AUSTRALIAN AND NEW ZEALAND BUSINESS
See inside for essential information required for buying, owning and running a franchise authored by industry experts.
Welcome to
delivery unlimited Jump onboard one of the fastest growing industries in the world. Immediate opportunities are available to join Aramex as a Courier Franchisee or an entry-level Courier Lite Franchisee.
Drive your success with Aramex Thousands of businesses trust Aramex to deliver. As part of the global Aramex network, we deliver to more than 220+ countries with local knowledge and care. The rapid growth of online shopping means big opportunities for our Courier Franchisees.
Enjoy the benefits: • Scalable buy-in fees to suit most budgets • Successful, award-winning franchise model • Quality training and support • No previous business experience required • Exclusive territories available* • Be part of a leading global courier and logistics network
We invite customer-focused people who want to own their own Courier Franchise business to call us today. If you’re just starting out, consider our entry-level no-frills Courier Lite Franchisee model. To drive your success to greater heights, the time is right to become a Courier Franchisee.
Aramex delivers e-commerce.
Find out more at: Australia | aramex.com.au New Zealand | aramex.co.nz *Exclusive territories are not available as part of our Courier Lite Franchise model.
Contents Preface. ............................................................................................................................................................................................................1 Chapter 1: FCA maintains focus on member support........................................................3 Mary Aldred, Franchise Council of Australia Chapter 2: ESSENTIAL STEPS TO BECOMING A FRANCHISEe. ....................................................9 Dominique Lamb, CEO, National Retail Association Chapter 3: Accounting Aspects to consider for your Business.................... 15 Kate Groom, Franchise Accounting and Tax Chapter 4: Understanding the Legal Documents................................................................. 21 Robert Toth, Consultant Marsh Maher Richmond Bennison Lawyers Chapter 5: Review your purpose, renovate your business..................................... 31 Corina Vucic, Director, FC Business Solutions Chapter 6: Tips to help you get your tax right in the 2021–22 financial year.............................................................................................................. 39 Tony Goding, Acting Assistant Commissioner in the Small Business area of the ATO Chapter 7: Insights into Leasing................................................................................................................... 45 Samuel Rees, IP Partnership Lawyers Chapter 8: WHAT TO BE AWARE OF IN RELATION TO FRANCHISING IN NEW ZEALAND............................................................................................................................................ 53 Stewart Germann, Franchising Lawyer, Auckland, New Zealand Chapter 9: Franchise Law 101........................................................................................................................... 63 Esther Gutnick, MST Lawyers Chapter 10: FINANCING YOUR FRANCHISE IN A POST-COVID WORLD.............................. 75 Phil Chaplin, Chief Executive Officer, Cashflow It Group Chapter 11: The crucial elements of a 21st Century Franchise Media Relations Policy.............................................................................................................. 81 Pete Burdon, Franchise Media Training Franchise Listings:................................................................................................................................................................. 88 Professional Services Listings:........................................................................................................................... 97 Helpful Organisations:.................................................................................................................................................. IBC
The Franchise Guide 2021 is published by CGB Publishing Pty Ltd PO Box 968 Mt Eliza VIC 3930 Australia Phone: 03 9787 8077 Fax: 03 9787 8499 *** 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. PUBLISHER’S SUGGESTED RETAIL PRICE $14.95 © 2021 CGB Publishing Pty Ltd all rights reserved. ISBN 978-0-6487795-2-0
Preface Vikki Bradbury | Publisher CGB Publishing Pty Ltd
F
irst and fore most thank you for choosing the 2021/22 Australian and New Zealand Business Franchise Guide 14th Edition.
If your contemplating a move into business ownership, the endless options and knowing where to start can often appear daunting at first. Starting a new business from scratch brings with it a lot of unknowns and associated risks, so before you start on your franchise journey, it’s wise to do your research and this publication is a great start. Franchising has many advantages over independent business ownership and is a valid option for the budding entrepreneur. 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. The franchise industry offers first-time business buyers a wide variety of options across Australia and New Zealand. Not only are there thousands of franchise categories and companies to choose from, but there are a variety of franchise opportunities in different price ranges. Each chapter has been written by a specialist within the franchising community, such as specialist lawyers, business advisors, accounting, retail association, Franchise council of Australia, ATO, Leasing, marketing specialists etc. Finally, once you are convinced that a franchise system is the right move for you, enjoy the journey and best of luck.
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Chapter 1
FCA maintains focus on member support Mary Aldred | CEO Franchise Council of 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. Franchising is a popular business model in Australia and makes a significant contribution to the national economy. There are approximately 1,344 franchise brands in Australia, providing employment for more than 598,000 people and contributing more than $184 billion annually to the national economy. -3-
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upporting members, many of whom are small businesses, and to further underpin franchising as the preferred model for small business success is a priority for the Franchise Council of Australia.
The role of the FCA The Franchise Council of Australia (FCA) is the peak body for the franchise sector 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.
Supporting businesses through the COVID-19 pandemic When COVID-19 hit, franchised businesses were employing almost 600,000 Australians and contributing more than $184 billion to the national economy. The varying business restrictions in place across Australia since early 2020 have created a tough economic climate and demanded adaptability, determination and innovation by all businesses and franchising stood out as one of the most robust business models. We continue to remind all our stakeholders that in many instances both franchisors and franchisees are small businesses, subject to the same economic waves and regulatory burdens that make day to day operation and profitability a challenge, especially in dealing with COVID restrictions. 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 on the path to recovery. The FCA has engaged deeply at all levels of government both informally and formally in recent months, including: • facilitating COVID-safe business recovery by emphasising the specific assistance and regulatory changes needed by diverse business sectors
• bringing bad commercial leasing practices and landlord misconduct to their attention and urging government intervention • reinforcing the need for fairness in application of operating rules across sectors
• encouraging Federal Treasury and state governments to introduce or continue support for struggling businesses and workers facing unemployment
• making submissions on specific issues to various state government small business departments on business restrictions, exemptions, customer registers and industrial relations
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The core of our advocacy has been a concerted campaign of dialogue with members to test government policy and temporary regulatory changes, as well as to provide input on specific measures requested by members. Instead of constantly responding to political or media ‘noise’, we now actively promote awareness of FCA at the centre of franchising in Australia and a source of commentary on the day-to-day issues that concern franchise businesses. Moving forward, the will FCA continue to focus on three key priorities: • supporting members with access to information, resources and support through the transition from Covid-19 lockdowns and trading restrictions to business reopening • 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 during the challenges of 2020. Feedback from FCA members, supported by a high level of membership renewal and retention, is that they feel they have been supported, listened to and represented through access to information and resources, and government advocacy.
Informing, educating and celebrating members Against the Covid backdrop, the FCA has also provided a dedicated program of education and information through a series of topical webinars, and the FCA’s regular program of state-based events has recommenced in 2021. The annual National Franchise Convention, the largest and most comprehensive professional development event on the FCA’s annual calendar, is taking place this year in Melbourne on 23 & 24 August. After more than 18 months of disruption due to COVID, this year’s NFC is themed ‘A new world. A new direction’ and is designed to share practical ideas and information to help achieve sustainable success in the dramatically transformed business landscape. Across 2020 and 2021, we have been proud to honour our finalists and winners of the FCA Excellence in Franchising Awards. The FCA’s Excellence in Franchising Awards have a proud tradition of celebrating the outstanding achievements of the people and networks that make the sector so resilient and successful. The Award winners and finalists set the benchmark for franchising across Australia and the Awards are a wonderful opportunity to celebrate their success.
