its response within that 28-day period, why it does not agree to an early termination.

There is no guidance as to what “acceptable reasons” for a franchisor are to refuse early termination so we will have to wait until this is tested however the parties can of course seek to take any dispute to mediation or arbitration via the ASBFEO.

Legal costs

It is now illegal for franchisors to charge franchisees any undetermined and future legal service costs other than an upfront fixed fee set out in the agreement.

The upfront “fixed amount of dollars” (fixed fee) can only be for preparing, negotiating, and executing the agreement.

Selling a franchise business

As franchisees now benefit from a 14-day cooling off period (even after settlement of the business has occurred) a franchisee, when selling a franchise, should be aware that the new franchisee will have a right to exit, so settlement should not take place until that period has elapsed. This should be made a term in any sale contract.

Key facts sheet

Franchisors must now give franchisees a key fact sheet to with the disclosure document and update it every year as with the disclosure document. The key fact sheet is then lodged with the ACCC online.

Marketing funds

The Code uses the word marketing, instead of advertising.to clarify the Code applies to more than just advertising It clarifies that marketing fund obligations apply to the fund administrator who could be the franchisor, master franchisor or a third party authorised to administer the fund for the franchisor or master franchisor.

Civil penalties apply for breaching the rules for payments to and from the marketing fund.

the operations manual

Most franchise agreements include provisions requiring franchisees to comply with the franchisor’s operations manual.

Franchisees should ask to see the operations manual before entering into the franchise agreement.

As it is a confidential document the franchisor may not agree to provide a copy of it until the franchisee signs the agreement. If that is the case, franchisees should ask to review the operations manual within the cooling off period.

the Franchise Agreement

This is your contract setting out your rights and obligations, generally weighted in favour of the franchisor with consequences for a failure to comply which may give rights to serve a breach notice and even termination.

It is often assumed by franchisees that the franchisor’s obligations are positive obligations, however most agreements will state the franchise “may “not that they “must” do certain things. Therefore, it is difficult to allege a franchisor has breached the agreement where they do not have a positive obligation.

Franchisees do have protections under the Franchise Code, the Australian Consumer Laws, unfair contract provisions and can instigate the dispute resolution process and seek mediation or arbitration via the ASBFEO where a dispute cannot be resolved directly with the franchisor.

Fees payable to the Franchisor

Franchise Fees

The trend is that franchisors are tending to reduce the up-front franchise fee to make their franchise more attractive and affordable.

Franchisors will often charge a training fee but again many are rolling this fee into the up-front franchise fee

There are also a number of other fees that must be set out in the disclosure document that cover things such as technology and IT fees and also renewal and transfer fees.

Royalty

Most franchise agreements provide payment of a service fee or royalty typically paid monthly or weekly, either as a percentage of the franchisee’s gross sales or a specific dollar amount.

The point here is that the franchisor receives their royalty based on gross sales or turnover not the profit of the franchise – so make sure the business is viable and you can at the very least draw a wage for your efforts from running the franchise business !

It is therefore critical franchisees do objective financial analysis and prepare cash flow projections with their accountant

Tip: If relying on the franchisor’s earnings information, ensure their model makes provision for a salary to the owner /operator before showing a profit.

Working capital

We often find that the working capital requirements are understated by franchisors particularly for a new greenfield site so check with your accountant what would be a reasonable level of working capital to avoid financial stress in the first 6 to 12 months of operation.

Also allow a buffer for unexpected costs which may not be included in the Disclosure Document, such as employees, insurances, utility bills and other outgoings and now lockdown events!

term and renewal

It is likely due to the changes to the Code and franchisees right to seek early termination of the agreement during the term that the days of long-term agreements are over and 5-year terms with options will be the norm.

The capital expenditure must be clearly set out in the disclosure documents so the franchisees can budget for those future costs.

sites and territories

Mobile franchises (such as those providing gardening or cleaning services) will generally be granted for a specific territory – listed as a number of postcodes or marked on a map attached to the agreement.

The territory may be exclusive or nonexclusive and this should be understood so you are aware if the franchisor or other franchisees can operate in the territory.

retail franchises (such as cafes or gyms) generally are not allocated a territory just a site from which they operate.

Social media and on-line sales need to be carefully reviewed and set out in the disclosure document.

obligations end of term

upon expiry or termination of the franchise agreement, the franchisee will usually be required to cease to use the trade marks, deliver up the premises and lease, return all documents relating to the system to the franchisor, all confidential information including customer details, transfer phone numbers, domain names and social media accounts to the franchisor.

The franchisor will often have the right under the agreement to acquire the assets of the business, including a transfer of the lease of the premises (if any) but usually at a nominal written down value and with no regard to any goodwill.

The Code provides that if the franchisee seeks an extension or renewal of the franchise at the end of the term and the franchisor refuses (provided the franchisee is not in dispute) the franchisor cannot then enforce the non-compete clauses against the franchisee unless the franchisor has offered the franchisee compensation.

The new Code amendments now make it even more difficult for franchisors to enforce a restraint of trade provision.

Goodwill

Most franchise agreements provide that any ‘goodwill’ developed in the franchise business remain the franchisors on the basis that the franchisee has only developed its goodwill by reason of the license given by the franchisor to use its system, brand, and IP and once that ends there is no goodwill that the franchisee can claim.

under the Code disclosure requirements, the franchisor must set out if the franchisee is entitled to retain any goodwill at the end of the term.

existing Franchisees

The Disclosure Document requires greater disclosure of contact details of franchisees so you should use the 14-day disclosure period to contact existing franchisees and gather feedback about the franchise system from a number of franchisees.

summary

Do your due diligence on the franchisor just as they do their due diligence on you!

Also, remember it is one thing getting into a franchise, but it can be difficult getting out of one.

Deciding whether to enter into a franchise agreement is a huge step emotionally and financially so seek specialist legal, accounting and business advice before committing.

The best investment is getting the right legal and financial advice before committing to a franchise opportunity so you can make an informed decision.

t ips to help you get your tax right in the 2022–23 financial year

Andrew Watson | Assistant Commissioner s mall Business a rea o F the ato

About the Author

Andrew Watson is an Assistant Commissioner for the Australian Taxation Office in the Small Business line. He collaborates with small businesses, industry groups and government agencies to shape the client experience and drive improved digital services. His area also helps small businesses manage cash flow and digital readiness.

We want to make it as easy as possible for you to get your business’s tax and super right and have support available to help you. Here are some tips to set yourself up for the year ahead.

know what income needs to be included in your tax return (and what doesn’t)

It’s important to include all your income in your income tax return. This includes cash and digital payments, vouchers or coupons, assessable government grants and payments, personal services income, investment income, bank interest and income from the sharing economy. You may also have income from business assets, other business activities or capital gains.

Find out more about what to include and what to exclude in your tax return at: ato.gov.au/businessincome

Check if your CoViD-19 business support payments are taxable

Your business may have received a state, territory or Australian Government grant, payment or stimulus as a result of COVID-19, that may have been a one-off lump sum or a series of payments. You don’t need to pay tax on some COVID-19 payments if you meet the criteria.

Find out more at: ato.gov.au/COVID19supportpayments

Follow the three golden rules when it comes to claiming deductions

You can claim a deduction for most of the costs of running your business. For example, expenses related to protecting staff from safety hazards involved in performing their duties, such as hand sanitiser, sneeze or cough guards and cleaning supplies used for business purposes.

remember the three golden rules, so you only claim what you’re entitled to:

1. The expense must have been incurred for your business – not for private use.

2. If the expense is for a mix of business and private use, you can only claim the portion that’s used for your business.

3. You must have records to substantiate the expense and show how you worked out the business portion.

Find out more at: ato.gov.au/businessdeductions

Check how to calculate home-based business expenses

If you operate your business from home, you may be able to claim the business portion of running expenses (such as electricity and gas, phone and internet services and the depreciation of assets) and occupancy expenses (such as mortgage interest, rent or land taxes).

Sole traders and partnerships can claim running expenses using an hourly fixed rate or actual costs based on receipts. The temporary shortcut method ended on 30 June 2022.

If your business is a company or trust, you should have a genuine, market-rate rental contract, which will determine which expenses the business pays for and can claim as a deduction.

If you used any part of your home for business purposes, you may have to pay tax on a portion of the capital gain when you sell your home.

Find out more at: ato.gov.au/homebasedbusiness and ato.gov.au/homeBasedBusinessCGt

Check how to calculate motor vehicle expenses

You can claim the business-use portion of motor vehicle expenses you incur while running your business, such as fuel, oil, servicing and registration.

Sole traders and partnerships can use the:

• cents per kilometre method – which is 78 cents for the 2022–23 financial year, for claims up to 5,000 business kilometres per car

• logbook method – where you need to keep a logbook for at least 12 continuous weeks and work out the percentage of business use for each expense.

If you are a company or trust, or if you are claiming expenses for a motor vehicle that isn’t a car (such as a ute), you must use the actual costs method which is based on receipts.

You can generally claim a deduction for depreciation if you use the logbook or actual costs methods. The limit on the cost you can use to work out the depreciation is $64,741 for the 2022–23 financial year. Find out more at: ato.gov.au/motorvehicleexpenses

see if you can claim an immediate deduction for assets

You may be eligible to claim temporary full expensing in your 2022–23 tax return.

Temporary full expensing allows eligible businesses to deduct the business portion of the cost of eligible depreciating assets that are first held, first used or installed ready for use for a taxable purpose between 7.30pm (AEDT) on 6 October 2020 and 30 June 2023.

Temporary full expensing is intended to interact with loss carry back, allowing new investment which may result in tax losses. Eligible corporate tax entities can choose to carry back these tax losses and claim the refundable tax offset which may result in a cash refund. Find out more at: ato.gov.au/temporaryfullexpensing

remember, a loss from using temporary full expensing will mean the non-commercial loss will need to be deferred. It’s not a special circumstance that would support discretion being exercised. Find out more at: ato.gov.au/NCL

made a tax loss? You may be able to claim a deduction for it

Generally, you make a tax loss when your business expenses are more than your income.

Or more specifically, when your total deductions are more than your total assessable and net exempt income for an income year.

If you make a tax loss, you may be able to:

• claim it in the current year

• carry it forward, or • carry it back.

Loss carry back is a refundable tax offset that allows eligible corporate entities to carry back tax losses in any of the 2020–21, 2021–22 and 2022–23 income years to offset prior income tax liabilities in the 2018–19 or later income years.

Find out more at: ato.gov.au/businesslosses

take advantage of concessions available for your business

You may be able to reduce your tax bill if you are eligible for concessions, for example, you may be eligible for the small business restructure rollover concession so you can save on capital gains tax (CGT). When you sell a business asset, a small business CGT concession may be able to be used to reduce the capital gain. You may also be able to save time by estimating the value of your trading stock instead of doing a stocktake.

Find out more about the different types of concessions you may be eligible for at: ato.gov.au/concessionsataglance

Account for stock taken for private use

If you have taken something from your business’s trading stock for private use, remember to account for the stock as if you’ve sold it and include the value in your business’s assessable income to ensure cost of sales figures are accurate.

Find out more at: ato.gov.au/stockforpersonaluse

report and record transactions properly if using business money or assets

Check that you know how to accurately report and record your personal use of business money and assets with our handy fact sheet. It helps explain when you can take or use money or assets from your company or trust, and the right way to report these transactions and keep proper records. Find out more at: ato.gov.au/businessmoney

know your super obligations

If you have staff, you should be aware that as of 1 July 2022, the superannuation guarantee (SG) rate increased to 10.5% and the $450 per month eligibility threshold for SG was removed. Employers will still only need to pay super for workers under 18 when they work more than 30 hours in a week.

Find out more at: ato.gov.au/payingsuper

Get ready for single touch Payroll

Phase 2

Single Touch Payroll (STP) Phase 2 reporting started from 1 January 2022 and is well underway. If you’re an employer and the product you use is ready, you should start STP Phase 2 reporting now. If your digital service provider’s product isn’t ready yet, make sure you have a plan in place to start reporting when it is ready. Even if you are covered by a deferral, it is important that you don’t leave your preparation and transition to the last minute. For more information, visit: ato.gov.au/stpresources

Check if your registrations are up to date

If you’re not registered for GST, it’s a good idea to review your business regularly. You must register for GST if:

• your business has or is expecting to reach a GST turnover of $75,000 or more; or $150,000 or more if your business is not-for-profit

• you provide taxi or limousine travel for passengers (including ride-sourcing), regardless of your GST turnover.

Once you are registered for GST, you need to lodge and pay your business activity statement (BAS) by your due date. If you have nothing to report, you still need to lodge your BAS as ‘nil’. Find out more at: ato.gov.au/GStregistration

Other registrations you may need include a director identification number (director ID), pay as you go (PAYG) withholding and PAYG instalments.

If you run your own business, planning ahead for your income tax is important to help you keep a healthy cash flow. PAYG instalments allow you to make regular prepayments during the year toward your end of year tax bill, so you won’t have to pay a large amount when you lodge your tax return.

You can find out more about PAYG instalments at: ato.gov.au/startingpaygi

know how to lodge your tax return

There’s no threshold for business income so you need to lodge a tax return if you carried on a business, even if your business has not earnt any income. What you need to report and how you lodge your annual tax return for your business depends on your type of business entity.

Find out more at: ato.gov.au/SBtaxreturns

Lodge your bAs online and on time

Are you one of the few who still lodge your BAS by paper? Join the millions who choose to lodge their BAS online. It’s quick, easy and secure. Plus, when you lodge online you may receive an extra two weeks to lodge and pay.

For more information, visit: ato.gov.au/lodgeBAS

If you can’t lodge or pay on time, engage with us as soon as possible to discuss your options. Visit: ato.gov.au/supporttolodgeandpay

make sure your records are complete and accurate

It’s important to understand what records you need to keep, and that they are complete and accurate. You need to keep most records for five years, store them in a safe place, and they must be in English or able to be easily converted to English.