Franchising Code of Conduct Reforms As Australia’s peak industry association for the franchising sector, the FCA responded positively overall to the Franchising Code of Conduct reforms announced in June by the Federal Government.
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Given the dramatic impacts of COVID on small businesses across Australia, the FCA was reassured by the Federal Government’s approach to introducing the changes in the context of today’s economic reality. The past eighteen months has proved to be the most difficult economic environment Australian businesses have ever experienced. The FCA was wary of further business failures that may arise where there are rapid or overly punitive regulatory changes. The government appears to have taken into account the significant reforms already introduced by the FCA in response to the issues raised through the 2018 parliamentary inquiry into the franchise code of conduct and subsequent taskforce. The FCA consulted extensively with franchisor and franchisee members as part of the industry consultation process. This included the FCA’s Policy Advisory Committee, a group comprising franchisors, franchisees and advisers, and the FCA’s Franchisee Advisory Committee. In addition, the FCA’s Legal Committee, representing the majority of specialist franchise lawyers in Australia, was asked to provide feedback on any potential excessive compliance costs or unintended consequences. The Government consulted heavily with the FCA through development of the new regulations and is aware of not only the steps taken to introduce new measures to ensure compliance, but also the actively supportive role played by franchise networks and the FCA to deal with COVID-19 and assist franchises and small business through the challenges. The FCA has worked hard to address the key themes that arose in the 2018 Parliamentary Inquiry: • On the need to better engage franchisees, the FCA made significant changes. The FCA now has franchisees represented on its Board and has established a Franchisee Advisory Committee that meets regularly to consult and proactively raise issues. • The FCA revised member standards and guidelines and, during Covid-19, established a pro bono legal assistance program for franchisees needing legal advice. • The FCA also prepared and published a Franchisee Guide for prospective franchisees, containing clear, detailed information on due diligence imperatives across business, finance, legal requirements. However, the franchising sector has not unequivocally endorsed all the proposed regulatory changes. Member input is important to the FCA, especially feedback on the key issues for our sector in implementation of specific aspects of the revised Franchise Code of Conduct. Feedback from a section of our membership following release of the Code revisions is that there are particularly significant business implications of the policy on rebates. To this end, the FCA is continuing to talk with the government on behalf of members impacted by the rebates policy to develop an evidence-based case of unintended outcomes.
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The FCA hopes that by clearly demonstrating the detrimental economic and employment impact on those affected businesses, the government will consider a review of the rebates policy. For the broader membership, the FCA proposes to implement a comprehensive education and information program including a series of workshops and online sessions on general compliance requirements for both franchisors and franchisees.
Looking ahead While the last 18-plus months have brought with them unprecedented challenges, many franchise systems have also seized the opportunity to innovate, pivot their offering and generate successful business outcomes. Franchise networks reported further recovery in revenues in the first quarter of 2021 as positive sentiment strengthened, according to the Australian Franchise Business “Pulse Check” survey conducted by FRANdata and survey including responses from 113 Australian franchise systems covering 21,368 business outlets. However, the continuing risk of further government lockdowns remains a key challenge, with 51% of survey respondents citing this as their main ongoing concern. Other challenges included franchisee recruitment (33%), compliance (32%), wellness of franchisees and staff (32%) and workplace relations issues (30%). The FCA remains committed to supporting members to meet these challenges and more broadly to supporting the ongoing success of franchising and small business across Australia.
Franchise Council of Australia 1300 669 030 info@franchise.org.au www.franchise.org.au
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Chapter 2
ESSENTIAL STEPS TO BECOMING A FRANCHISEE Dominique Lamb | CEO National Retail Association
About the Author Dominique Lamb is the CEO of the National Retail Association and has extensive experience providing industrial relations and employment law advice to a range of small, medium and large businesses across a range of industries. In 2011, she was awarded the Australian Institute of Management’s Young Gun of the Year Award and in 2016 Dominique was a finalist in the Brisbane Women in Business Awards. The National Retail Association The National Retail Association (NRA) is one of Australia’s largest and most diverse industry association. As a not-for-profit organisation its members range from small, family-owned and operated businesses to leading national brands and span nearly every retail category including fashion, groceries, department stores, household goods, hardware, fast food, cafes and services. The NRA is the only retail industry association to deliver practical legal advice through its wholly owned and incorporated legal practice, NRA Legal. Its mission is to support, inform, protect and represent the interests of retailers and fast food businesses, providing advice on issues such as employment law, industrial relations, training information, workplace health and safety issues, event details, advocacy and policy updates, HR advice and migration and visa issues.
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eciding you want to enter the world of being your own boss while also trading under the name of an established brand is one thing, but picking the right franchise business is easier said than done. At its inception in Australia, franchising mostly provided a means for foreign brands to extend into the Australian market. However, it has since been embraced by myriad local retailers, who have gone from being a successful small business to an established brand that covers numerous geographical locations. But as with any investment, it’s crucial that you make sure you’re aware of the brand you are investing in and carefully weigh up the pros and cons.
Research is fundamental Before you do anything, you should conduct some thorough research of both prospective franchisors, but franchising in general. There’s a lot more to it than simply getting the keys to the store of a well-known retail brand and then watching the money roll in. For each individual franchise you consider, research their history and gain an understanding of how they have evolved as a business. Some basic information about a franchise can be easy to access and you should look for the following: • Has the franchise steadily expanded over several decades or have they exploded overnight? • Has their number of individual stores been higher at a previous point in time (noting the impact of the global pandemic has presented challenges for certain businesses)? • Are they located across the country or are they concentrated in specific areas? • Do they cater to a broad consumer base or are they tailored to a niche market? There isn’t necessarily a right or wrong answer to some of the above questions. But it’s important to have a firm grasp of the business beyond simply having been a casual customer in the past. Informing yourself also enables you to conduct a rigorous enquiry with the business in question, which will help you decide on whether their brand is the one for you. For instance, if the franchise has had scaled back its operations it’s a good idea to understand why. It’s also highly recommended that you reach out to some existing franchisees. Personally contact between 3-5 owners from the franchise in question and take the time to pick their brain on their experience. By talking to a reasonable sample size you’ll be able to identify any consistent themes (positive or negative) and it will provide you with a gauge on what sort of relationship you can expect with the franchisor.
Do the sums Buying into a business is possibly the biggest investment you will ever make. Hence, getting the right price is hardly a trivial matter. Take careful stock of your financial position and tally up the value of your existing assets and liabilities. Consult with a bookkeeper,accountant or other qualified professional to ensure you fully understand
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you financial situation and your capacity to start, and successfully run, a franchised business. It’s important to note that the major expenses do not end with the upfront fee. There’s also the initial costs associated with obtaining legal advice, negotiating a lease, staff recruitment and training, fit-out expenses and other startup costs.. If the numbers don’t stack up, don’t turn a blind eye. Either look to invest in an alternative franchise that is within your price range or reconsider your intentions altogether.
Anecdotes vs real research It’s important to note that ‘research’ does not refer simply to a basic google search or relying solely on a few anecdotes you’ve heard. The internet is flooded with plenty of cases where things have not gone swimmingly between a franchisor and a franchisee/s. While there’s no doubt been instances within the sector where things have gone wrong, be mindful that media is seldom going to report all the franchising success stories. A story where a franchisee has reportedly been dudded by a franchisor is going to generate more interesting headlines than a case where a franchisee has built a successful business off the back of a productive relationship with the franchisor.