Find out more at: ato.gov.au/recordkeeping

You can use our record-keeping evaluation tool to assess how well you’re keeping business records by visiting: ato.gov.au/recordkeepingevaluation

Check out our tax time toolkit

Our tax time toolkit for small business is a handy directory with guides on home-based business expenses, motor vehicle expenses, digital product expenses, travel expenses, and if you have to pause or close your business. Find out more at: ato.gov.au/SBtaxtimetoolkit

make sure your cyber security is up to date

It’s important to keep all your business, staff and client information secure. If your data’s lost or compromised, it can be difficult and costly to recover. Knowing what to protect and how to protect it is your best way to stay safe.

to find out more go to: ato.gov.au/businessidcrime

You can also find guides and resources, including a Small Business Cyber Security Guide, at: cyber.gov.au

Lodge even if you can’t pay

It’s important to lodge on time, even if you can’t pay. This will show us you’re aware of your obligations and doing your best to meet them.

If you’re worried you won’t be able to pay on time, engage with us as soon as possible or speak with a registered tax agent who can contact us on your behalf, to help avoid penalties and firmer action. We will work with you to set up an affordable payment plan and you may be able to set up a plan yourself using our Online services for business.

And remember, it’s never too late to ask for help. Whether it’s COVID-19, natural disasters, personal issues or financial difficulties, we’re committed to understanding your situation and helping you to get your tax and super right.

For more information, visit: ato.gov.au/taxsupportforbusiness and ato.gov.au/helpwithpaying

An D re W WAtson | Assistant Commissioner small business area of the Ato

i nsights into l easing

Samuel rees | Sole Owner and Principal i P Partnershi P l awyers

About the Author

Sam has practised exclusively as a commercial lawyer with a focus on franchising and Intellectual Property since 2013. Sam and his law practice predominately act for Franchisors and other small to medium business owners located Australia wide. Sam takes pride in his pragmatic and no-nonsense approach to providing tailored legal services.

Sam is the sole owner and principal of IP Partnership Lawyers, a modern boutique law firm based in Queensland specialising in franchising, intellectual property and commercial law. Sam’s passion for Intellectual Property stemmed from his life prior to law, as a song writer and musician. Sam values the strong and ongoing relationships he has with his clients and his firm, IP Partnership, is a reflection of that ethos.

There are risks getting in the ocean for a swim, getting on the road and driving a vehicle, or hopping on a plane. In Australia we mitigate the risk of drowning in the ocean by swimming between the flags, we wear a seatbelt while we drive and we, often begrudgingly, wait on the tarmac - on captain’s orders - if the weather is too treacherous to fly.

As a solicitor that practices solely in commercial law with a focus on franchising and leveraging intellectual property, part of my job is to mitigate risks my clients’ face in business. Just like getting in the ocean, a car or a plane there are – albeit not life threating – risks that need to be considered when buying a franchised business. Perhaps one of the most overlooked - but also potentially most risky - contract, is a Lease.

Potential Franchisees who are considering buying, what is colloquially referred to as, a ‘brick and mortar’ franchised business, one or more of following three documents will be necessary:

a) A Lease; b) A Licence to Occupy (or sub lease); and/or c) A Step in Deed.

This chapter will provide some insights to potential franchisees if faced with the requirement to sign a Lease, Licence to Occupy and/or Step in Deed.

LeAse

If the Franchisor does not own the freehold property or does not hold the head lease on the premises, a brick-and-mortar Franchisee will be required to enter a Lease with the Lessor (the owner of the premises).

It is mind boggling that a Franchisee will often have a solicitor review their franchise agreement however will enter a lease without a second thought. The lease is a contract that is just as important to a franchisee, or perhaps even more so, than the franchise agreement.

Picture the analogy earlier in this chapter of the plane waiting on the tarmac for the bad weather to pass. Consider this chapter as a storm warning; matters with potentially dire implications for an ill-informed franchisee. In other words, the captain - which is you - should not take off from the runaway, on the flight to destination ‘operating your franchised business’ until you are satisfied the following common lease clauses are not an issue:

1. rent review

A standard lease will contain, in general, three different methods of increasing rent during the term and renewal terms of the lease:

a) CPI;

b) Fixed percentage; and/or

c) Market review.

CPI

Most Lessors find it difficult to come to terms with the fact that it is no longer the “glory days” of years gone by. The Consumer Price Index (CPI) at the time of publication of this book is …………… and it is for this reason new leases rarely increase rent by CPI. It is however the most fair method to increase rent. If, very crudely, inflation goes up, and the costs of goods and services goes up, so too should rent. If, as a franchisee, your lease increases annually by CPI, consider this one less storm front to worry about in the sky.

FIXED REVIEW

A fixed percentage review is most common; however lessors need to be careful of increasing rent using a percentage that exceeds inflation. Generally, the most common fixed percentage rate is 5%. It is common, and certainly acceptable, for a franchisee to request the fixed increase be reduced to 2% or 3% in today’s market.

Often a franchisee’s eyes will completely gloss over contemplating the fixed percentage rent review. Perhaps when talking in terms of 1% or 2% it sounds insignificant and perhaps conceptually the amount of money this equates to is insignificant too. This is not the case. Over the full term of the lease (that is, for example, 5+5+5 = 15 years) the difference between a 2% annual rental increase and 5% increase can be many thousands of dollars.

Often franchisees will attempt to avoid incurring legal costs to have their lease reviewed. They fail to realise, however, the benefits – sometimes as obvious as the amount paid in rent over the full term - far exceed the upfront legal costs. But I digress. The point I am making is a franchisee often will save money, by initially spending money having a commercial solicitor review their lease.

MARKET REVIEW

A lease will typically contain a Market review clause at the exercise of each option. Market reviews are generally a good thing; however a franchisee must ensure the lease does not contain, what us lawyers refer to as, a ‘r atchet Clause’. Picture a ratchet Clause as a black storm cell in your flight path.

A ratchet Clause will prohibit the rent from being less than what a franchisee is currently paying prior to a Market review. This is not in the best interest of a franchisee. If the market has changed, the rent should change to reflect the market - whether that be higher or lower.

In short, Market reviews are excellent and should occur, at least, every five years and certainly no less than at the exercise of every option. Further, and to repeat the above,

if there is a Market review clause in the lease it must not be accompanied by a r atchet Clause; rent should be able to go down if the market is down.

2. Guarantors

It is industry standard for lessors to require directors of the lessee entity to be personal guarantors on the lease, however just because ‘that’s how it has always been done’ does not mean you cannot attempt to depart from the old way of doing things. We always ask for the individuals of our franchisee clients to be removed as guarantors on leases. A franchisee does, however, need to consider their leverage when making such demands. If the premises is a popular spot, a franchisee will need to consider their bargaining position before making these types of unusual demands.

Consider all the clever structuring you may have put in place to operate your franchised business and protect your personal assets. In terms of asset protection, this is all redundant when you enter a lease in your personal name. When you enter a lease in your personal capacity (as a Guarantor), all assets in your individual name (including your family home, cars and personal savings) are now at risk if you default on the lease. That said, its important to understand it is industry standard to enter a lease in your personal capacity if signing a Lease as a company or trust. This means you either need to be in a great bargaining position – that is, there is not a lot of competition for the premises – or you need to offer a higher bond or bank guarantee, to avoid being personally liable.

3. make good

The make good clause is so important to understand before entering a Lease. A franchisee comes to mind who entered a lease for an already fitted out premises. They walked into a $700,000.00 fit out and were able to start operating the franchised business with low capital outlay. The franchisee could not wait to sign the lease (and signed it without advice). Walking into a fit out suited this franchisee because they had very little capital. unfortunately, the franchised business was unsuccessful (perhaps it should have been a warning sign that the last franchisee went under and left the fitout behind). The franchisee stayed in the premises until the end of the term of the lease and went to hand the keys back. The lessor pointed out the Make Good clause in the lease and demanded the franchisee strip the premises back to bare walls, repaint the walls inside and out, and resurface all flooring. It is important to understand a lease may contain a clause requiring a lessee to strip the premises back to bare walls even if it were not bare walls when you signed the lease.

The best Make Good clause for a franchisee, is to leave the premises in the way it was found, fair wear and tear excepted. Had the above franchisee realised it would be liable for putting the premises back to bare walls, which came at a significant cost, the franchisee would not have entered the lease, despite the ‘free fit out’ at commencement.

4. Assignment

I had a client who told me, “Every time we try to sell the business the lessor rejects the buyer.” It was the client’s third attempt to sell his business. He had people wanting to purchase, however the lessor was simply not willing to release him from the lease and allow someone else in. This client had operated the business for over fifteen years and the lessor simply was not prepared to take the risk on someone else.

unfortunately, whilst his lease contained the standard provision stating that the lessor must act reasonably when considering a potential assignment, it also contained a number of other clauses in the lessor’s favour. They were impossible hurdles to overcome unless selling to a buyer with the same fifteen years’ experience. This was not so much an issue of dangers in the flight path, but rather, the guy could not get off the plane!

A lease should clearly specify what the lessor requires in terms of a buyer. This way, if a buyer is found who meets those requirements, there can be no reasonable excuse for the lessor to refuse to assign the lease.

5. structural works to premises

I recall acting for a multi-site franchisee who operated an unusual franchised business. In order to operate the franchised business significant structural changes had to be made to the premises. The franchisee had been advised lessor approval was required prior to commencing structural works, however did not think much of it. I assume they thought, ‘the lessor knows the business I am going to operate in the premises, surely they would not enter a lease with me if they did not understand significant works need to be carried out’. They were wrong.

After signing the lease, the franchisee starting drilling holes into the slab excited to start operating their franchised business. The lessor immediately issued a breach notice for failing to obtain approval for the works. The franchisee was unable to operate their franchised business and was liable for rent on a seven-year lease. It was a unique premises so it would take time for the Lessor to mitigate its losses and find a new tenant. The franchisee was liable for rent under the lease until the lessor could locate another suitable tenant.

This unfortunate situation could have been easily avoided by taking the time to discuss the structural works intended to occur in the premises before signing the lease.

PermitteD use

Finally, but perhaps most importantly, before entering a lease a franchisee should ensure the premises has the necessary approvals to operate the franchised business, and it is suitable. All too often this is not the case. A franchisor will often assist a franchisee to locate a suitable premises, however it is important to not rely on the franchisor to conduct searches and do due diligence. At the end of the day, it is you, the franchisee signing the lease who will be liable.

This happens a lot with gym franchise businesses. A client comes to mind who located their own premises and negotiated their own lease. The franchisee fell in love with the location and assumed, based on the fact that a gym was already in the premises, that council approval would be easy. The assumption was incorrect. The franchisee signed the lease (against our advice) and started operating the franchised business. They played music loudly, ran around the car park, and neighbouring tenants (picture ballerinas doing pirouettes) grew tired of hearing “give me another 10 push ups!” over the thumping bass of the techno beats.

The franchisee received a breach notice from the lessor for making too much noise (incurring the lessor’s solicitors’ costs for each breach). The council approval was not forthcoming and this was used as leverage against the franchisee. Lessors will literally (and legally) enter a lease where the permitted use is stated as ‘a gym’ and then rely on clauses in the lease stating, in layman’s terms, ‘the lessor makes no warranty the premises is suitable for the permitted use’.

The franchisee tried everything; taking numerous decibel readings and sweet talking the ballerinas, however long story short, the franchisee was required to vacate the premises. It came at a cost. This could all have been avoided by ensuring, prior to entering the lease, the premises was suitable and had council approval.

LiCenCe to oCCuPY

If a franchisee is not required to enter a lease a franchisee will be required to enter a licence to occupy. This occurs when a franchisor enters the head lease and grants the franchisee a sub-lease (right to occupy the premises). The reason a Franchisor does this is to maintain control.

restraint of trade clauses are difficult to enforce and the recent Franchising Code of Conduct amendments have made it even more difficult for a franchisor. If, however, a franchisor holds the head lease on the premises where a franchisee operates, when a franchisee goes ‘rogue’, a franchisor will simply terminate the franchise agreement and terminate the licence to occupy. A franchisee is required to vacate the premises. The franchisor does not need to rely on a restraint of trade clause to stop a franchisee operating a competing business from the premises, the franchisee is simply kicked out of the premises.

There is a large risk for franchisors holding the head lease on premises where franchisees operate. This is because if a franchisee stops paying rent, the lessor will look to the franchisor.

About five years ago, a franchisor called me on my mobile phone on New Years Day. During the busiest time of the year a franchisee, who occupied the premises pursuant to a Licence to Occupy, had failed to open their store in a popular Shopping Centre. The franchisee had stripped the premises of any valuable stock and abandoned the

franchised business. Abandonment is an immediate termination provision under the franchise agreement and Code (The 2021 Code amendments now require seven days’ notice). This was incredibly stressful for the franchisor, however when two more Franchisees did the same thing in the following days, it went from being incredibly stressful to financially crippling for the franchisor. The franchisor was liable for rent on three premises in three different busy shopping centres.

Holding the head lease is the ultimate way a franchisor can control the situation where a franchisee terminates the franchise agreement; The franchisor can kick the franchisee out, operate the business, and sell that location to a new franchisee as a going concern. When this is done in an unethical way by franchisors it is what is referred to as ‘churning and burning’ franchisees. It occurs when franchisees are unaware of the many failed franchisees who have come before them at a particular premises (when it is obviously not a suitable location) and the franchisor churns through numerous franchisees at the same location where the franchisor holds the lease… a number of readers may recognise the well-known franchise who was alleged to have done this exact thing.

A franchisor does takes on a lot of risk holding leases on numerous locations. If Franchisees all vacate at similar times, this can be devastating for an entire franchise.

In short, a franchisee really does not have the ability to request that the lease be in its name, if a franchisor holds the lease, however in the writer’s opinion it would certainly be in the franchisees interest for this to be the case.

steP in DeeD

Finally, if a franchisee does hold the lease in its own name it is likely the franchisor will also require the franchisee to sign a document called a ‘Step in Deed’. The Deed is a tripartite agreement entered into by the lessor, the franchisor and the franchisee. The document is for the benefit of a Franchisor only. It is certainly prudent for all franchisors to ensure their franchisees sign a Step In Deed if the franchisee holds the lease. In a nutshell, it provides the franchisor with all the benefits of a Licence to Occupy (as stated above) but without the franchisor being required to take on the risk of being bound by the lease if it elects not to.

A Step in Deed operates like so. When a franchisee’s franchise agreement is terminated, for whatever reason, the Step in Deed gives the franchisor the option (but not the obligation) to kick the franchisee out and take on the lease. A franchisee may have built a good customer base at a particular location but has decided it no longer wants to be a franchisee. The franchisee may give notice that it does not wish to renew a franchise agreement, or may even blatantly breach it and attempt to ‘de-badge’. In this fact scenario, the franchisee has the intention of operating under a new brand from the same location. Such intentions, if a Step in Deed exists, are futile. The Franchisor will simply exercise its right under the Step in Deed to have the lease assigned from the

franchisee to the franchisor. The franchisor is then able to continue supplying goods or services to the established customer base until such time as a new franchisee can be located to purchase the business as a going concern. Essentially the franchisor can decide whether or not they want the lease, and if they want it, they have the right to have it assigned to them.

A key piece of pragmatic advice to franchisees who may wish to avoid entering a Step in Deed, is to simply develop a good relationship with the lessor. This is not difficult if the franchisor is not involved in the lease negotiation. ultimately, it is the lessor who decides whether or not to enter a Step in Deed with the franchisor. There is absolutely no benefit to the lessor. If a franchisee can convince a lessor not to enter a Step in Deed, there is no Step in Deed.

ConCLusion

In conclusion, swim between the flags, wear a seat belt and just as you would not feel comfortable taking off in a plane in horrible weather, it is important for franchisees to ensure you have the ‘all clear’ before entering a lease.

W hat to B e aW are of in relation to franchising in new Z ealand

Stewart Germann | Franchising Lawyer au C kland, n ew Zealand

About the Author

Stewart Germann founded Stewart Germann Law Office (SGL) in 1993 as a boutique law firm at Auckland, New Zealand, specialising in franchising, licensing and business law.

SGL is New Zealand’s longest established specialist franchising law firm and Stewart is included in the International Who’s Who of Franchise Lawyers 2022.

Stewart Germann has over 40 years’ experience in franchising law and acts for franchisors in New Zealand, Australia, USA and the UK. SGL also act for franchisees and provides legal advice. Stewart has spoken at franchising conferences in New Zealand, Australia, Italy, South Korea and USA and he was on the Board of the Supplier Forum of the International Franchise Association (“IFA”) for 6 years until March 2007.

SGL clients include many of New Zealand’s best known national and international franchise brands and Stewart has extensive franchising contacts worldwide and locally. He is actively involved in international franchising and has written many articles which have been published overseas including in the International Journal of Franchising Law.

Stewart is a past Chairman of the Franchise Association of New Zealand (FANZ) and wrote the original Franchising Code of Practice for the FANZ. He has also written many published articles on franchising.

Stewart is the only person in New Zealand to graduate Certified Franchise Executive (CFE) following an accreditation ceremony held at Australia’s National Franchise Convention and at the IFA in Orlando, Florida in 2020.

Stewart is also Adjunct Professor of Law at the University of Auckland Law School and is teaching Franchise Law in 2022.

New Zealand is one of the most deregulated countries in the world to conduct small to medium-sized business. There is no specific legislation controlling the operation of franchising in New Zealand and other countries like New Zealand include Singapore and the United Kingdom

2021 survey

Some of the highlights from the Franchising New Zealand 2021 Survey results are as follows:

• There are 590 business format franchisors in New Zealand

• There is an estimated total of 32,300 units operating in business format franchises

• More than 156,820 are employed directly in business format franchises

• Sales turnover for business format franchises was estimated at $36.8 billion

• Sales turnover for the entire franchising sector was estimated at $58.5 billion

• 70% of franchise brands originated in New Zealand

• Online sales grew tremendously with now almost 80% of brands engaging in online sales

• More than 20% of franchisors have entered international markets

• 90% of franchise brands return profits back into the community

• Almost two-thirds of franchisors identified environmental sustainability and ethical supply chain examples, with the principal examples being enforced recycling of materials, waste minimisation programmes and hybrid car use

• Only 18.5% of franchisors were involved in a substantial dispute (with one or more franchisees) in the past 12 months

• COVID-19 brought considerable disruptions to trading, greater stress and mental health considerations, adjusted hours of operation, supply chain interruptions, significant sales reductions and many other issues

Legal Position

Although there are no specific franchising laws, there are existing laws which protect franchisees; and the three main laws which provide such protection are the Fair Trading Act 1986, the Commerce Act 1986 and the Contract and Commercial Law Act 2017. Those Acts focus in particular on misrepresentations and restrictive trade practices which include anti-competitive behaviour.

Once a franchisee has chosen a particular brand and franchise system and wishes to progress further with enquiries, the first question to ask is whether the franchisor belongs to the Franchise Association of New Zealand (FANZ). The FANZ was formed in 1996 and publishes the Code of Practice and the Code of Ethics which all members must comply with. Many franchisors belong to the FANZ but some have chosen not to join yet still comply with the Codes. Others may choose not to join and do not comply with the Codes so be aware.

The Code of Practice has four main aims which are as follows:

1. To encourage best practice throughout franchising.

2. To provide reassurance to those entering franchising that any member displaying the logo of the FANZ is serious and has undertaken to practise in a fair and reasonable manner.

3. To provide the basis of self-regulation for franchising.

4. To demonstrate to everyone the positive will within franchising to regulate itself.

The Code applies to all members including franchisors, franchisees or affiliates such as accountants, lawyers and consultants and all prospective new members of the FANZ must agree to be bound by the Code before they can be considered for membership.

What does the Code cover?

1. Compliance - all members must certify that they will comply with the Code and members must renew their certificate of compliance on an annual basis.

2. Disclosure - a disclosure document must be provided to all prospective franchisees at least 14 days prior to signing a franchise agreement. This disclosure document must be updated at least annually and it must provide information including a company profile, details of the officers of the company, an outline of the franchise, full disclosure of any payment or commission made by a franchisor to any adviser or consultant in connection with a sale, listing of all components making up the franchise purchase, references and projections of turnover and possible profitability of the business.

3. Certification - the Code requires franchisors to give franchisees a copy of the Code and the franchisee must then certify that he or she has had legal advice before signing the franchise agreement.

4. Cooling Off Period - all franchise agreements must contain a minimum 7 day period from the date of the agreement during which a franchisee may change its mind and terminate the purchase. This is very important and the cooling off period does not apply to renewals of term or re-sales by franchisees.

5. Dispute Resolution - the Code sets out a dispute resolution procedure which can be used by both franchisor and franchisee to seek a more amicable and costeffective solution. The Code requires all members to try to settle disputes by mutual negotiation in the first instance. However, this process does not affect the legal rights of both parties to resort to litigation.

6. Advisers - all advisers must provide clients with written details of their relevant qualifications and experience and they must respect confidentiality of all information received.

7. Code of Ethics - all members must subscribe to the Code of Ethics which sets out the spirit in which the Code of Practice will be interpreted.

All franchisor members of the FANZ must have a franchise agreement which contains a dispute resolution clause and a cooling-off provision. In order to resolve disputes,

mediation is the favoured method and it has a high success rate in relation to franchising disputes. However, if mediation does not work then there is always litigation which is certainly at the divorce stage of the relationship.

What is a franchise?

It is helpful and essential to understand the definition of the franchise. The term “franchise” is defined in the rules of the FANZ as follows:

“Franchise” means the method of conducting business under which the right to engage in the offering, selling or distributing of goods or services within New Zealand includes or is subject to at least the following features:

• the grant by a Franchisor to a Franchisee of the right to the use of a Mark, in such a manner that the business carried on by the Franchisee is or is capable of being identified by the public as being substantially associated with a Mark identifying, commonly connected with or controlled by the Franchisor; and

• the requirement that the Franchisee conducts the business or that part of the business subject to the Franchise Agreement, in accordance with the marketing, business or technical plan or system specified by the Franchisor; and

• the provision by the Franchisor of ongoing marketing, business or technical assistance during the term of the Franchise Agreement.”

Consideration should also be given to the definition of a franchise agreement which “means a contract, agreement or arrangement, whether express or implied, whether written or oral, between two or more persons by which one party to the agreement (“the franchisor”) grants, authorises or permits the other party to the agreement (“the franchisee”) the right to operate a franchise. Any contract, agreement or arrangement which purports to be a franchise agreement shall be deemed to be a franchise agreement for the purpose of this definition, notwithstanding that it may lack any or all of the requirements or attributes referred to in the definition of “franchise””.

Code of Practice

Prospective franchisees will usually be given a disclosure document and franchise agreement by a franchisor. The Code of Practice states that franchisors must provide the disclosure document to prospective franchisees at least 14 days prior to the signing of the franchise agreement. The disclosure document must provide certain information including the following:

• Details of the franchisor and its directors including experience and a viability statement with key financial information of the franchisor;

• Details of any bankruptcies, receiverships, liquidations or materially relevant debt recovery;

• Criminal, civil or administrative proceedings within the past five years;

• A summary of the main particulars and features of the franchise;

• A list of components making up the franchise purchase;

• Details of any financial requirements by the franchisor of the franchisee; and

• Other information as listed in the Code.

Franchising in New Zealand covers goods and services in many areas and according to the Survey, those areas include administration and support services; retail trade (nonfood); accommodation and food retail; transport, postal and warehousing; construction; financial and insurance services; education and training; and rental, hire and real estate services.

Competition Law

The Commerce (Cartels and Other Matters) Amendment Act 2017 changed the Commerce Act 1986 by replacing the previous prohibition on price-fixing between competitors with an expanded prohibition on cartel provisions, which extends to market allocations and output restrictions, as well as to price-fixing, by competitors. The New Zealand cartel prohibition is very wide and will have quite an impact on franchise networks. Some additional clauses must be inserted into franchise agreements and there must be explanations, in plain language, as to why certain clauses are necessary. Consideration must be given to cartel clauses in franchise agreements; for example, clauses that set or influence prices, restrict output or allocate markets will be caught. The possibility that alternative arrangements might achieve the same or a similar commercial outcome as a cartel clause should also be considered. Another consideration is whether the collaborative activity exemption or the vertical activity exemption would apply. Expert legal advice should be obtained in relation to this Act.

There will not be a cartel arrangement in place where parties are not in competition with each other. In most franchise systems the franchisor will not be in competition with its own franchisees but that is not always the case. For example, a franchisor that owns its own outlet might be found to be in competition with franchisees. Similarly, where a franchisor sells online direct to the end consumer, yet at the same time has franchisees who sell to those consumers, it may also be in competition with its franchisees. There may also be instances where the franchisees are in competition with each other. Where a franchisor is in competition with a franchisee or where franchisees are found to be in competition with each other, there will be a competitive relationship, so the franchisor needs to be cognisant that there may be provisions in its franchise agreements that amount to cartel provisions.

The Commerce (Criminalisation of Cartels) Amendment Act 2019 has introduced a new criminal offence for cartel conduct and the criminal sanctions reflect the covert nature of cartels and the harm they cause to consumers and the economy. The Commerce Act 1986 provides a number of statutory exceptions that would not constitute a cartel arrangement and may be pro-competitive. These exceptions relate to collaborative activities (for example, joint ventures or franchise arrangements), joint buying, vertical supply contracts and specified liner shipping arrangements as stated earlier in this paper. There are no defences for mistakes of fact relating to the elements of joint buying and

promotion and vertical supply contracts. Therefore, it would be possible in the future for a director of a franchisor company to be criminally liable under the Act for a cartel offence. For an individual who commits an offence the penalty on conviction could be imprisonment for a term not exceeding 7 years or a fine not exceeding $500,000, or both. For a company which commits an offence the penalty could be up to $10 million so great care must be taken.

restrictive Covenants

The New Zealand courts have recognised that it is reasonable for a person in the position of a franchisor to impose a contractual restraint upon competitive conduct by a franchisee or an ex-franchisee, but such restraints must not exceed the boundaries of the court’s notion of reasonableness. The first principle is that it is reasonable for a person to stipulate that if he or she is willing to disclose all secrets of how to establish a particular business enterprise, then the recipient of the information cannot immediately terminate the contract and set up a competitive business using the information received during the course of the relationship. If the courts did not provide protection to franchisors against conduct like this, there would be no incentive for the owners of established businesses to share their secrets with others and enhance their business skills. The second principle is that it is important for the well-being of the community that every individual should, in general, be free to advance his or her skills and earning capacity.

The Contract and Commercial Law Act 2017 in New Zealand gives the courts authority to rewrite a restrictive covenant and to allow an excessive covenant to be enforced at a lesser level. Section 83 of the Act states as follows:

“83 restraints of trade

(1) The court may, if a provision of a contract constitutes an unreasonable restraint of trade –

(a) delete the provision and give effect to the contract as so amended; or

(b) modify the provision so that, at the time the contract was entered into, the provision as modified would have been reasonable, and give effect to the contract as so modified; or

(c) decline to enforce the contract if the deletion or modification of the provision would so alter the bargain between the parties that it would be unreasonable to allow the contract to stand.

(2) The court may modify a provision even if the modification cannot be effected by deleting words from the provision.”

The ability of the courts to modify excessive restraints is constrained by the principle that terms that could never have been considered reasonable will not be modified, as to do so would be contrary to the public interest. This is the doctrine of restraints that are in terrorem, which translates into ‘contracts that terrorise a contracting party’. If a franchisor could only ever have reasonably sought a two-year restraint within a 5-kilometre radius of the business in which the person established goodwill, then a nationwide restraint

for 10 years could never be regarded as reasonable; and in that case the courts would refuse to rewrite the clause to determine that the period of 10 years should be two years and the area of the restraint should be 5 kilometres rather than the entire country. What then is a reasonable restraint? There are two factors – area and time. So the message is clear in New Zealand – for a restraint to be enforceable, it must be reasonable.

There have been a number of restraint of trade cases in the franchising sector both in Australia and in New Zealand in recent years. Two cases in 2020 were clients of mine and they are Water Babies International Ltd v Williams & Others and M and L Holdings (2018) Ltd v Whenua Productions Ltd & Kuang. Other cases include the following: Dorn Investments Ltd v Hoover (2016); Mike Pero (New Zealand) Ltd v Krishna and Mortgage Suite Ltd (2016); Mad Butcher Holdings Ltd v Standard 730 Ltd and Wightman (2019); and Mainland Digital Marketing Ltd v Willetts and Meyers (2019).