Understand what assistance the franchisor provides By its very nature, any relationship with a franchisor sees them provide certain services and resources that you otherwise wouldn’t get by starting your own business from scratch. In the first instance, they will obviously be granting you the ability to operate under their brand name, but that should just be the tip of the iceberg when it comes to what a franchisor should provide a franchisee. Services that a supportive franchisor should offer you include things such as: • A brand with a high degree of name recognition, at least amongst its target market; • A track record of sustained success over an extended period of time; • Highly effective operational processes; • Strong provision of training services; • Clear guidelines on how the relationship is to function; and • A proven ability to adapt their services and products to changes in consumer demand.
Understand your own strengths & weaknesses Are you looking to invest in a food or drink franchise without having ever worked in hospitality? Or are you a qualified chef who has never run your own business? Or are you looking to open a franchise under a brand name that you’ve never once shopped at?
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We could go on, but the above hypotheticals all go to the same central point – be conscious of knowing what you don’t know. No one who opens a franchise is a master of every single facet to running the business. Indeed, if you’ve opted for a franchise model it would, at least in part, be because you like the security of not being completely ‘on your own’. However, having a firm understanding of your gaps is the first step towards bringing yourself up to pace with the things you don’t have experience in. Running a business is more than simply putting in long hours on the shop floor, it also involves tasks such as rostering, administering payroll, managing the performance and conduct of staff, ensuring full compliance with legal obligations, and having a sufficient level of financial literacy. The first step to bringing yourself up to speed with anything in life is being able to identify what that blind spot is, so ensure that you’re conscious of the skills you need to master to run the business well.
Negotiating a lease Your lease is arguably your most valuable asset, or your largest liability depending on factors such as location and the terms and conditions. The lease can be held under either the franchisee’s name or that of the franchisor. In any event, it is critically important that you carefully interrogate the Lease Agreement and Lessor Disclosure Statement to acquire a full and accurate understanding of your obligations – particularly, before you sign it! If you negotiate your own lease, the franchisor can still assist in negotiating with the lessor regarding aspects like rent or control of the site location. Under this arrangement, the franchisor does bare some risk that the franchisee – having established the business and built a loyal clientele – exits the franchise business and rebrands under another banner. It’s for this reason that many franchisors insert a clause in the contract that the lease ends upon the termination of a franchising agreement. The rental payments contained under the lease should be closely linked with the location. If you end up in a spot that won’t see a large degree of foot traffic, you need make sure what you’re being charged for rent is reflected by that. If you’re paying too much in rent you’re in trouble from the very onset. A poorly-negotiated lease can have a detrimental effect on any business. The importance of getting independent, specialist advice cannot be overstated. This relatively small expense will pay for itself if it’s the difference in obtaining an affordable rent.
Engage an expert early Even if you’re satisfied that you have enough money in the bank and that your due diligence has led you to conclude that a certain brand is for you, it still pays to engage an expert before you put pen to paper. A bookkeeper is great at telling you the financial situation but, they’re not in a position to provide expert advice on legal matters. It’s
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a little like hiring a plumber to work on your wiring issues! Each one has their own expertise, but should never take on a job the other should be doing. A legal professional who specializes in employment law will safeguard you from the compliance traps associated with employing staff. Time and again, franchisees do not approach an expert in employment law until the eleventh hour, or worse, until after the contract has been signed, despite having an insufficient understanding of their own affairs. By that stage, it becomes more difficult to obtain complete and accurate advice on the terms of the agreement. There are complex components in these agreements and something that seems innocuous to your or your bookkeeper could, in fact, lead to serious financial and legal implications for you down the track. For example, just one of the reasons buying a franchise business can be complex is because under the Fair Work Act 2009 (Cth), the sale of a business from one company to another in certain circumstances may constitute a ‘transfer of business’. When a transfer of business arises, the Fair Work Act 2009 (Cth) imposes a number of obligations on both the vendor and purchaser. Getting this part of your contract wrong (and this is just one component), can have dire consequences. Specifically, a transfer of business will have an impact on: · whether employees of the new employer are deemed to be “transferring employees”; · whether the length of service performed by transferring employees for the older employer must be recognised by the new employer; · whether the new employer inherits and becomes liable for the transferring employees’ annual leave, personal leave and long service leave accruals; · whether employees of the old employer are entitled to redundancy pay and notice in circumstances where they have not been offered ongoing employment with the new employer; · whether transferring employees are able to bring an unfair dismissal claim if they are terminated by the new employer; · what records the old employer must provide to and be requested by the new employer in relation to any transferring employees; and · what industrial instrument applies to transferring employees and new employees engaged by the new employer. Bypassing this step in order to save money is the ultimate false economy, as you will literally be risking your business, your home and your family’s financial future.
Franchisor due diligence on prospective franchisees Proper due diligence should not be confined to you as a prospective franchisee. The
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franchisor should have a stringent and rigorous vetting process in place to ensure you tick all the necessary boxes. Although this may seem burdensome, any franchise worth its salt should be ensuring that all store owners operating under their model meet the highest possible standards. There’s the obvious need to manage financial risk by not awarding a contract to a franchisee who doesn’t have the necessary financial clout. But it’s also imperative that store owners fit the culture of the business and won’t drag the brand name down by being a poor owner. Some franchisees try to take some license with the business, falsely thinking they have carte blanch to run it how they see fit. Every successful franchise provides uniformity of standards across the chain. The ingredients for menu items at a fast food chain doesn’t change from store to store, nor do the services offered by accessory franchises. A franchisor therefore should be paying close attention to whether you meet their standards. Rather than taking it personally, you should be reassured by this as you can be guaranteed that the same vetting occurs for other franchisees. And this dedication to highly reputable franchisees means that your business is unlikely to suffer due to a drop in reputation for the brand from other poorly run stores.
Roll up the sleeves & get ready for hard work Like any business, running a franchise is no walk in the park. Long hours, significant responsibilities, navigating the ups and downs of the market, and the day-to-day challenges of running a small business are all there. However, if you do your homework and make the right investment it can be incredibly rewarding – both financially and emotionally. Don’t be reluctant about engaging experts to help ascertain your financial position and to obtain the most appropriate lease possible. As the old saying goes ‘it pays to get things right the first time’ and that adage could not apply more aptly than to becoming a franchisee.
Dominique Lamb | ceo national Retail Association 1800 738 245
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Chapter 3
Accounting Aspects to consider for your Business Kate Groom | Co-founder and Director Franchise Accounting 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’.
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ou’ve decided on the franchise to buy and you’re getting ready to do your training. Now it’s time to think about the accounting aspects of business. A little thought before you get the business going will save many headaches later. As a business owner, you don’t need to learn accounting, or even much bookkeeping. In fact, it’s best to leave the complexities of this to your bookkeeper and accountant so you can concentrate on growing and running your business day-to-day. Accounting, especially tax and GST, is a specialist area, so turn to the experts for this. In this article we assume you will operate your business through a company. This is the most common structure used in franchising, though your circumstances may mean a trust is appropriate. Occasionally a franchise may be operated through a sole trader structure. However, most of the points below are relevant for any structure you use. Please note that this is general advice and you should seek advice for your circumstances from an accounting and tax professional. Once you become a business owner you become responsible for keeping proper books and records, and for preparing annual financial statements and a company tax return. Record keeping for your business is very different from the financial records you need as a PAYG taxpayer. You will need to keep detailed records and use accounting software such as Xero, as well as payroll software and digital storage of supplier bills. You don’t need to know all the requirements and rules though! Your accountant and tax agent will help you understand what’s required and deal with the financial reporting and tax. Still, it’s important to take your obligations seriously, and that means understanding some of the basics of business accounting. Here we answer some of the questions frequently asked by new business owners.