Non-compete and other restrictive covenants need to be included in the relevant franchise agreement to be enforced during the term of the agreement. The type of clause that I often include is as follows:

“The franchisee shall not during the term or any renewal period or at any time following the termination of this agreement or its expiration through the effluxion of time except with the prior written approval of the franchisor carry on or be directly or indirectly engaged or concerned or interested whether as principal, agent, partner, shareholder, investor, financier, lender, director, employee, consultant, independent contractor or otherwise howsoever in any business conducted in competition with the business, the franchisor and its other franchisees, or any similar business.”

In other words, a franchisor and a franchisee have a relationship for the term of the franchise agreement. During that period the franchisee must not compete with the particular franchise system and must not divulge confidential information to any third party outside the system without the consent of the franchisor. A breach of these covenants will usually give rise to an event of termination allowing a franchisor to terminate the franchise agreement with the particular franchisee plus it will allow the franchisor to enforce the personal covenants given by the directors and shareholders of the franchisee in relation to the restraint.

Franchise Agreements

All franchise agreements in New Zealand should contain a robust force majeure clause. The author would go so far to say that if any franchise agreement does not contain a force majeure clause then the drafter of the document may be negligent. The type of force majeure clause that the author invariably includes in his franchise agreements states:

Neither party shall be liable to the other and neither party shall be deemed to be in default for any failure or delay to observe or perform any of the terms and conditions applicable to the party under this Agreement (other than the payment of money) caused or arising out of any act beyond the control of that party including (but not limited to) fire, flood, lightning, storm and tempest, earthquake, strikes, lock-outs or

other industrial disputes, acts of war, acts of terrorism, riots, civil commotion, explosion, malicious damage, government restriction, unavailability of equipment or product, disease and/or virus of epidemic or pandemic proportions or other causes whether the kind enumerated above or otherwise which are beyond the control of that party and where such failure or delay is caused by one of the events above then all times provided for in this Agreement shall be extended for a period commensurate with the period of the delay.

The purpose of the above clause is to ensure that neither party will be liable to the other for any events outside their control. Common events are listed in the clause like fire, flood, lightning, storm and tempest and, of particular relevance to current events, the phrase “disease and/or virus of epidemic or pandemic proportions.”

No one can predict the future and all parties, especially a franchisor and a franchisee, should be afforded the protection of a well-drafted force majeure clause. COVID-19 is merely a symptom of the greater problem of unexpected or unanticipated events, be they in the form of the next pandemic or some other future disaster. uncertainty will always pose a risk to interference with contractual relations, and a well-drafted force majeure clause is a necessary component of mitigating contractual risk.

Covid-19 had a dramatic effect on commercial leases in New Zealand. Some commercial leases were on a modern form of Deed of Lease which contained the important “No Access clause”; but older leases did not contain that clause. The “no access clause” is contained in the Deed of Lease published by the Auckland District Law Society. The meaning of “no access” is best explained by quoting clause 27.5 below:

If there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or the need to prevent reduce or overcome any hazard, harm or loss that may be associated with the emergency including:

(a) a prohibited or restricted access cordon applying to the premises; or (b) prohibition on the use of the premises pending the completion of structural engineering or other reports and appropriate certifications required by any competent authority that the premises are fit for use; or

(c) restriction on occupation of the premises by any competent authority, then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases.

For renters that could not rely on a “no access” clause, some landlords showed no empathy, were greedy and charged full rental during the lockdown period, notwithstanding that the tenant could not access the premises and had zero turnover. In the author’s experience, other landlords decided to charge fifty percent or twenty-five percent. The best and most popular landlords were those who charged zero during the lockdown period, and those landlords often offered an extra month rent free for tenants. Those

acts of kindness will not be forgotten, and franchisors that those that lease franchised premises to franchisees are more likely to retain good franchisees at the time of renewal.

While the effects of a global pandemic do not specifically feature in previous case law, it may still be possible to draw inferences from the existing body of cases about how the doctrine of frustration may apply to the effects of COVID-19.

independent Legal Advice

It is essential for prospective franchisees to obtain independent legal advice from a lawyer experienced in franchising as well as independent accounting and taxation advice. A franchisee should have a number of meetings with the franchisor and its representatives and all questions and answers should be written down and carefully kept for future use if required. Prospective franchisees should be able to rely upon everything they are told but be wary of financial projections provided by the franchisor. That is a dangerous area and in my opinion franchisors should not provide financial projections at all but should provide actual financial results with the direction that the franchisee must go to its own independent accountant.

Attractive market

New Zealand is very attractive for franchising and many overseas systems have entered the market including from Australia, uSA, Canada and the united Kingdom. International franchising was thriving worldwide until the global pandemic of 2020. However, there is certainly a current surge in systems wanting to go international.

The FANZ has been very successful in promoting self-regulation and high standards in franchising, and its Code of Practice is widely understood and accepted by many franchisors in New Zealand. At the end of the day, it is for a franchisee or master franchisee to make the decision whether or not to proceed with the purchase of a franchise or master franchise. Careful due diligence should always be undertaken so that franchisees are fully informed before signing any documentation.

fran C hise laW 101

Esther Gutnick | Senior Associate mst lawyers

About the Author

Esther Gutnick is a Senior Associate in the Corporate Advisory and Franchising Team of Melbourne-based law firm MST Lawyers and has been practicing in the franchising space for over 17 years.

Esther has authored numerous franchise articles and handles a wide variety of franchising and commercial matters, acting for both franchisees and franchisors, including local, national and international franchise systems. Her practice focusses on:

• Acquisition and disposal of franchise networks and independent businesses

• Establishment of franchise systems, including structuring advice and drafting key franchise documentation

• International and master franchising, assisting Australian franchise systems to expand offshore and overseas franchise systems to enter into the Australian market

• Advising both franchisors and franchisees on compliance matters, including compliance with the Franchising Code of Conduct and Australian Consumer Law

• Advising both franchisors and franchisees in relation to franchise dispute resolution

• Advising franchisees and franchisors in relation to sales and acquisitions of franchised businesses and reviewing franchise documentation

Asreaders may be aware, the franchise landscape in Australia has significantly evolved in the past 12 or so months, after several years of debate, inquiry and a government review of the sector culminating in a number of legislative changes made in an attempt to make franchising fairer for all participants.

Although some new documents, procedures and additional franchisee rights have been introduced, the fact remains that, like any other business venture, investing in a franchise is a serious commitment and involves considerable planning and paperwork.

If you have not previously purchased a business or a franchise business, you may feel as though you don’t know where to begin. Being presented with a volume of unfamiliar legal documents for the purchase of a franchise business can be somewhat intimidating. This chapter will focus on the process and key legal matters you should consider before investing in a franchise business and when reviewing the documentation.

Due Diligence

To ensure that you are fully informed and aware of all relevant risks, it is critical to undertake appropriate due diligence before entering into a franchise agreement. As part of proper due diligence, you should:

(a) Conduct basic internet searches of the franchisor and the franchise system, which can unearth useful information about the franchisor and its reputation in the industry.

(b) Search the Australian Government’s new Franchise Disclosure register, which is intended to assist prospective franchisees in the due diligence process. At the time of writing this chapter, the register is still being established and is expected to ‘go live’ on 15 November 2022. Once operational, anyone will be able to search the public register to view franchisor profiles and certain disclosure information. This may assist in comparing different franchise systems or different franchisors within the same industry. See: https://franchisedisclosure.gov.au/.

(c) Visit the Australian Competition & Consumer Commission (ACCC) website. The ACCC is the regulatory body that governs franchising and other industries. Its website contains news and useful information regarding the Australian franchising industry and in particular, it provides free educational resources and publications to potential franchisees including:

(i) the Franchisee Manual: https://www.accc.gov.au/publications/the-franchisee-manual;

(ii) Franchising: What You Need To Know: https://www.accc.gov.au/publications/franchising-what-you-need-to-know;

(iii) Quick Guide to a Franchise Disclosure Document: https://www.accc.gov.au/publications/quick-guide-to-a-franchisedisclosure-document;

(iv) Various information, interactive courses and videos (available in several languages) about the risks of Franchising: https://www.accc.gov.au/business/industry-codes/franchising-code-ofconduct/thinking-about-buying-a-franchise;

You can also sign up to the ACCC Franchising Information Network at: https://www.accc.gov.au/media/subscriptions/franchising-informationnetwork to receive email updates regarding news and events relevant to the small business and franchising sector.

(d) Visit other relevant websites, such as: www.business.gov.au, which provides information about franchising and running a business.

(e) read the Franchising Code of Conduct (the Code), which is the mandatory national code governing franchising in Australia and the conduct of franchising participants towards each other. A copy of the current Code can be found here: https://www.legislation.gov.au/Details/F2022C00463

(f) For franchises conducted from specific premises or within a specified territory, analyse the proposed location and/or territory. For example, does the franchisor have a site selection policy and did it conduct demographic and traffic flow analysis of the proposed site? Is the franchisor planning to expand its network within or around the territory and what rights will you have to purchase any adjacent, competing territories? Are there any other competing businesses in the area? What are the occupancy costs, such as rent and outgoings, of the premises and are there any refurbishment works required by the owner of the premises?

(g) read the franchisor’s key facts sheet and disclosure document. The disclosure document provides comprehensive, important information about the franchisor and the system, including details of the key people involved, any current legal proceedings, the estimated establishment and running costs of the franchise business, the contact details of existing and certain former franchisees and details of what will happen at the end of the franchise agreement. The key facts sheet, which was introduced by the 2021 Code changes, is a shorter summary of the information contained in the disclosure document and provides a handy snapshot of critical details relevant to the franchise system and business.

(h) Contact several existing and former franchisees of the franchise system and question them to glean first-hand information about the franchisor, how the system operates and the pros and cons of running the franchise business. Former and current franchisees’ contact details should be in the franchisor’s disclosure document. Your investigations should include queries regarding:

(i) how the actual set up and operating costs compare to estimates provided by the franchisor;

(ii) whether any estimates, projections or other financial information provided by the franchisor proved to be accurate;

(iii) how much training, support and assistance is given by the franchisor, especially to franchisees in states/territories other than where the franchisor’s head office is located;

(iv) whether the franchisor’s key staff are accessible, organised, helpful and amenable to both queries and suggestions;

(v) what is the relationship between franchisees within the franchise system; and

(vi) where franchisees have left the system, the reasons for their departures and how this was managed by the franchisor.

(i) request financial data or earnings information from the franchisor (and/or the seller if you are buying an existing franchise business). Be aware that franchisors are often reluctant to provide such information to avoid the risk that it may subsequently be found to be misleading or deceptive. If the franchisor does provide you with any earnings information, the same information must be attached to the disclosure document ultimately issued to you by the franchisor.

(j) If you plan to buy an existing franchise, request a copy of the business sale contract, the existing lease and disclosure statement in respect of the premises (if relevant). In some states of Australia, a vendor of a small business is required to provide a statement to the purchaser containing prescribed financial and operating information about the business. Even if the vendor is not legally obliged to provide a vendor’s statement, you should ask to see the financial records of the business for at least the last three years.

(k) request a copy of the franchisor’s operations manual to get a feel for the dayto-day operation, policies and procedures of running the franchise business. If the franchisor is reluctant to give you a copy, since the manual contains confidential information, you may request permission to inspect the manual under supervision at the franchisor’s head office.

(l) Attend franchising industry events and speak with various different franchisors, franchisees, consultants, advisers and other people involved in the sector.

(m) Obtain advice from an independent accountant and/or business adviser on the most appropriate business structure you should use to own and operate the franchise business. Your adviser will guide you as to the best structure for minimising costs, taxes and personal risk and for protecting personal assets, such as the family home. Common structures include: (i) sole proprietor; (ii) company; (iii) partnership; (iv) trust; (v) corporate trust.

You will need to make this decision prior to entering into the franchise agreement so that you and your advisers have sufficient time to set up the structure and prepare necessary documentation. Some franchisors have policies about which business structures they will allow franchisees to use. Therefore, before spending time and money establishing your structure, you should seek the franchisor’s approval of your proposed structure.

(n) Obtain advice from an independent legal advisor in respect of:

(i) the business and all franchise and sale documents that you will be required to sign;

(ii) any lease and disclosure statements provided by the landlord in relation to the premises from you will conduct the franchise business. You may have different rights and obligations depending on whether you, or the franchisor, is to be the tenant under the lease. If the latter, you will likely be required to enter into a separate sub-lease or occupancy licence agreement with the franchisor; and

(iii) your obligations as an employer under the Fair Work Act 2009 (Cth) and various other obligations as a business owner;

the Documents

The volume and complexity of documents that you are likely to receive can be daunting. Be prepared to receive the following:

(a) Preliminary Documents, including:

(i) Various application forms and questionnaires which the franchisor may use to assess you as a prospective franchisee candidate;

(ii) A “Confidentiality Agreement” or “Non-Disclosure Agreement” which you may be required to sign before you are given access to any of the franchisor’s confidential documents;

(iii) The Information Statement for Prospective Franchisees – this is a prescribed form document which the franchisor must give you within 7 days after you express your interest or make a formal application, and before giving you any of the other Franchise Documents listed below;

(b) Franchise Documents, including:

(i) The franchisor’s current key facts sheet;

(ii) The franchisor’s current disclosure document;

(iii) The franchise agreement in the form which you will be required to sign;

(iv) A copy of the current Code;

(v) If relevant, a copy of the premises lease (or a summary of the negotiated commercial terms) and any disclosure statement given by the landlord in respect of the premises; and

(vi) Any other agreements the franchisor requires you to sign, such as a hire purchase agreement, loan or security agreement;

(vii) Additional documents such as a site/territory history notice, any occupancy agreement, legal advice certificates, acknowledgement forms, representations statements and authority forms.

To verify that the key facts sheet and disclosure statement are current, check the preparation date (which must appear on each document) and ensure that each has been updated within 4 months after the end of the last financial year as required by the Code.

The Code stipulates that you must be given a minimum waiting period of 14 days to read, understand and seek advice on the franchisor’s disclosure document, franchise agreement and the Code before entering into the franchise agreement or making any non-refundable payments. After reading the documents yourself, you should seek legal advice regarding the documents and raise any queries with your legal adviser and/or the franchisor.

Take comprehensive notes in each meeting or discussion you have with the franchisor and/or its representatives, both prior to and after entering into a franchise agreement. Any representations or promises made by the franchisor before you enter into the franchise agreement should be confirmed in writing and any special deals or arrangements agreed between you and the franchisor should be reflected in special conditions in the franchise agreement. Your legal adviser can assist you with this.

You should not sign any documents without first having sought legal and financial advice. In fact, the Code requires that, before entering into a franchise agreement, a franchisor must obtain the franchisee’s signed statement confirming whether the franchisee either obtained legal, business and accounting advice or elected not to, despite being advised to do so.

the Financials

understanding the financial investment required to operate a franchise business is a key aspect of proper due diligence and budgeting. There are many one-off and recurring payments that you will likely incur before purchasing the franchise business, during the course of operating the franchise business and even upon exiting the franchise business.

Typical costs include:

(a) An up-front franchise fee for the right to operate the franchise business and use the franchisor’s branding, trade marks and systems. The franchisor may also request that you pay an earlier deposit as evidence of your commitment to purchase the franchise business;

(b) Equipment costs and, if the franchise business operates from fixed premises, either fitout costs (for new premises) or refurbishment costs (for existing premises);

(c) Initial stock costs;

(d) Lease costs, including upfront security deposits or bank guarantees required to be provided to the landlord and ongoing occupancy costs such as rent and outgoings (where the franchise business operates from fixed premises);

(e) Ongoing royalties, franchise fees or service fees. These payments are typically periodic and are either a fixed sum or calculated as a percentage of the revenue of the franchise business;

(f) Ongoing marketing or advertising contributions, whether a fixed dollar amount or a percentage of sales. These fees must be held by the franchisor in a separate bank account and are typically used to pay for promotional activities on behalf of the entire franchise network. The Code strictly regulates the use of marketing fund contributions and the financial statements of the fund that must be given to you. However, despite this, franchise agreements usually give a franchisor broad discretion as to the permitted expenditure of fund monies and expressly preclude any obligation for the franchisor to spend any fund monies on particular franchisees or their territories;

(g) Local area marketing costs. In addition to paying contributions to the franchisor’s marketing fund, the franchise agreement may also require you to spend a certain amount of money on your own marketing initiatives within your local territory and provide evidence of such spending to the franchisor;

(h) Software or technology fees. You may be required to make use of the franchisor’s designated software, hardware and/or point of sale systems and pay the associated costs. Such costs may also encompass website maintenance and information technology support. Technology fees may also be fixed or calculated as a percentage of your revenue;

(i) Training fees. These may comprise initial training programs provided by the franchisor prior to the start of the franchise business plus additional training required during the term of the franchise agreement, including refresher training or new product training. You will likely be required to bear any travel and accommodation costs associated with attending training and staff wage costs if your employees are also required to attend;

(j) renewal or further term fees. If you have an option to renew the franchise business for a further term after the initial term expires, you may be required to pay an additional fee for the continued right to operate the franchise business for the further term;

(k) Sale, transfer or assignment fees. If you wish to sell or transfer your franchise business to another person during the term of the franchise agreement, you will typically be obliged to pay to the franchisor either a fixed fee or a percentage of the

sale price and potentially also the franchisor’s costs of approving the sale and the new franchisee. Some franchise agreements have a ‘sliding scale’ transfer fee, with a higher fee payable the earlier the franchise business is sold. It is prudent to bear the transfer fee in mind when determining the sale price of the franchise business;

(l) upgrade or renovations Costs: if the franchise business operates from fixed premises, the franchisor or the landlord may require the premises to be renovated or refurbished at your cost. You will need to budget for this from the outset;

(m) relocation costs: if the premises become unsuitable or the lease ends during the term of the franchise agreement, you may be obliged to relocate the business to new premises at your cost. This may include costs for any make-good works required at the old premises and the cost of any fitout, signage and branding required to be installed at the new premises;

(n) Legal costs. Franchisors often require franchisees to pay their legal and administrative costs incurred in preparing, negotiating and executing the franchise agreement. However, you will only be obliged to pay these costs if the fixed dollar amount is clearly specified in the franchise agreement. The franchisor’s ability to pass on other legal costs was restricted by the 2021 Code changes.

(o) Dispute resolution costs. If you and the franchisor end up in a dispute under the franchise agreement, you will be obliged to pay for your own legal advice, together with your share of the costs of any mediation or conciliation.

It is worth noting that, under the Code, the franchisor must not require you to undertake significant capital expenditure (for example refurbishment costs) during the term of your franchise agreement, unless the franchisor included such expenditure in the disclosure document provided to you and explicitly discussed such expenditure with you before the franchise agreement was entered into.

Please also bear in mind that you will incur a myriad of other operating costs of conducting the business, such as staff wage costs, inventory, consumables, accounting and banking expenses, licence or permit costs, cleaning and/or maintenance costs (whether for premises, vehicles or equipment), utilities, and any compliance costs relevant to your business. You should include all of these, together with the fees and payments listed above, in any budgets and forecasts prepared by you or your accountant.

A summary of payments owed to the franchisor and operating costs of the business is included at Item 14 of the disclosure document.

Will i be restricted in how i run the business?

Yes! remember that a franchise business is not your own independent venture and the success of a franchise system usually relies upon uniformity across the network. You will be bound to comply with all the obligations in the franchise agreement and conduct the business in accordance with the franchisor’s specified policies and directives. This can extend to every aspect of the business, from trading hours and recipes to how you

greet your customers. You may be restricted in relation to which products and suppliers you can use, where you can conduct or even just market your business, the price at which you can sell goods or services, the frequency and type of reports you must produce, the insurances you must obtain and more. If this sounds too restrictive, then franchising may not be right for you!

Can i sell my Franchise business?

You will need to make written request to obtain the franchisor’s consent if you wish to sell or transfer the franchise business. Beware that simply changing your ownership structure may constitute a transfer of the business. A franchisor cannot unreasonably withhold its consent to a transfer or sale of the franchise business. However, a franchisor may require you to provide certain information to make its decision, and may reasonably withhold its consent to a sale if:

(a) the purchaser is unlikely to be able to meet the financial obligations under the franchise agreement;

(b) the purchaser does not meet a reasonable requirement of the franchise agreement; (c) the purchaser does not meet the franchisor’s selection criteria;

(d) the purchaser does not agree, in writing, to comply with the obligations under the franchise agreement;

(e) you have failed to pay an amount owing to the franchisor;

(f) you have failed to remedy a breach of the franchise agreement; or (g) the purchaser has not given the franchisor a statement that it has received, read and had a reasonable opportunity to understand the prescribed documents.

You should take note of the various costs that may be payable by you upon a sale, such as the transfer fee mentioned above, the franchisor’s costs incurred in reviewing the sale documents and approving the purchaser as a franchisee, and your own legal and accounting costs associated with the sale.

Even once you sell the business, you should be aware that, in certain circumstances the Code allows the purchaser to ‘cool-off’ and terminate the sale agreement for up to 14 days after the purchaser takes ownership of the business. If this occurs, you may be obliged to refund all monies paid to you by the purchaser and become the franchisee of the business again.

Can i bequeath the Franchise business to my Children?

Ordinarily, no. A franchise agreement is almost always for a finite period and will not be yours to keep forever. If you want to build a business and leave it as a legacy to be inherited by your children or other successors, then you should consider an independent business, not a franchise.

A franchise agreement is personal to you, and any attempt to hand it over to another person is considered a transfer of ownership, which requires the franchisor’s approval as discussed above. A franchise agreement usually contains rules about what is to happen to the business if you die, become ill or otherwise cannot continue to operate it. These contractual provisions will override anything to the contrary that you may include in your Will and the franchise business will not ordinarily form part of your Estate to be distributed.

Can i end the Franchise Agreement early?

If you are granted a new franchise (not a transfer, renewal or extension of an existing franchise agreement) the Code entitles you to a 14 day “cooling off period” after you enter into the franchise agreement. During this period, you may notify the franchisor that you wish to terminate the franchise agreement. If this occurs, the franchisor must repay all payments you have made under the franchise agreement (but the franchisor can deduct its reasonable expenses, if this amount is specified in the franchise agreement).

After the cooling-off period expires, you may only terminate the franchise agreement during the term if the agreement allows you to do so or the franchisor consents to the termination.

The 2021 Code changes introduced a statutory right for franchisees to propose termination at any time during the term of a franchise agreement, by giving the franchisor a written proposal setting out the reasons for the proposed termination. The franchisor does not have to agree, but must give a substantive written response to such proposal within 28 days, setting out its reasons for any refusal.

It is uncommon for a franchise agreement to otherwise give you contractual rights to terminate the franchise agreement. Accordingly, if you wish to exit the franchise early, you will either need to reach agreement with the franchisor, or seek legal advice to determine whether you have any rights to end the franchise agreement under general contract law principles, at Common Law, or by virtue of any other laws. This may be the case if, for example, the franchisor is in breach of an essential term of the franchise agreement or you entered into the franchise agreement as a result of the franchisor’s misleading or deceptive conduct or false representations. If the franchisor has engaged in misleading or deceptive practices, you may be entitled to seek a remedy, such as compensation, under the Australian Consumer Law and/or make a complaint to the ACCC.

Can the Franchisor end the Franchise Agreement early?

usually, a franchisor has greater powers to terminate a franchise agreement, both under the Code and under the terms of the franchise agreement.

The Code permits a franchisor to terminate a franchise agreement if:

(a) you breach the agreement and fail to remedy the breach within a reasonable time (up to 30 days) of receiving written notice of the breach and the franchisor’s required remedy;

(b) you have not breached the franchise agreement, but the franchise agreement allows for an early termination and the franchisor has given you reasonable notice of the proposed termination and reasons for it; and

(c) if the franchisor gives notice on particular grounds, including for example if you become bankrupt or insolvent, if you are convicted of a serious offence, or if you operate the franchise business in a way that endangers public health or safety.

Can i renew my Franchise Agreement?

A franchisor does not have to renew or extend your franchise agreement upon its expiry unless the franchise agreement gives you a specific contractual right to renew for a further term. Therefore, it is important that you negotiate a right to renew the franchise agreement for a further term before you sign the franchise agreement.

Even if you have an option to renew, the franchisor may refuse to renew the franchise agreement if the conditions for the renewal as set out in the franchise agreement have not been satisfied. For example, if you have been in breach of the franchise agreement during its term, if you cannot secure rights to occupy the premises for the further term, or even if you simply fail to provide the franchisor with notice of your intention to exercise your renewal option within any specified timeframes.

Can i operate another business after the Franchise Agreement ends?

Most franchise agreements bind you to a “restraint of trade” or “non-competition” period after the expiry or termination of the agreement. This means that you will be prevented from being involved in a competing business or business which supplies similar products or services, within a specified area and for a specified time frame after your franchise ends.

Before becoming a franchisee, you must consider how you intend to earn a living after you cease to operate the franchise business.

You should also seek legal advice as to whether the restraints in the franchise agreement are enforceable or otherwise seek to negotiate an exemption from, or a reduction of, any restraint with the franchisor.

What o ther Laws Will Apply?

Franchisees must be aware that, in addition to the Code and franchise-specific laws, a plethora of other laws may apply to them as small business owners. These are likely to include:

(a) laws regarding employment of staff and occupational health and safety regulations;

(b) if the franchisee is a company - the Corporations Act 2001;

(c) the Competition and Consumer Act 2010 (which contains the Australian Consumer Law);

(d) Privacy Laws (if you collect and store personal information of customers or other people); and

(e) any laws, regulations or licensing/permit requirements that relate specifically to the sector or industry in which your franchise business operates – for instance liquor licensing, food safety, financial and credit licensing, retail leasing laws, building and construction laws and various other industry Codes.

Franchisees should seek specific legal advice regarding such obligations to ensure the franchise business is operated in compliance with any applicable laws.

Conclusion

This chapter intends to provide a broad overview of the key elements of franchising and some preliminary assistance in navigating the legal documents and issues which you will face in becoming a franchisee. Buying a franchise is a serious undertaking and can certainly be a life-changing decision.

Although disclosure documents must all follow a standard form prescribed by law and franchise agreements contain common provisions such as those discussed above, franchise documents are notoriously lengthy and complex and it is all too easy to overlook a small, yet critical, detail.

It is therefore essential that you conduct comprehensive independent due diligence, read the franchise documents thoroughly, and obtain assistance from trusted, professional legal and financial advisers with expertise in franchising.

o btaining f inance, i nflation and r ising i nterest r ates

What you need to kno W

Phil Chaplin | CEO CF i Finan C e Grou P

About the Author

Phil Chaplin is the Chief Executive Officer of the CFI Finance Group, a specialist finance company servicing Australia’s franchise, accommodation, and fitness sectors as well as small businesses more broadly. He has over 20 years’ experience in providing finance to businesses across Australia and New Zealand and has managed finance companies in the private and banking sectors. Phil is a former chair of the Equipment Finance division for the Australian Finance Industry Association and has been called on to provide insight and input into government policy, industry education, and to international players seeking to enter the Australian finance sector.

On a pretty Excel chart, the last 10 years of Australian and New Zealand interest rates is a gentle ski-slope upon which businesses and investors have been able to ride relatively smoothly (at least as far as borrowing money is concerned). In fact, until recently, the last time Australia saw a lift in the target cash rate was late 2010, and New Zealand around 2014. For both countries those increases were short lived, dropped back down quite quickly, and from that point on they just seemed to keep falling.

It’s a good thing too, with a GFC hangover, climate driven events, global pandemics, and a range of other factors creating economic headwinds against which all of us need to sail. But economics is a fickle beast, with some adversities driving the need for stimulus and others providing cause to show restraint.

Those gentle ski slopes hit a very steep jump in early 2022, with a sharp increase on both sides of the Tasman as central banks across the world attempt to curb rising inflation. For many small business owners (and prospective owners) this can mean dealing with an increasing cost of debt for the first time, and like anything new, it can all be a little scary.

Whilst there’s almost certainly a little more pain to come, it’s worthy of note that today’s ‘high’ interest rates are only now back at 2015 levels (a time of relative economic stability) and most economists would suggest they are still ‘a little low’. All this change begs a few big questions; What is inflation? Why does it make interest rates go up? What does it all mean? And where will it end?

What is inflation anyway?