Do I need an accountant and when should I get one? Yes, you do need an accountant, and you should get one before you start off in business. In fact, your accountant should provide advice when you’re evaluating the franchise. You should also ask them to set up your business structure. Then, once your business is up and running, the accountant will advise you on the best way to keep your records up to date, and about your obligations for GST and tax matters. It’s important that your business accountant is qualified, not simply someone who calls themselves an accountant. Your accountant should be a member of one of the accounting professional bodies, such as a CPA or Chartered Accountant and have a practicing certificate from that body. They also need to be registered as a Tax Agent. 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. Each year your accountant will prepare a set of financial statements for your business. These are required to be in a specific format and prepared according to specific guidelines. The accountant will also prepare a tax return for your business, and take care of ATO lodgement.
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But a proactive accountant does much more than your year end work. They will prepare quarterly financial reports and discuss them with you, so you know exactly where your business stands financially. They can also help with cash flow and budgeting, as well as tax planning. A proactive accountant will get to know you and your business, they will ask about your goals and help you achieve them. Accountants usually charge a monthly fee for their services. This means you know exactly what your accounting and advice costs will be and there’s no big bill at the end of the year. You should expect the fee to increase as your business grows and your advice needs become more complex.
What accounting records do I need to keep? 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. It’s important 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. The accounting set up is something your accountant or bookkeeper will do for you. It involves: • Choosing the right accounting and payroll software for your business • Setting up the Chart of Accounts. This allows you to break down all the transactions that your business made during a specific period into different subcategories. Accountants have a specific way to do this. • Connecting the bank feeds, which bring records directly from your business bank account to the accounting software. • Setting up apps that help you keep digital copies of bills from your suppliers. • Connecting other apps that you may use in the business, if needed. Your accountant or bookkeeper can train you in how to use the software the right way.
What costs can I put through the business? 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.
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Your accountant or bookkeeper will help you correctly record business expenses and minimise your exposure to penalties if your records are audited by the ATO. 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.
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Accounting Aspects to consider for your Business
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. There are three things to think about:
• Owner’s Wages - Money paid to you for the work you do in the business.
• Loan Repayment - Repaying the money you lent to the business to cover setup costs • Bonuses and Dividends - A return for the risk you have taken. 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.
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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. Shareholder Loan Repayment The next step is to repay the initial loans made by the shareholder(s). This is the money you put into the business when you bought the franchise. It’s a good idea to repay this money before the end of the initial franchise term. Franchise owners are generally keen to get their initial loan to the business back into their personal bank account. However, there may be potential tax consequences when shareholder loans are paid, so a high level of care needs to be taken. These tax consequences mean that your accountant will need to work out the tax position of the business before you decide when and how much of the loan to repay. Before you start the business it’s wise to get advice about shareholder loans from your accountant. Your accountant will be able to advise you on the correct documentation, a loan repayment schedule, and the rate of interest to charge on the loan. Bonuses and Dividends The third category of payment from the business is the extra return for the risk you’ve taken. It’s a payment over and above the regular wage for the work you do. We think this is an important distinction of owning a business. A business owner can receive these payments in a number of different ways. The most appropriate one for you will depend on your business structure, financial situation and business goals. Again, this is an aspect of business to discuss with your accountant when you have the annual tax planning meeting.
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 franchise 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.
kate groom | Co-founder and Director Franchise Accounting and Tax Ph: 0466 376 386 E: kate.groom@franchiseaccountingandtax.com.au - 20 -
Chapter 4
Understanding the Legal Documents Robert Toth | Consultant Marsh Maher Richmond Bennison Lawyers
About the Author Robert is an Accredited Commercial Law Specialist with over 30 years expertise in franchise law acting for local and international franchisors and franchisees. Robert regularly publishes articles on line and internationally on Franchise Licensing and Distribution and is a Member of the Franchise Council of Australia (FCA) the International Franchise Lawyers Association ( IFLA) and was recently named as a Leading Franchise Lawyer in Australia in Who’s Who Legal: Franchise 2021.
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t is a whole new world in many ways for business due to a variety of factors that have come together to test small business over the past few years.
For prospective franchisees the process of searching and then selecting the franchise system is filled with a degree of excitement and trepidation The franchise regime in Australia has for many years been highly regulated requiring Franchisor to provide information to a prospective franchisee to assist the franchisee to make an informed decision about whether to take up the franchise The franchisee sees the franchisors glossy brochures and marketing spiel and it is easy to get caught up with the hype but the devil is in the detail as they say. How does 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 independent financial advice. How do you find the right lawyer? contact the Franchise Council of Australia or one of the recognised franchise lawyers around town that contribute articles on line and in the franchise magazines. 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 expenses, interest on loans with a possible 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!
The New 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 into, 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.
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Understanding the Legal Documents
Key documents: Franchisors are required to provide a prospective franchisee on an 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 the franchisor 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 which is often overlooked by the franchisee or their advisors. The statement requires that the franchisee to set out any representations, promises or statements made by the franchisor or their agent in the course of the negotiations. The franchisee cannot then later seek to rely on any representations or statements that are not set out in the statement. It can be a vital document that can be relied on by a franchisor or franchisee if a dispute arises down the track. So, the advice for franchisees here is, do not ignore this document and if the franchisor has made any promises and representations then make sure they are set out in writing in the franchise agreement as a special condition or get it in writing and set it out in this statement.
Seeking legal advice Despite the Governments franchise code review they did not make it compulsory for franchisees to seek legal, accounting and financial advice. Many franchisors however now insist their prospective franchisees seek such advice as this reduces risk to the franchisor.
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Franchisees lawyers role Seeking legal advice from a franchise law specialist will assist the process as they will focus on the important commercial issues and suggest 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 by the franchisor. One way to aggravate the relationship from the very beginning is a franchisee lawyer requesting a myriad of unnecessary changes or “rats and mice” changes.
Some basic rules for franchisees Rule one: irrespective of whether you seek proper legal advice from a franchise law specialist (which we highly recommend) you should still read and become familiar with the documents. The franchise agreement is your contract and sets out your rights and obligations and those of your franchisor. This will also assist you to identify any particular issues of concern which you can raise with your lawyer to advise on.
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 into 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 Franchise Code which give franchisees additional rights. Your franchise lawyer will point out any unusual or unreasonable 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.
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Franchisors need to give the franchisee the disclosure document with key fact sheet to franchisees at least 14 days before they either enter into an agreement or make a nonrefundable payment. The 14 day disclosure period will only start once the franchisor has made the full and proper disclosure required.
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- subleaseoccupancy 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 also 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 has to 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.
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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 restraint of trade clause. Note the 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 so they will now 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 7-day cooling off rights for franchises are now extended to 14 days. The 14 days disclosure period gets reactivated from when the franchisee receives the correct and 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, there fore if the lease information is given later or differs the franchisee has another 14 days disclosure period in which it may elect not to proceed. Neither the franchisor nor franchisee can reduce the 14 day disclosure period. It is a minimum mandatory period. Early termination rights for franchisees
Franchisee’s now have a right at any time during the term to write to the franchisor and seek an early termination (with reasons) of the agreement
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Understanding the Legal Documents
The franchisor must then respond in writing in 28 days stating whether or not they agree. If the franchisee does not agree (which is most likely) the franchisor must set out reasons in its response within that 28 day period. We note there is no guidance as to what “acceptable reasons” are for a franchisor to refuse early termination. If there is a dispute the parties can then seek ADR via the ASBFEO. Legal costs It is illegal to charge franchisees for 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 14 day cooling off right even after settlement of the business has occurred when selling a franchise, it should be on the basis of the new franchisee entering into a new franchise agreement being entered into with the franchisor. The sale contract should therefore include the following provisions: a. the contract is subject to and conditional upon the Franchisors approval of the purchaser; b. the purchaser acknowledging they have received at least 14 days before the franchisors consent, the full suite of franchise documents from the franchisor. c. that settlement will only occur on the later of the date set out in the sale contract or the date after the 14 day cooling off period in favour of the purchaser ends. Key facts sheet A franchisor must now give a key fact sheet to a prospective franchisee with the disclosure document and update it every year as with the disclosure document. 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.
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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 while the franchisee may not be making a profit ! So, you need to make sure that the franchise opportunity is financially viable to you as a franchisee. This means you can take a reasonable salary for your effort from the business, pay your overheads and interest on any loans and then still return a profit. 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.
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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 non exclusive 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.
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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 new Code disclosure requirements, the franchisor must set out if the franchisee is entitled to retain any goodwill at the end of the term. The Disclosure Document requires greater disclosure of contact details of franchisees of the system so prospective franchisees should use their 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 or not 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.
Robert Toth I Consultant I Accredited Commercial Law and Franchise Specialist MMRB Lawyers www.marshmaher.com.au
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Chapter 5
Review your purpose, renovate your business Corina Vucic, Director, FC Business Solutions
About the Author Corina Vucic is the Director of FC Business Solutions. With over 20 years in the franchise industry, and extensive operational and management experience, she works closely with leaders to take their business to the next level. Whatever their goals, Corina coaches, mentors and supports business owners and executives to maximise success and minimise risk for long-term business prosperity and security.
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ust like a home, a business or franchise model grows tired and shabby over time – despite lavishing regular care on your asset. Every now and then, you need to cast a super critical eye over it. Look at it through the eyes of a potential buyer. What is it about your business that would get them excited, and what would make them hesitate to sign their name on a contract to purchase? Be brutally honest in your assessment, and give yourself a score out of ten on all the areas below. Then, start with those topics where you scored the lowest and address any failings as quickly as you can.
Your products or service Is your product or service as relevant as it used to be? Or has it been relegated to the status of familiar but not the best out there any longer? How does your specific offering compare to those of your closest competitors? Are you always researching new innovations in your space? Examine every facet of your product or service journey, from supplier to the customer interface. Can you make improvements to your purchasing costs, and decrease any wastage you incur? How about your customer interface, whether it’s by email or faceto-face: is it the best it can be? Does it offer a really special experience for your clients? Not adequate – special. Look at your revenue streams. Have some of your secondary products or services become more popular than your hero product, but you are still devoting your time and marketing budget to what has now become your second income earner? Are there opportunities to add revenue streams to your business? Are there adjacent areas of expertise that you can move into? Make a list and concentrate on the low hanging fruit, the easy pickings, for your first forays into new products or services outside your core business.
Your brand How strong is your brand across all of your consumer touchpoints? Is it unified, upto-date and adhering to your brand specifications, or has it frayed around the edges with old colours or brand elements still out there? Is it dated? Does it work well in the digital space? Does it need a refresh? Does your logo work well in a Facebook or Instagram feed? Has the messaging attached to your brand been reviewed lately? Does it have a customer-facing message? Does it reflect current society values? Does it reflect the values of your business? Have you considered adding a secondary colour to your palette? Or just tweaking the current brand colour? Refreshing your brand is not something that should be done by an in-house committee.
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It needs a fresh eye, and a distance, from the attachment your team will have to your brand. You need experts in branding and marketing and how it’s applied. And don’t forget to test your concepts before you go to the expense of making a change.
Your reputation It used to be that if you had a PR clanger you could console yourself with “today’s
headline is tomorrow’s fish and chips wrapper”, but that’s no longer the case. Any bad
publicity is now available forever to anyone with a search engine. While hits to your reputation can’t be totally mitigated, there are processes you can put in place to try
and minimise any. Have you got a policy about who is allowed to talk to the media? Do your team members or franchisees know how to handle the sudden appearance of journalists with camera crews? Do your management team have media training? Have you sourced a PR firm with the ability to deal with major reputational incidents? You don’t need to engage them, just know how to contact them if necessary.
Your reviews Google reviews and other product and service review sites have the ability to really cause issues for your business. Potential clients increasingly use reviews to judge the integrity of your service and your product. Do you have a customer complaint process?
Many people will contact your business with their complaint before resorting to becoming online complainants. Is there someone at each branch or franchise with the appropriate training and the ability to make decisions to resolve complaints quickly? Do you have a process to address all online reviews? It’s not just complaints that should
be acknowledged – take the time to thanks those who give you great reviews. But for those who aren’t happy, it’s really important to address their concerns. Publicly showing a willingness to address problems is reassuring to people checking your reviews. Never
get into a public online argument. The best approach is to invite the unhappy customer
to call your customer service manager. If you are able to build a good relationship with the person and solve their issue, don’t be afraid to ask them if they would consider
deleting their review. There will be people you just can’t satisfy and they will keep on adding narrative to their complaint. At this point it’s best to disengage however if the posts are defamatory, report them to Google or Facebook or the review site and ask for the posts to be removed. This often requires multiple approaches to achieve but don’t give up – your reputation is at stake.
Technology In every industry sector the impact of technology is growing. Whether it’s online ordering at the table in a restaurant, to utilising Artificial Intelligence (AI) to draw hot leads from your database or to power your online chat, technology is becoming indispensably in every business.
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Have you overhauled your business to maximise the benefits of technology? Are you keeping abreast of the latest technology in your sector? Do you have experts to ensure that you are not chasing every shiny new app, but investing in proven technology? Do you have a goal to utilise emerging tech to increase efficiency, transparency and collaboration?
Your digital presence An increasingly important part of your marketing budget, digital marketing refers to marketing that is online. That could be search engines, social media, paid advertisement, Electronic Direct Mail (EDM’s) and websites. Digital is an increasingly important area to focus on for lead generation and building your business. It’s more cost effective than traditional marketing methods and it’s far more measurable. Do you have a budget for digital marketing? Are you measuring the results of your spend daily? Do you have a social media strategy and a campaign calendar? Do you have guidelines for your team members or franchisees who have social media presences? Is your website optimised to rank highly in organic searches? Are you regularly posting content on your website, Facebook, Instagram and Linked In?
Your website The pandemic has driven a lot of people online to source what they need, and your website is now the window to your business, as well as being the checkout aisle. You need to provide a seamless user experience. Is your website on brand? Is your website fast? Cache your assets, don’t use too many plug-ins and optimise images. Do you have strong “call to actions” with links that lead your potential customer further on their journey? Are you driving people to your website via our social media? Are you leveraging the brand power of your clients by displaying a list of companies you are affiliated with? Is your ordering system simple and intuitive? Is your checkout secure? Do you have follow-up processes for those who abandon a cart? Most importantly, have you had a website audit recently?