Put simply ‘inflation’ is the rise in costs of goods and services over time. High inflation means the price of things is going up fast, low inflation and prices are going up slowly. Inflation is significantly driven by supply and demand, if demand is high and supply is low then prices will rise. When supply issues flow into the most basic commodities (think energy in the form of oil and gas) those price increases can quickly spill over into almost everything. Take food for example; as the cost of farming, shipping, refrigerating, and selling food goes up it hits everybody’s hip pocket, now people need to be paid more just to afford exactly the same groceries that they bought last week. Money, in terms of what it can buy for most people, is worth less than it was a week ago. so

why are interest rates going up?

At its heart, raising interest rates is designed to discourage some consumer and business spending, the theory being that if you can restrict demand then supply can catch up and things can come back into balance. Of course, you can only restrict supply of necessities so much, but when central banks raise interest rates, they hope that enough people will restrict their spending (or not have money to spend) that it makes a difference.

Firstly, it’s important to recognise that one of the factors that drives inflation is high consumer spending. Part of what the central banks are trying to do by raising interest rates is to ‘normalise’ consumer spending and reign-in what they consider to be excess. unemployment is low, wages are starting to see real growth because of the tight labour market, and people still have money to spend. Central banks don’t want to stop spending, they just want to limit some of the factors that drive up prices.

Secondly, we need to remember that life goes on even in times of rising inflation. Depending on their target markets, and the goods or services they supply, there are a range of strategies that businesses can apply to address the impacts of inflation. If you’re starting a franchise business the first question to be asking your franchisor is “What strategies are in place (or are being considered) to combat the impacts of inflation?”

Here’s a few things to consider (whether you’re already in business or planning to start one):

- Raise Prices… Now some of you might be thinking, ‘hey wait a second, aren’t rising prices the problem?’ – Yes and no. In times of inflation people expect prices to be increasing. One of the things driving inflation right now is spending power, people have money to spend, and supplies of certain things are limited. Small and medium businesses are often the last to raise prices, thinking they’re protecting their customers. The big players in town have no qualms about raising prices and/or looking to increase their margins.

If you did your business plan a few months ago, go back and review your assumptions. Are your costs right? Is your sell price right?

- Prioritise your most profitable products and services… It’s always worth looking at your product range and making sure you’re focused on delivering those things which give you the best margin. Highlight ‘specials’ based on what works for you, actively cross-sell, up-sell, or alt-sell. Check over your product range and make sure you’re positioned for the best margin. Everyone knows the story of American Airlines saving $40,000 per year by removing one olive from each salad. Find your olives!

- Remember, not everything inflates at the same rate… Whilst economists distil inflation down to a single number, obviously not everything increases in price at that rate. Seasonality still matters, an over or under-supply of products due to external factors (flood, war, etc.) still makes a dramatic difference to the price of certain things. Many of these things can change very quickly. It’s important to look for value and to not simply assume that everything is or always will be more expensive.

so, what does all this mean when you’re starting a business or borrowing money?

What about borrowing money?

How do rising interest rates impact borrowers?

- The Official Cash Rate… It’s true that interest rates are rising, they’ve gone up already and they will continue to rise. You can’t turn on the news these days without hearing talk about the stock market, the economy, and “these high interest rates”. The official Cash r ate in Australia as I write is this is 2.35%, in New Zealand it’s 3.00%. Objectively, neither of these are ‘high’. They’re also only a fraction of the cost of funds for any borrower, as financiers build in credit risk, operational costs, and of course profit margins.

In fact, the rates most businesses pay for loans are far more influenced by the risk assessment that applies to them specifically, to their industry, and to the nature of their transaction. This isn’t to say that the cost of borrowing isn’t going up, but metrics like the Official Cash rate should be considered in context.

- Lock in your borrowing power… As interest rates rise the amount that a customer can borrow will often reduce. This is because most lenders look at historical earnings only, and then consider how much you could repay if your earnings stayed the same. To make matters worse, if you’re not looking at fixed rate funding the lender will build in a buffer in case payments need to be increased. In times of rising interest rates that buffer gets bigger, and your borrowing power goes down. In short if you’re confident in your business opportunity, it may not pay to wait to seek a finance approval.

- How inflation can help… A significant amount of business lending (particularly for terms of five years or less) is done on fixed rates. That means your payments never change for the term of the loan even if interest rates increase. This fixed rate funding becomes really important when you consider the impact of inflation…Consider ‘normal’ inflation is say 3%, and we’re a company selling cups of coffee. Our coffee shop takes out a loan with fixed repayments of $200 per week over 5 years. We sell coffee at $4.00 a cup today, but we put our prices up in-line with inflation (3% every year). By the time we get to the last year of our loan we’re selling coffee for $4.50 per cup, but our loan repayments are still fixed at $200 per week. If inflation is higher we will put our prices up more but our fixed rate loan repayments stay the same, a hedge against inflation.

What will bring inflation (and interest rates) under control?

If anyone had a definitive answer to this question world leaders would be beating a path to their door, but broadly we can expect inflation will return to ‘normal’ when supply and demand come back into alignment. An overall increase in economic activity can

also bring inflation down, but there’s little doubt that much of the sharp inflation we’re seeing now is caused by a range of chronic supply issues in the face of sustained high demand. It’s easy to blame Covid, or russia, or floods, or El Nino, but ultimately, there is no one thing causing high inflation, and it’s no one thing that will bring it back down again.

ok, so what do we do?

I’m sure many of you have heard the trope about the Chinese symbol for crisis being a combination of the symbols for ‘danger’ and the symbol for ‘opportunity’ (that isn’t exactly true, but it’s still a good story). What is true is that in times of high inflation sitting on cash is a bad strategy, money sitting in the bank reduces in purchasing power fast, and very few savings accounts will provide anywhere near the level of returns that can be achieved through sound investment. For most investors times of high inflation means it’s the time to deploy cash and ensure that it’s invested in where it can grow in dollar terms with the market rather than risk being left behind. As a final thought, it’s important to remember that inflation is actually normal (much as some news outlets might try to make us believe otherwise, remember bad news sells best). Zero inflation is an abnormality in our economic system (Official Cash rates of nearly zero aren’t normal either). In mid-1985 base interest rates were about 16% and going to see Top Gun at the movies would set you back around $5. Here we are some 35+ years later, movie tickets still seem a bit steep to me (and don’t get me started on the price of pop-corn) but I’ll still be in the middle of the theatre watching Tom Cruise’s latest fighter jet masterpiece, doing Mach 2 with what’s left of my hair on fire, and happy enough to pay the price… inflation be damned.

t hinking of Buying a f ran C hise?

c hoose y our parents w ell!

roger Dickeson | Senior Franchise Consultant w ollermann Fran C hise d evelo P ments

About the Author

Roger Dickeson is an experienced franchising professional and has worked in the sector as a consultant, adviser and business planner for over 30 years. Roger’s specialty is business development for small to medium enterprises and as a strategist in the franchising, licensing and capital raising fields.

His clients include new start-up ventures, established but expanding companies using franchising, and large corporations with expansion visions, in Australia and internationally. With formal qualifications in Business and Marketing, Roger has been a leading consultant in developing franchising and licensing systems for clients throughout Australia, New Zealand and the Asia-Pacific region.

As a regular writer and commentator on small business and franchising topics, Roger seeks to inform, educate and challenge ideas in the increasingly complex, but exciting and rewarding world of business franchising.

Franchising

can be likened to a large family where the Franchisor is the parents and new “children” arrive on a regular basis, each one expanding the family group. As with all families, there will be harmony and conflict as time goes on. Some children will be diligent, obedient and hard working. Others will be … well, you get the picture.

Likewise, in an ideal family, the parents should be the reference point for what to do and what not to do. They should also set the rules and discipline those kids that step out of line or are mischievous.

But, unlike a domestic family, where children have no say in who their parents are, franchisees in a business family have the benefit of choice. There are always plenty of franchises on offer and so the person looking to purchase a business as a franchisee should carefully consider two things at the start.

Firstly, select a franchise that suits your interests, skills, background and desire to build something for yourself. Ask yourself, do you like working outdoors or indoors? Do you like meeting people? Are you a detailed person or mechanically minded? Asking these types of questions of yourself will very quickly head you in the right direction of a franchise suitable for your personality.

Secondly, weigh up your choice, or your short-list of possible franchises, by carefully and objectively investigating the credentials of the franchisor. Here are some essentials that you should consider before you make the commitment to join one franchise group over another.

This discussion could start by saying read the disclosure document. After all, it is supposed to provide you with facts and information about the franchisor, their background and the details of the Franchise Agreement. And whilst this is true, it is one small part of how you should conduct your investigation into a franchise opportunity. You could say the disclosure document gives you the ‘hard’ bits of necessary information. But it is in the ‘soft’ information that you will find whether this franchise business is right for you and whether this franchise company is capable of delivering the necessary cooperative success to its franchisees, including you if you decide to join this group. So, what are these soft attributes that are not found in the formal disclosure materials? Let’s start with what all franchise systems should be able to provide to their franchisees.

1. Better Buying

Whether your franchise sells products or services, your franchisor must be able to provide you with buying prices that are better than you could buy at as an independent. After all, a large and expanding network of outlets gives a franchisor considerable power in negotiating buy prices with their suppliers and they should therefore be able to pass on at least some of those saving to you, as their franchisee. This applies not only to stock-in-trade, but also with site fit-out, equipment, services of all sorts like insurance and accounting and marketing materials and media campaigns.

2. Effective Marketing

Ideally the franchisor you are investigating should have responsibility for group marketing on behalf of all its franchisees. There are several reasons why this should be the franchisor’s responsibility. Marketing, including advertising in a franchise group needs to have uniformity, consistency and cohesion. If individual franchisees are doing their own thing with marketing, its sends mixed and conflicting messages to consumers and ends up potentially damaging the brand to the detriment of all franchisees in the group. In addition, the franchisor will always be in the best position to create and maintain brand position, develop and implement media-wide campaigns, produce marketing collateral at best prices and generally manage and obtain best value from advertising budgets, whether contributed to by the franchisees or not. Finally on this topic, franchisees will always be better at focusing on their customers than trying to be expert at brand and campaign marketing. Isn’t it why you are joining a franchise group in the first place.

3. Operating System

Successful franchise networks are those that has a sound, proven business model, develop it into a set of operating systems that can be trained to others, then repeated uniformly across the group. If the franchise you are investigating does not have an operating system that is documented into manuals, training programs, and which forms an integral part of how you are going to run your business each day, then you should be wary of this particular franchise. Without detailed and documented operating systems the franchisor will not be able to demonstrate a proven and repeatable business model and you will be left to find it out for yourself. This is not how a franchise should be delivered to you and you should invest your capital in something else. Make sure you inspect their manuals before you sign up to become a franchisee.

is the Franchisor Well established

The next thing to consider is how long has the franchisor been in this particular business. The question here is not how long has it been granting franchises or been a franchisor. There are many good franchise opportunities available from companies that are just commencing their franchise expansion. Sometimes the best time to join a franchise group is at the beginning as franchisors are acutely aware of the need to fully support their first franchisees and will go out of their way to ensure the success of their initial franchisees and their first outlets.

Initial success with first franchisees will establish a critical reference point, or case studies, for the franchisor that it will need if it is going to continue to attract further new franchisees as the group expands.

On the other hand, your franchisor should not be a complete ‘newby’ just starting out in an industry in which it has little or no experience or track record. As a franchisee, you do not want to be the one to de-bug the operating system of a company that is so

new in its business that it has yet to find out and prove up what works and what can be successfully transferred to its franchisees. Ideally, a franchisor should have been in this particular business for three-plus years and to have a proven record of sound financial management and be profitable and sustainable.

Who are the key People in this Franchise

The franchise you are investigating might have exciting leading-edge products or game-changing technologies, but these are not what will make or break this business as a franchise. You should look carefully at the people behind the company. Ask questions like: Who is the founder and principal? Do they display vision and confidence? Do they communicate well? Has the principal assembled a team of capable people in the company? People who can deliver the support services that will be needed by its franchisees, including you?

In the capital raising world, a key attribute that investors look for is the quality of the management team. People are way more important than mere products or ideas. People make things happen and good people give investors comfort and assurance.

It’s the same with franchising. As a prospective franchisee, make a point of asking about the franchisor’s key people. Who are they? And what will each be contributing to your start-up and ongoing success as a new franchisee? The disclosure document has background credentials on a franchisor’s management team.

Practical bits and Pieces

I’ve said that this essay would focus more on the soft attributes that you should look for in investigating a franchise opportunity. But that does not mean you should not also look at the practical things that will impact on your investment and the way you are going to operate your business daily, weekly and yearly.

Practical things that are important to investigate include:

• How long is the franchise Term? Does it coincide with the lease of your premises if this is a retail business?

• Will the franchisor provide you with a turn-key business on Day 1? Does the initial cost for this cover everything or are there any hidden or extra costs?

• Does the Franchise Royalty include a marketing component? Or is there a separate or additional advertising contribution? How does your total weekly or monthly payments to the franchisor compare with other similar franchises?

• What does the franchisor provide to you in the way of initial induction training? Does this seem like it will equip you to start your new business with confidence?

• Does the franchisor have a strategic plan for the expansion of its franchise network? Or are they taking a scattergun approach and appointed franchises randomly and without proper ability to follow through and support new franchisees.

take the time to talk to o thers

These and many other practical questions must form part of your investigation into your franchise opportunity of choice. But perhaps the most important piece of additional advice is that you must seek out and talk to existing franchisees who are already in this company’s ‘family’. The franchisor will make the names and contact details of these people available to you through the disclosure document, and possibly by other means, such as case studies of others in your location of interest. But taking the time to contact these people, with your pre-prepared list of questions and key points for discussion, is your best method of finding out if this franchise is a good fit for you.

A good question to ask an existing franchisee is; if you had your time over again would you join the group? Wait for the answer. The response is often very telling.

Finally, every business has its own internal culture, its way of communicating with its own family members, of resolving disputes and of rewarding good work or special efforts. Take the time to talk to others and don’t be afraid of digging deep into those aspects of the business that make it work and which make it a welcoming and satisfying place to be. After all, once you are a family member, it too late to say, “I think I made a mistake.”

r o G er Di C keson | senior Franchise Consultant

rdickeson@franchisedevelopments.com.au www.franchisedevelopments.com.au

haV e you got the guts ?