Cyber security A cyber security attack can cripple your organisation and a ransomware attack can wipe out your profit. Hackers are becoming more sophisticated in their ability to trick people into clicking on their links. Have you installed a firewall and is it automatically updated with security patches? Do you have anti-virus software installed, does it update at least hourly and run scans regularly? Are you keeping your operating software up-to-date? Do you have a process for ensuring that team members update their software programs? Do you have a two-factor authentication for logging on to critical online assets? Do you password critical folders and files? Attackers are prone to finding open directories and injecting their own malicious code to gain access. Have you disabled hotlinking on your website? Do you have secure storage for your passwords?
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The weakest link in your online security will likely be your team members. Are you continually advising your team members on the latest phishing schemes? Do they know to not click on a link wanting their information? Do you have protocols around passwords, how often they are changed, where they are stored? Are you backing up regularly? If it’s not to the cloud, is it to an off-site location? Do you have a rolling back-up process – daily, weekly, monthly? Do you ensure your team save to the server or cloud and not to their PCs?
Compliance, culture and values This is about your people. Your team members, the people who work in your business, whose loyalty and commitment are critical to your success. Are you paying your employees enough? Are you meeting award conditions including allowances, working hours, breaks, overtime rates? There are several pieces of legislation around this topic including the Vulnerable Workers Bill and in Victoria a separate law regarding Wage Theft. Fair Work Australia are chasing down companies that are underpaying and publicly exposing them as well as pursuing them legally. If you haven’t carried out an audit on what you are paying your team members in the last six months (bearing in mind there was a 2.5% increase to the basic wage on 1 July this year), then you may well be unintentionally underpaying them. Have you addressed the latest rise in superannuation contributions? Are you paying your super on time? Are you allowing your employees to choose their super fund if they want to? There are a raft of quite complex requirements in the Human Resources area and it is tricky to keep up. If you don’t have a dedicated HR specialist, find an expert to help you. Does every employee have a Letter of Engagement? A Position Description? Are people thoroughly inducted when they join you or left to sink or swim? If you ensure that you are complying with all the legal requirements around employment, your culture has a better chance of thriving. But you do need to work hard to become an employer of choice. Engage your teams – seek their input – as they have a great collective intellect and are capable of providing great strategic ideas and innovations. Bring them on your journey, share you vision and reward them when they achieve goals. Do you know what the top five skills are that you need in your business? Are you actively nurturing these skills? Are you profiling your team members to identify gaps in their skills? Are you recruiting for the future – are you hunting out the best graduates to continually replenish your team? The values of your business, and your willingness to use your business to take a stand on important societal issues, are becoming increasingly important to your clients and your team members. Recent research carried out by Atlassian and PwC Australia showed a significant shift in the importance of a business’s actions or inaction on stated
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values to employee retention and loyalty. It heralds an increasingly activist workforce. The survey was carried out in March 2021 and was across a range of business sectors and age and gender demographics. It revealed that: • 69% of employees would turn down a promotion in favour of preserving their mental health. This trend is true across all age groups and income levels. • 74% of employees agree businesses should be just as concerned with their social impact as with their financial results. • 55% of Gen Z are worried about future job prospects, yet 54% of those would quit their jobs if employer values did not align with their own. • 54% of employees are satisfied with their current employer. This increases to 89% amongst those satisfied with the level of action their employer takes. (These statistics are courtesy of Atlassian / PwC Return on Action Report 2021 - The rising responsibility of business.) How you, as a business owner, manage mental health and well being in the workplace; recycling; zero emissions; and other climate action initiatives; racism, equality and inclusiveness across all people will be judged by your employees. Getting on the front foot with this clear change will be important to your ongoing success. Do you have policies on diversification, bullying and harassment, equal opportunity? Do you live these policies? Do you have a program to minimise your environmental impact? Do you have employee input and actions to this program? Do you have a corporate responsibility program? Do you contribute at a local level to charitable and environmental causes? Do you have a flexible workplace? Are you working to allow the balance of working from home (where the job allows) versus onsite work? With mental health and wellbeing such a prominent driver of employee engagement, the business owner who doesn’t at least look at the feasibility of flexibility will do so, at their peril.
Operations Operations is a huge topic. Broadly speaking, it involves every aspect of your business and working to ensure that it runs smoothly. It is the sum total of all the headings above. More narrowly, it is the nuts and bolts of how things are done. Do you have operations manuals for all your processes? If someone leaves unexpectedly or is unable to attend work for a protracted period of time, is the information easily available to allow someone to step into that role? Do you have a manual for every piece of equipment that you utilise? Are your manuals updated regularly by the subject matter experts? Are you manuals available on your intranet where everyone can access them? Do you have strategic goals for 12 months, three years and five years? Do you review them regularly, measuring results and tweaking where necessary? Do you belong to
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industry groups so that you are abreast of new innovations, new technology, world trends? Do you plan for the future – do you have a plan to nurture graduates or apprentices, or motivated young people, to renew your workforce as it ages?
Leadership Finally, how you run your business, how you lead and coach your teams is one of the most critical elements of success. Reflect on how you do this. The days of the authoritarian leader, the command-and-control model are dying out. Leadership needs to be inclusive; it needs to be inspiring and authentic. Are you continually doing professional development in the area of leadership? Are you passing on your leadership skills to others in your team? Renovating your business should be more than cosmetic changes. It should include inspecting the foundations and critically reviewing every piece of infrastructure. Every process, every client touchpoint, every asset.
Corina Vucic | Director FC Business Solutions Phone: 03 9533 0028 Email: cv@fcbs.com.au Web: www.fcbs.com.au
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Chapter 6
Tips to help you get your tax right in the 2021–22 financial year Tony Goding | Acting Assistant Commissioner Small Business Area of the ATO
About the Author Tony Goding is an acting Assistant Commissioner in the Small Business area of the ATO. His role involves engaging and supporting small businesses so that it’s easier for them to meet their tax, super and registration obligations. He is also focussed on advancing the ATO’s digital services and helping small businesses manage their cash flow.
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A
s a small business, the process of lodging your tax return can seem daunting. 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.
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, you can claim deductions for expenses related to protecting your customers and staff from COVID-19. 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
You may be able to claim home-based business expenses If your home has been your main place of business (for example, if you have used your home as your main place of business because of COVID-19), you can claim deductions for the portion of expenses that relate to running your business. Your business structure will affect how and what you can claim. Find out more at ato.gov.au/ homebasedbusiness
Remember to include all your income 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 and bank interest, and income from the sharing economy. Any JobKeeper and JobMaker Hiring Credit payments you received are also assessable and need to be included in your tax return. You may also have income from business assets, other business activities or capital gains. Find out more at ato.gov.au/businessincome
How to report JobKeeper in your business tax return The JobKeeper Payment program ended on 28 March 2021. Remember, JobKeeper payments are part of your business’s assessable income and need to be included in your 2020–21 income tax return. If you’re a sole trader, you need to include the payments as business income in your individual tax return. If your business is a partnership, trust or company, you need to report it as part of your business income. Find out more at ato.gov.au/SBsupport
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Your workers who have received JobKeeper payments won’t need to do anything different as the payments will be included in their regular income statement that you provide as an employer.
How to report JobMaker Hiring Credit payments in your business tax return Eligible employers can access the JobMaker Hiring Credit for each eligible additional employee they hire between 7 October 2020 and 6 October 2021. If you have received JobMaker Hiring Credit payments, you will need to declare them as part of your business’s assessable income. Find out more at ato.gov.au/SBsupport
How to report cash flow boost in your business tax return Eligible employers and not-for-profit organisations received between $20,000 and $100,000 in cash flow boost amounts by lodging all of their monthly or quarterly activity statements from March to September 2020. You don’t pay tax on cash flow boost credits as they are non-assessable non-exempt income. You can, however, include cash flow boost credits in your tax return if you have included the amounts in your gross income for accounting purposes. Find out more at ato.gov.au/SBsupport
Make sure your records are complete and accurate It’s important that you understand what records you need to keep, and 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 easily converted to English). Find out more at ato.gov.au/recordkeeping A good record-keeping system will help you manage your tax and super obligations, making it easier to report and lodge on time with us. You can use our record-keeping evaluation tool at ato.gov.au/recordkeepingevaluation to help you check how well you’re keeping your business records and make improvements if you need to.
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. This will help ensure your tax return and cost of sales figures are accurate. Find out more at ato.gov.au/stockforpersonaluse
Report and record transactions properly if you use your company money or assets If you’re a director or shareholder of a company, check that you know how to accurately report and record your personal use of company money or assets with our handy fact sheet. It will help you understand when you can take money out of your company or use its assets, and the right way to report these transactions and keep proper records. Find out more at ato.gov.au/Division7A
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Take advantage of concessions available for your business You may be able to reduce your tax bill if you are eligible for concessions such as the lower company tax rate and the increased small business income tax offset . 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
Consider temporary full expensing and loss carry back You may be eligible to claim temporary full expensing or loss carry back in your 2020– 21 tax return. Temporary full expensing allows eligible businesses to deduct the business portion of the cost of eligible depreciating assets that are first purchased or installed for use after 7.30pm (AEDT) on 6 October 2020. Temporary full expensing is available until 30 June 2022. Temporary full expensing is intended to interact with loss carry back, allowing new investment which may result in tax losses. Eligible corporate entities can choose to carry back these tax losses and claim the refundable tax offset to increase their cash flow. You can find out more at ato.gov.au/bounceback There are a number of tax depreciation incentives available for small businesses. If you’re unsure which may be right for you, use our infographic for a breakdown of the interaction of the different tax incentives, available at ato.gov.au/depreciationincentives Loss carry back is a refundable tax offset that allows eligible corporate entities to carry back tax losses in any of the 2019–20, 2020–21 and 2021–22 income years to offset prior income tax liabilities in the 2018–19 or later income years. On 11 May 2021, as part of the 2021–22 federal Budget, the Australian Government announced it will extend the temporary full expensing and loss carry back measures by one year to 30 June 2023. This extension is not yet law. Further information is available at ato.gov.au/bounceback
Rent or lease payment changes due to COVID-19 If you rent your business premises or are the landlord of a commercial property, and you have received or given a rent concession as a result of COVID-19, your tax obligations may change. The income you must declare, deductions you can claim and your GST and capital gains tax obligations will depend on: • the type of rent concession you have received or given (a waiver or a deferral) • if an existing agreement has changed, or a new or additional agreement is created • your accounting method (if you are a landlord). Find out more about at ato.gov.au/COVIDleasechange
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Enter into pay as you go instalments If you are new to business or expecting to make a profit from your business income, it’s a good time to voluntarily enter into pay as you go (PAYG) instalments. PAYG instalments allow you to make regular payments 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 how to start paying PAYG instalments at ato.gov.au/PAYGIentry.
Lodge your BAS online Still lodging your business activity statement (BAS) on paper? With more time to lodge, it’s worth your time to switch your BAS to online. Join millions of other businesses that lodge online and you may get an extra two weeks to lodge and pay your BAS. It’s also important to lodge all outstanding activity statements before you lodge your tax return, so your tax assessment takes into account the instalments you’ve paid throughout the year. For more information, visit ato.gov.au/lodgeBAS
Registering or cancelling GST If you’re not registered for GST, it’s a good idea to review your business regularly, to see if you have reached the GST turnover threshold of $75,000 (gross income from all businesses minus GST) or provide services that need to be registered for GST. If you are selling or closing your business, you must cancel your GST registration within 21 days. You will also need to lodge your last GST activity statement and cancel your ABN registeration. In some instances, you can also choose to cancel your GST registration, if your GST turnover is below the GST threshold for compulsory registration. Find out more at ato.gov.au/Business/GST/Registering-for-GST or ato.gov.au/Business/GST/If-your-business-changes-or-ceases/Cancelling-yourGST-registration
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 If a breach does occur, then reporting it to us helps ensure protective measures can be taken to help prevent the risk of harm to your business and your clients. You can learn more on where and how to report data breaches at ato.gov.au/databreachbusiness
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, travel expenses, using your company’s
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money or assets and if you have to pause or close your business. Find out more at ato.gov.au/SBtaxtimetoolkit
Ask for help if you need it It’s important to lodge your tax return 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, we will work with you to set up an affordable payment plan that works for you. You may be able to set up a plan yourself using our Online services for business. We encourage you to contact us as early as possible or speak with a registered tax practitioner who can contact us on your behalf. 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/supporttolodgeandpay
Single Touch Payroll (STP) reporting Closely Held Payees Amounts paid to closely held payees from 1 July 2021 need to be reported through STP. A closely held payee is an individual directly related to the entity from which they receive payments (such as family members of a family business, directors or shareholders of a company, or beneficiaries of a trust). If you’re a small employer (19 or fewer payees), you can report these amounts on or before each payday. You can also choose to report either the actual amounts or a reasonable estimate quarterly. If you have any other payees (also known as arm’s length employees) they must be reported on or before each payday. Different arrangements apply for businesses with 20 or more payees. For more information, visit ato.gov.au/stpcloselyheld End of year finalisations At the end of the financial year, you need to finalise your STP data. This means you are making a declaration that you have completed your STP reporting for the financial year. One you finalise your data, your employees’ income statements in ATO online services will be marked as ‘Tax ready’. They, or their registered tax agent, will use their income statement to lodge their tax return. You need to make a finalisation declaration by 14 July each year. You have additional time to complete this declaration for any closely held payees. For more information, visit ato.gov.au/stpfinalisation
Tony Goding | Acting Assistant Commissioner Small Business area of the ATO - 44 -
Chapter 7
Insights into Leasing Samuel Rees | Sole Owner and Principal IP Partnership Lawyers
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.
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T
here 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.
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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 ‘Ratchet 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 Ratchet Clause; rent should be able to go down if the market is down.
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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
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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
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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’
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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
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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.
Samuel Rees | Sole Owner and Principal IP Partnership Lawyers 07 5591 2522 sr@ippartnership.com.au www.ippartnership.com.au
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Chapter 8
WHAT TO BE AWARE OF IN RELATION TO FRANCHISING IN NEW ZEALAND Stewart Germann | Franchising Lawyer Auckland, New Zealand
About the Author Stewart Germann is acknowledged as New Zealand’s leading franchising and licensing lawyer. Stewart is a Barrister and Solicitor of the High Court of New Zealand and also a Notary Public, and he has a BCom in accounting and an LLB from the University of Auckland. He is the principal of Stewart Germann Law Office (SGL), a boutique franchising and licensing firm in Auckland, New Zealand. The firm is New Zealand’s longest-established specialist franchising firm and the winner of multiple awards. Stewart was Chairman of the Franchise Association of New Zealand (FANZ) from 1997 to 1999 and he has been involved in franchising and licensing law for over 35 years. Stewart specialises in franchising, licensing and the sale and purchase of businesses, although SGL also undertakes a wide variety of other work. Stewart, who is included in Who’s Who Legal: Franchise 2019, is also a qualified mediator. Stewart has spoken at international franchising conferences and he has extensive franchising contacts worldwide and locally. In 2014, Stewart was made a life member of the FANZ in recognition of his significant contribution. Stewart is passionate about franchising and licensing and welcomes enquiries from overseas. Stewart graduated as a Certified Franchise Executive (CFE) in 2019 and was presented with his CFE certificate at the FCA conference at Gold Coast in October 2019 and the IFA convention at Orlando, USA, in February 2020. He is the first person in New Zealand to gain CFE certification. - 53 -
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N
ew 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. Prospective franchisees who are looking at buying into a franchise must tread carefully and do their homework. New Zealand is an exciting and fast developing market which contains over 600 franchise systems.