Doug Downer | the Franchise Guy™ F ran C hise ready

About the Author

Doug Downer is The Franchise Guy™ with an impressive 30+ year senior management history in developing and leading businesses within the Franchising sector.

Doug and his team at Franchise Ready have helped launch and support over 100 Australian brands grow through franchising by creating everything they need to scale and grow through franchising.

Doug currently owns 5 franchises as a franchisee, he is invested in two franchisor businesses, he’s been a franchisor CEO in multiple brands and has been an Australian Master franchisee, so he knows all aspects of franchising.

Doug has been recognised in the Top 30 Franchise Executives in Australia for each of the four years that this program has been running and in 2022 he was recognised in the Top 100 Global influencers in Franchising.

The 2020’s saw a significant change in the way we live and the way we do business and it got me thinking about how this has impacted franchising. The phrase 20:20 hindsight is relevant to the new world we are experiencing. This expression comes from the way people describe good vision. A person with normal, good vision has 20/20 sight. Whilst 20:20 Hindsight is an understanding of a past event and how that impacts on decisions made in the future.

This is particularly relevant when it comes to people’s ability to make decisions about going into business. It’s the combination of being able to look forward with clear vision of what is possible whilst looking back and learning from what has happened before.

We have launched over 40 franchise brands in the past 18 months, and we currently assist over 20 franchisors directly recruit franchisees and we support more than 40 franchisors complete their own recruitment, so I feel we have a unique insight and perspective on the market.

We have seen real estate values skyrocket creating asset rich individuals that are now contemplating what’s next for them, do they semi-retire, retire, stay where they are or do something for themselves with their newfound wealth and this is where they may be considering buying their own business or joining a franchise.

On the flip side we are seeing continuing global uncertainty with higher interest rates, high inflation and global conflicts affecting consumer confidence and ultimately people’s decision-making process.

Here’s what we’re seeing as a result of all of this: Enquiry rates for franchising have never been higher but decision making is taking much longer.

This got me thinking, why are people taking longer to make decisions, I realise there are many reasons for this, but I would like to focus on one, risk which remains relevant in any market.

Guts

I sometimes ask myself –Why would anyone go into business?

It takes guts, and it’s all about risk. I believe there are ‘risk-seekers’ and ‘risk-tolerators’. All business owners are risk takers, and while you must be, the key is the calculated risk. It might sound a little irresponsible to term business owners as risk-seekers, because no one should actively seek risk. But there is an inevitability associated with business ownership that involves risk, and some business owners are more comfortable with risk. risk-seekers derive excitement from uncertainty. Have you ever driven your car around on empty when you could have just as easily filled up earlier? Do you ever schedule that extra meeting, when in reality there is no possible way you can fit it in? Heaven forbid

you might have even run late for a flight or missed one completely, or dare I say it, been late for a meeting.

There’s a pretty strong chance that if you’re a risk-seeker, you like the adrenaline rush. You’ve probably driven too fast, bungee jumped, skydived, been around wild animals, or partaken in other adrenaline junkie type activity.

risk-tolerators do not necessarily see it as risk. They pursue their goals by understanding, accepting, managing the inherent risks of the decisions that they make.

I have had partners in four of my businesses. I should probably start of by sharing with you that I am a risk-seeker, but I would only classify myself as mid-level and by no means extreme.

This may not be indicative of every business situation, but two of my business partners have been risk-tolerators, and coincidentally, they have both had excellent businesses that have been very financially rewarding. My other two business partners were probably more like me, and while the partnership was fun, it was nowhere near as profitable as it could have been.

The risk tolerant business owner spends more time analysing, understanding, and assessing the risks at hand, learning how best to mitigate them. These risk-tolerant individuals confront fear not with the risk-seeker’s optimism, but with thoughtful analysis, management, and self-awareness techniques.

As an entrepreneur and business owner, you will likely have to deal with some failure. It may be small, like a bad product launch or the risk you took bringing in a key employee who didn’t quite measure up, or it could in fact be business failure.

how to be Gutsy

Guts give business builders the courage to make things happen, stick with it, and remain confident no matter the impediments they may face.

Guts-driven entrepreneurs aren’t fearless; they just know how to cope with, and maybe even thrive in, uncomfortable environments. They’re the same people who crammed for their exams the night before, and often they thrived in high pressure situations.

recognise that you already have guts, in that you’re already in business or contemplating going into business; that takes guts.

The guts to endure lets us recognise that failure is not an option, but rather a reality. It’s about remaining strong and resolute; persevere in the short-term to realise your longerterm goals. You will experience failure. Expect it, relish it, and learn from it.

And for those who are risk-seekers, try to take on characteristics of the risk tolerators, or consider getting one of them to join you in your business. Partnerships aren’t easy, but they provide balance and discipline that often the risk-seeker lacks but so desperately needs.

“ take calculated risks. act boldly and thoughtfully.”

ray Kroc - McDonald’s traditionally, when people refer to ‘guts’ in business they refer to the courage to make decisions. I want to extend on that to one other meaning as it relates to franchising.

Gut Feeling

Have you ever had a feeling in your gut, or felt that something just didn’t feel quite, right? This is referred to as intuition, a combination of our experiences, instinct, and senses.

Sometimes when you meet someone for the first time, you instinctively sense whether you can trust that person or not.

It has been said that women have better intuition than men, but all of us experience intuition or have those ‘gut feelings’.

Every time that I have felt something is not quite right or seems too good to be true, my intuition or ‘gut feeling’ has proven to be right. Sometimes, I have gone with my gut feeling, and other times I have not.

I believe the situation that you’re in influences whether you make decisions rationally or emotionally. Don’t get me wrong when I say emotionally, because that gives the impression that this may be a bad attribute. Sometimes your emotions just make sense and you should go with them.

I think I’m a good judge of character, but I am also characterised by extreme optimism. I tend to see the best in people and am quite trusting, but at times I haven’t trusted myself and gone with my gut feeling. I’ve given people or situations the benefit of the doubt.

What I’ve recognised is, when I’m stressed or a little desperate, I can make bad decisions. When I’m under duress, I tend not to be as intuitive, and this is probably the time to be more rational.

I believe we need to trust our gut and use our intuition more, but we need to make sure we do it in times where we have a clear mind, free from stress. If you’re under pressure, don’t dismiss your intuition, but balance it with being more analytical.

Trust your gut instinct; it will usually be right. Take these two principles into your decision making when it comes to going into business. We know that 1 in 5 independent businesses will fail in the first year and as much as 80% of these will fail in the first 5 years, when you compare that to the success in Franchising with a global success rate between 85-95%.

Based on those statistics franchising just makes sense but use your intuition, do your homework and make a considered decision based on research and free from emotion. I always say “ Don’t fall in love with a business, fall in love with the business model”.

“if you’re not a risk taker, you should get the hell out of business.”

I have to confide, if you haven’t gathered already, I love franchising, I believe in it, it works.

I speak with some experience as I am currently invested in 6 different franchise businesses and looking at others as I write this article, I don’t just Talk the Talk, I Walk the Talk, because I believe in the power and effectiveness of franchising, I also get to have a close look at them through the work we do.

Not every franchise will be right for you but there is a ‘right’ franchise for everyone, you just need to do your research and trust your gut.

RAMS level 12, 321 kent street, sydney nsw 2000 Phone: 1800 616 082 Email: franchising@rams.com.au Web: https://www.rams.com.au/franchising/

BUSINESS DESCRIPTION:

RAMS is a recognised, iconic brand – we’ve helped hundreds of thousands of Australians buy their own home. RAMS is unique. Residential mortgages is all we do, which makes us experts at helping customers into their new home.

• Build yourself a business for yourself but not by yourself

• Strong upfront and trail commission

• Powerful online and TV presence

• Designated territory

• Owned by Westpac, Australia’s oldest company

• Ongoing training and development

• Build your own successful and motivated team

• Support your local community

• Enjoy the comraderie of a large RAMS family

COMPANY DETAILS:

Date of first franchise: 1991 Membership: Fca Training provided: ongoing training and development Territories available: 30 territories available nationally as at oct 22.

FRANCHISE OUTLETS AUSTRALIA:

Current: 71

FINANCIAL DETAILS:

Initial franchise fee: $35,000 + Gst Minimum investment: $300,000

DECkSEAL

po Box 4093, Burwood east, vic 3151

Contact: danielle | Phone: 1800 332 525

Email: admin@deckseal.com.au | Web: https://deckseal.com.au/

BUSINESS DESCRIPTION:

Now is the time to buy into the home improvement market! Join the largest deck and timber restoration and preservation specialists in Australia. We undertake a wide range of projects including decking, cladding, screens, fences, seats, handrails, posts, outdoor furniture, planter boxes and garden edges and service Residential and Commercial properties. Low start up cost, mobile business, and a proven established model – it is the perfect opportunity. With common benefits including instant brand recognition in an established market, set supplier contacts and a support network of your franchisor and fellow franchisees, buying into an already established business model is a tempting proposition for many!

With a continual flow of enquiries, repeat business and an overwhelming demand for our services, we just cannot keep up. DeckSeal currently has territories available in NSW, QLD, WA, SA and TAS. Franchises offer the independence of small business ownership supported by the benefits of a big business network.

COMPANY DETAILS:

Date of first franchise: 2018

Membership: Fca & aiG

Training provided: training hands on, onsite with deckseal master Franchise 4 weeks.

Territories available: Qld, sa , wa , tas, nsw, act

FRANCHISE OUTLETS AUSTRALIA:

Current: 19

FINANCIAL DETAILS:

Initial franchise fee: $10,000 + Gst deposit

Minimum investment: From $26,000 - $41,000 + Gst, plus equipment and vehicle Royalty fee: monthly royalty

Financial assistance: on assessment

Advertising/marketing fee: no Fee

INXPRESS

AUSTRALIA & NEW ZEALAND

level 5, 116 adelaide street, Brisbane, Qld

Contact: ryan Bohm | Phone: 0405 518 815 Email: sales.au@inxpress.com | Web: inxpressfranchises.com

BUSINESS DESCRIPTION:

Established in 1999, InXpress is a multi-award winning global logistics consulting company. InXpress has established strong relationships with trusted courier partners globally, with access to highly competitive rates for SME customers. This gives you the opportunity to build your own successful business with the security of the world’s largest franchisor of global courier services.

Awards: 2021 Global Franchise awards - Best White Collar Franchise - Global Franchise Champion

2021 international Franchisor of the year benefits:

Turn-key offering, supported by a locally-based head office franchise support system. No prior experience in freight or logistics required to be successful in the InXpress franchise model. Low overheads with the ability to run your business from home.

COMPANY DETAILS:

Training provided: 2 week comprehensive system training and ongoing coaching.

Territories available: all states in australia & new Zealand - city and regional.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

Current: 460+ world-wide 60+ in australia & new Zealand

FINANCIAL DETAILS:

Initial franchise fee: $85,000 + Gst (australia) $30,000 + Gst (new Zealand) with no additional on-goings *young Guns program for under 35’s Royalty fee: percentage of margin (not revenue)

Advertising/marketing fee: included

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ARAMEX

level 9, 491 kent street sydney nsw 2000 australia shed 5, lever street, ahuriri, napier 4112 Phone: 1300 3278 929 (aus) | 0508 692 726 (nZ)

Email: recruitment@aramex.com.au | recruitment@aramex.co.nz Web: www.aramex.com.au| www.aramex.co.nz

BUSINESS DESCRIPTION:

Aramex has been operating internationally for almost 40 years. In New Zealand and Australia, we began as Fastway Couriers over 35 years ago, joining the Aramex family in 2016.

The Aramex network across New Zealand and Australia now includes 46 regional franchises and over 1000 franchise partners. We offer our franchise partners an award-winning system, world-class technology, training and support to help them to run their own rewarding business in their local communities.

COMPANY DETAILS:

Date of first franchise: 1994

Training provided: extensive training and ongoing support is provided – no previous business experience required.

Territories available: outlets available across australia and new Zealand

FRANCHISE OUTLETS AUSTRALIA & NEW ZEALAND:

Current: 46

FINANCIAL DETAILS:

Initial franchise fee: available upon application

Minimum investment: dependent on territory. please visit our website to see current opportunities.

FERNWOOD WOMEN’S HEALTH CLUBS

level 1 / 49 elizabeth street, richmond vic 3121

Contact: helen alfa | Phone: 03 9630 8826 Email: helen.alfa@fernwoodfitness.com.au | Web: www.fernwoodfitness.com.au

BUSINESS DESCRIPTION:

At Fernwood Fitness, we believe in a balanced lifestyle that includes an abundance of nourishment, exercise, wellness, good friends, and self-love.

We’re the leaders in women’s health and fitness and have been since 1989. From one small health club, we have grown to more than 70 clubs Australia-wide and counting.

COMPANY DETAILS:

Date of first Fernwood Women’s Health Club: 1989 – Fernwood Bendigo Training provided: online, in person at Fernwood hQ and in club training Territories available: vic, nsw, Qld, sa , tas, wa

FRANCHISE OUTLETS AUSTRALIA:

Current: 71

FINANCIAL DETAILS:

Initial franchise fee: $55,000 Minimum investment: from $250,000 Royalty fee: 7% of gross revenue Makreting levy: 5% of gross revenue

BEAUMONT TILES

national office - 225 marion road, marleston, sa

Contact: Franchise enquiry | Phone: 08 8292 4440

Email: franchiseenquiry@tile.com.au | Web: www.beaumont-tiles.com.au

BUSINESS DESCRIPTION:

Beaumont Tiles are Australia’s largest tile group bringing the best and latest to our Australian customers – we supply more tiles to Australian homes and builders than any other tile retailer. We are proudly unique in what we do and how we do it and each and every person is valued for their contribution and input.

COMPANY DETAILS:

Date of first franchise: 1990 (very first)

Membership: Fca Training provided: in-house training program provided.

Territories available: nsw, vic, Qld and sa

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

Current: 86 Franchise stores as part of our 113 strong store network.

FINANCIAL DETAILS:

Initial franchise fee: $63,000 + Gst which includes opening promotion and advertising costs.