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 and they should be described as renegade franchisors, in my opinion. 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
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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 cost-effective 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.”
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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 including general retail, leisure and education, business and commercial, food and beverage, health and fitness, computer and technology, home and building services.
Competition law The Commerce (Cartels and Other Matters) Amendment Act 2017 came into force on 14 August 2017. The most significant change made by the Act was the replacement of 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
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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. Consideration must also be given to the Commerce (Criminalisation of Cartels) Amendment Act 2019 which came into force on 8 April 2021. The Act introduced a new criminal offence for cartel conduct and the proposed new 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
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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,
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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.
COVID-19 and force majeure Many contracts contain express provision stating that performance will be excused if rendered impossible by unavoidable causes such as acts of God, the Queen’s enemies, vis major, or force majeure, as discussed earlier. Clauses of this type are effective if they are drafted precisely and unambiguously. Whether the outbreak of COVID-19 constituted a force majeure event will depend on the wording of the force majeure clause in question. In the absence of reference to a disease or pandemic in the clause, general terms such as “act of God” or “government restrictions” may apply. Determining this will require careful consideration of the contract and surrounding circumstances. The term “act of God” is a common legal term meaning an extraordinary occurrence or circumstance which could not have been foreseen or guarded against. It is not necessary that the event has never happened before, only that it is extraordinary and could not reasonably be anticipated. To be an “act of God,” and not merely an accidental circumstance, the effect must be wide-reaching and overwhelming. Some examples of what have been construed as acts of God include the following: • Violent storms; • Extraordinarily high tide; • Unprecedented rainfall; • Fire caused by lightning; • Earthquake; and • Extraordinary snowfall. The common being that the event is sudden or more severe than previous instances of the same event. A regular snowfall or fire is unlikely to be treated as an act of God. In addition, determining whether the pandemic crisis has “prevented, hindered or delayed performance” of the contract will also depend on the specific facts and terms of contract. Often force majeure clauses will require that performances rendered legally or physically impossible, although some clauses have a lesser standard.
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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
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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 twentyfive 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.
Survey of franchising In 2017 a survey of New Zealand franchising was conducted by Massey University (Auckland) and Griffith University (Queensland, Australia) and some highlights from that survey are as follows: • The number of business format franchise systems operating in New Zealand has increased with 631 business format franchise systems operating in New Zealand, compared with 446 in 2012. • The number of units operating with business format franchise systems has also increased with an estimated 37,000 units compared with 23,600 in 2012. • It is estimated that franchised business contributes around $27.6 billion to the New Zealand economy. • 72 per cent of franchises are NZ-founded. • There are an estimated 124,200 employees of New Zealand business format franchise systems, up from 80,400 in 2012, with approximately 60% of employees estimated to be in permanent full time employment. • Franchising covers a wide range of industry categories and sub-sectors. Predominant sectors included “retail trade” (23%), “other services” (20%), “accommodation and food retail” (18%) and “administration and support services” (8%). • The median total start-up cost for a franchise was $308,500 for retail and $87,550 for non-retail. • The median initial franchise fee was $35,000. • The overall level of disputation per franchise unit was low (1.9%). Only 22% of franchisors experienced a substantial dispute with a franchisee within the last 12
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months. The most common action was mediation (49%), followed by correspondence via a solicitor (41%). There was little incidence of litigation (10%) where substantial disputes occurred. • Most business format franchisors operate in retail trade, followed closely by service industries. A new survey of franchising will be undertaken in 2021 and the result should be available before the end of this year.
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. 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.
Stewart Germann Franchising Lawyer - Auckland, New Zealand stewart@germann.co.nz www.germann.co.nz
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Chapter 9
FRANCHISE 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 15 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
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A
ustralian franchise laws have undergone significant changes in 2021, following much debate and an in-depth government review of the sector over the past few years. Whilst some of the rules, documents and processes are new, the fact remains that, like any other business venture, investing in a franchise is a serious commitment and involves considerable paperwork. If you have never purchased a business or a franchise business before, you may feel as though you don’t know where to start. 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 considerations you should assess before investing in a franchise business and when reviewing the documentation.
Preparation and homework Undertaking appropriate due diligence is critical before entering into a franchise agreement to ensure that you are fully informed and aware of all risks. 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 market place. (b) 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-franchiseemanual;
(ii) Franchising: What You Need To Know: https://www.accc.gov.au/system/ files/Franchising%20-%20what%20you%20need%20to%20know%20-%20 May%202019_0.pdf (iii) Quick Guide to a Franchise Disclosure Document: https://www.accc.gov.au/ system/files/correct link: Quick%20guide%20to%20franchise%20disclosure%20document%20%20-%20 Aug%202019.pdf
(iv) Various videos and information, available in several languages, on the risks of Franchising: https://www.accc.gov.au/update/buying-a-franchise-know-therisks; (v) preliminary online training courses for prospective franchisees: https://www. accc.gov.au/about-us/tools-resources/cca-education-programs
You can also sign up to the ACCC Franchising Information Network at: https://www. accc.gov.au/media/subscriptions/franchising-information-network to receive email
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updates regarding news and events relevant to the small business and franchising sector. (c) Visit other relevant websites, such as: www.business.gov.au, which provides information about franchising and running a business. (d) 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. (e) 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? (f) 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 has been newly-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. (g) 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.
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(h) 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. (i) If you are buying 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. (j) Request a copy of the franchisor’s operations manual to get a feel for the day-today 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. (k) Attend franchising industry events and speak with various different franchisors, franchisees, consultants, advisers and other people involved in the sector. (l) 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. (m) Obtain advice from an independent legal advisor in respect of: (i) the business and the franchise and sale documents that you will be required to sign;
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(ii) any lease and disclosure statements provided by the landlord in relation to the premises from which 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);
The Documents The volume and complexity of documents that will be provided to you 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” 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 soon after you express your interest or make a formal application, and before giving you any of the other 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.
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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, whilst 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, fitout costs; (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 sales 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
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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 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 sales; (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 is restricted by recent changes to the Code.
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(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 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;
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(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 my franchise business to my children? Generally, 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.
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The 2021 Code changes introduced a statutory right for franchisees to propose termination at any time, 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 do so, you will need to 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? Generally, 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 you have a contractual right of renewal under the franchise agreement. 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.
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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 are 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. 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.
Esther Gutnick Senior Associate MST Lawyers (AUS) 03 8540 0267 esther.gutnick@mst.com.au www.mst.com.au
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Chapter 10
FINANCING YOUR FRANCHISE IN A POST-COVID WORLD Phil Chaplin | CEO Cashflow It Group
About the Author Phil Chaplin is the Chief Executive Officer of Cashflow It 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.
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I
n early 2020 the Covid-19 coronavirus brought a raft of changes to the business world, both internationally and to Australia specifically. Dealing with lock-downs, learning to pivot, the concept of being ‘pandemic proof’. All these things are now considerations not just for those considering opening or expanding their business, but also to those that provide business finance. It is clear that things may