Minimum investment: indicative range $380,000 - $490,000 + Gst Royalty fee: 5%

Financial assistance: na

Advertising/marketing fee: Group advertising and marketing levy 5%

TSG

po Box 4296, ringwood vic 3134

Contact: head office | Phone: 03 8873 7900 Email: hq@tsgfranchise.com.au | Web: www.tobaccosg.com

BUSINESS DESCRIPTION:

The TSG story began over 25 years ago as a single store and it was from this moment that we made a commitment to our customers and our franchisees to be best in class within retail. With instant brand recognition and an elite level of professional operational excellence unlike any other, TSG lead the way in providing innovative franchise solutions and best practice franchise management for our franchisees. Some key differentiators are our bright vibrant design, clear brand vision, unique retail experience and our ability to offer franchisees an innovative retail strategy.

COMPANY DETAILS:

Date of first franchise: 1996 Membership: Fca Training provided: yes Territories available: all

FRANCHISE OUTLETS AUSTRALIA:

Current: > 540

FINANCIAL DETAILS:

Initial franchise fee: $8700

Minimum investment: $180k - $200k

Royalty fee: annual fixed fees ($5016) Franchise + $360 it support) Financial assistance: no

Advertising/marketing fee: n/a

IP PARTNERSHIP

Contact: samuel rees | Phone: 07 5591 2522 Email: sr@ippartnership.com.au | Web: www.ippartnership.com.au

BUSINESS DESCRIPTION:

IP Partnership is a modern boutique commercial law firm specialising in Franchising, Intellectual Property (‘IP’) and Commercial Law.

IP Partnership view client’s brands and intellectual property as if it were music or poetry. IP, whatever it may be, is a creative contribution to the universe which is something really special. It the firm’s absolute pleasure to assist clients leverage their valuable intellectual property by way of franchising, licensing or other methods.

Since 1995 IP Partnership has been developing and maintaining long term relationships with Australian businesses. IP Partnership are here to assist you if you are looking to buy a franchise business or any business for that matter. IP Partnership are also the experts in assisting those looking to turn their businesses into a franchise.

MADGWICkS LAWYERS

level 6, 140 william street, melbourne, vic 3000 Contact: chris verebes | Phone: (aus) 03 9242 4744 Email: chris.verebes@madgwicks.com.au | Web: www.madgwicks.com.au

BUSINESS DESCRIPTION:

Franchising in Australia is a regulated environment. When considering establishing a franchise system, entering into a franchise agreement or navigating a dispute with a franchisee or franchisor, it is important that you use a law firm with extensive knowledge of the franchising business model and the Australian legal landscape.

Madgwicks is a full service business law firm. Our team of experienced lawyers regularly advise franchisors, franchisees and franchise industry service providers. Our lawyers also have extensive experience advising groups that operate under similar business structures, including cooperatives and strategic alliances. we regularly advise on: Franchise system establishment | Franchise due diligence | Franchising code of conduct compliance | Franchise agreements and disclosure documents | Business structures appropriate for franchise systems | supplier and terms of trade agreements | commercial and retail leasing, as well as general property advice | trade practices advice, including accc notification/authorisations | acquisition, disposal, joint venture and partnership advice | employment and workplace relations | tax, duty and Gst advice | Branding, intellectual property and trade marks | litigation and dispute resolution

Madgwicks’ Franchising team is an active member of the Franchise Council of Australia and has an established network of accountants, business advisors and brokers to assist our clients when required. Madgwicks also provides clients with the benefit of our international affiliation with Meritas, connecting them with member firms across Australia and globally, providing expertise wherever they need it.

IN BUSINESS SINCE: 1973

SANICkI LAWYERS

level 2, 240 chapel street, prahran vic 3181

Contact: robert toth | Phone: (03) 9510 9888 or 0412 673 757 Email: robert@sanickilawyers.com.au | Web: https://sanickilawyers.com.au/

BUSINESS DESCRIPTION:

Sanicki Lawyers is a commercial and intellectual property legal practice with offices in Melbourne and Brisbane specialising in the creative music sector, arts, franchise and licensing and corporate sectors. The firm acts for well known Australian and overseas artists and companies and has expertise in a number of specialised business sectors including online and digital, Intellectual property and copyright, Childcare, Franchising Licensing and Distribution, Hospitality, Medical & Allied health professionals, and New Energy sectors (solar and EV).

Sanicki’s is a member of the Franchise Council of Australia (FCA) and the International Franchise Lawyers Association (IFLA) with member firms across the world to assist our client’s overseas expansion.

We also have a dedicated Defamation law , Property and private client practise with specialist knowledge in Retail and Commercial leasing, estate planning and business succession.

We can assist our business and commercial clients with all aspects of their business needs and provide clients flexible fee options with fixed fees for certain work and realistic cost estimates where the fees cannot be fixed.

Robert acts as a resident director for overseas companies and is an Advisory Board member for clients in the solar and franchise sector with a network of allied consultants to assist our clients.

We work hard and smart and enjoy finding solutions and strategies to support our clients in their business and being a part of their trusted advisory team!

FOUNDED IN: 2009

STEWART GERMANN LAW OFFICE

Ground Floor, 2 princes street, auckland po Box 1542, auckland 1140, new Zealand

Contact: stewart Germann | Phone: (nZ) +64 9 308 9925 Email: stewart@germann.co.nz | Web: www.germann.co.nz

BUSINESS DESCRIPTION:

Stewart Germann is acknowledged as New Zealand’s leading franchising lawyer and has over 40 years’ experience in this area.

Stewart Germann Law Office (SGL) is New Zealand’s longest established specialist franchising law firm and has won multiple awards in franchise law both nationally and internationally. The firm is passionate about franchising and business law. The firm has acted for many Australian franchisors who have brought their systems successfully into New Zealand.

Stewart is a recognised national and international guest speaker at franchise conferences (New Zealand, Australia, South Korea and USA) and he is listed in the International Who’s Who of Franchise Lawyers 2022. SGL’s clients include many of New Zealand’s best known national and international franchise brands and the firm has extensive franchising contacts worldwide and locally.

SGL belongs to the Franchise Association of New Zealand (FANZ), the Franchise Council of Australia and the International Franchise Association (USA). Stewart was instrumental in the formation of the FANZ in 1996 and he wrote the original rules, as well as being a Past Chairman and a current member.

Stewart was awarded Life Membership of the FANZ in recognition of his significant contribution

to franchising. He was also a board member of the supplier forum of the IFA from 2001 to 2007. He is actively involved in international franchising and has published articles in the International Journal of Franchising Law and the Franchise Law Journal (USA). In 2018 the Franchise Council of Australia acknowledged Stewart for his “Outstanding Contribution to Franchising” in recognition of his longstanding legal service to franchising.

Stewart is the only lawyer in New Zealand to hold the CFE (Certified Franchise Executive) qualification following an accreditation ceremony at Australia’s National Franchise Convention and at Orlando, Florida in 2020.

Stewart is a Notary Public and can witness documents for use in overseas jurisdictions and he is also a qualified mediator. Stewart regularly advises international clients on legal issues relating to franchising in New Zealand and welcomes enquiries from overseas.

In addition, Stewart is the Managing Director of The Franchise Coach and please visit www. thefranchisecoach.co.nz. He is able to help emerging franchisors and all the services are listed on that website.

IN BUSINESS SINCE: 1993

FRANCHISE READY

unit 2a 87-89 moore street, leichhardt nsw 2040

Contact: doug downer | Phone: 1800 37 32 39 Email: doug@franchiseready.com.au | Web: www.franchiseready.com.au

BUSINESS DESCRIPTION:

FRANCHISE READY helps business owners scale and grow their business into a more valuable asset through franchising.

We have launched some of Australia’s fastest growing brands into the franchise sector, we have launched and supported more than 100 brands grow by becoming franchisors.

We assist our clients in developing a complete, successful franchise system, We:

• Create the Strategic Plan

• Develop all the collateral required - Operations & Training manuals, SOP’s, Launch programs

• Complete franchise feasibility reports that include

• Territory mapping

• Competitor analysis

• Financial modelling for franchisees and the franchisor

• Coordinate Marketing collateral - Style & Fit out guides, Advertising, Brochures, Prospectus

• Support through the documentation process with lawyers and Accountants

• Recruit Franchisees and Key Executives for the franchisor

• Complete site identification and lease negotiation of new locations

• We coach, mentor, and support emerging franchise brands and their key executives

• We have a business broking division that assist all business owners with sale of their business

Franchise Ready is The One stop shop for everything franchising, over 100 brands with 100% success rate.

IN BUSINESS SINCE: 2012

proFessional services - support services & consultants

WOLLERMANN

FRANCHISE DEVELOPMENTS

BUSINESS DESCRIPTION:

Franchising involves having a reproducible profitable business system that can be taught to keen and enthusiastic franchisees. Sounds simple doesn’t it.

But successful franchising involves empowering franchisees with better business strategies, better buying, better marketing and, for the franchisor, better franchise recruitment. With 26 years in the franchise industry, WFD’s role involves putting it all together with better: • Franchise Expansion Planning • Franchise Legal Documentation

IN BUSINESS SINCE: 1994

automotive products & services proFessional services - support services & consultants

VIDSTEP

the precinct, river city labs, l3 / 315 Brunswick street, Fortitude valley, Qld 4006

Email: support@vidstep.io | Web: www.vidstep.io

BUSINESS DESCRIPTION:

Great Franchise brands who succeed long term, take genuine interest in the quality of the products and services their franchisees and team members deliver throughout the network. A quality delivery attracts more customers, which creates growth and higher demand. This inevitably means more locations and franchisees are required to meet that demand. It’s a win/win/win in the true sense.

While most of the bigger brands have the resources and capabilities to train, coach and support franchisees and their teams, the vast majority of Franchisors struggle to provide in-depth, quality support.

That no longer needs to be the case, as the Vidstep.io technology enables a Franchisor to very quickly and easily create world class, video-based, operational micro-training, process, task and instructions for distribution to their network. Franchisors can access every franchisee workspace and populate with networkwide content, while Franchisees can access their own single workspace to receive head office content, manage their site-specific resources and ensure team members receive relevant permission-controlled content they need as essential support material.

Vidstep is an Australian made, purpose built instructional technology, which is now used by over 30,000 Vidsteppers in 127 countries. If YouTube and an instruction manual combined, Vidstep would be it. Plus, with ‘in video’ product listing and purchasing capabilities, Vidstep enables the viewer to not only know what to do and how to do it, they know exactly which tools, technology and products they need to get the job done. Once a Vidstep is published, it’s accessible via

1. Scanning a QR code on packaging, equipment or anywhere on site

2. URL links to add to documents of within existing management software

3. Embeddable on web pages, job ticket or other digital spaces

4. Social sharing including Facebook, LinkedIn and Instagram

5. In your own Vidstep team workspace, for more private content management

Vidstep will save you thousands in training costs, greatly improve team support, drive quality through your network and invite continuous improvement through content interactions. It really is the ideal tool to accelerate your Franchising success

IN BUSINESS SINCE: 2019

proFessional services - video technoloGy

Helpful organisations

APRA (Superannuation)

GPO Box 9836

Canberra ACT 2601

Phone: (AUS) 1300 55 88 49 Website: www.apra.gov.au

AUSTRALIAN COMPETITION & CONSUMER COMMISSION

GPO Box 3131

Canberra ACT 2601

Phone: (AUS) 1300 302 502 or + 61 2 6243 1305 Website: www.accc.gov.au

AUSTRALIAN FOOD AND GROCERY

COUNCIL

Locked Bag 1 Kingston ACT 2604 Phone: +61 2 6273 1466 Fax: +61 2 6273 1477 Email: info@afgc.org.au Website: www.afgc.org.au

AUSTRALIAN RETAILERS ASSOCIATION

Level 1, 112 Wellington Parade, East Melbourne VIC 3002

Phone: (AUS) 1300 368 041 Fax: +61 3 8660 3399 Email: info@retail.org.au Website: www.retail.org.au

FAIR WORK OMBUDSMAN

GPO Box 9887

Your capital city Phone: 13 13 94 Website: www.fairwork.gov.au

FRANCHISE ASSOCIATION OF NEW ZEALAND

Level 4, 51 Hurstmere Rd, (PO Box 33-676, Takapuna 0740), Takapuna, New Zealand, 0622

Phone: +64 9 274 2901 Fax: +64 9 274 2903 Website: www.franchiseassociation.org.nz

FRANCHISE COUNCIL OF AUSTRALIA

Level 19, 567 Collins St Melbourne VIC Australia 3000 Phone: +61 3 9508 0888 Fax: +61 3 9508 0899 Email: info@franchise.org.au Website: www.franchise.org.au

OFFICE OF THE FRANCHISING MEDIATION ADVISER

Suite 205, Level 2, 370 Pitt Street Sydney NSW 2000 Phone: 1800 472 375 Email: adviser@franchisingcode.com.au Website: www.franchisingcode.com.au

SMALL BUSINESS ASSOCIATION OF AUSTRALIA

PO Box 4936 GCMC QLD 9726 Phone: 1300 413 915

REAL ESTATE INSTITUTE OF AUSTRALIA www.reia.asn.au

VICTORIAN CHAMBER OF COMMERCE & INDUSTRY

Level 3/150 Collins Street Melbourne VIC 3000 Phone: 03 8662 5333 Website: www.victorianchamber.com.au

WORKPLACE SAFETY AUSTRALIA

Westfield Tower, Suite 1303, Tower 2, 101 Grafton Street

Bondi Junction NSW 2022 Phone: +61 2 9387 1248 Fax: +61 2 9387 1488 Email: info@worksafe.com.au Website: www.worksafe.com.au

f ranc H ise c ouncil Helps b usiness f ace n ew cH allenges by Mary Aldred, CEO of the Franchise Council of Australia. The Franchise Council of Australia (FCA) is the peak body for the nation’s $184 billion franchise sector. Mary has led the FCA in developing and delivering strategic priorities to strengthen the FCA’s role as an effective peak business organisation and advocate for a compliant, sustainable and profitable franchise sector. Have y ou g o T T H e g u T s by Doug Downer, The Franchise Guy™, Franchise Ready Doug is an experienced Business Developer and Coach with an impressive 30+ year senior management history in developing and leading businesses within the Franchising sector. Specialising in SME Business Development and Growth, Coaching and Facilitating, Operations, Recruitment, Training, Supply Chain, Marketing and all aspects of Franchising. He is a franchising expert. Doug has been recognised in the Top 30 Franchise Executives in 2019, 2020, 2021 and 2022. a long with: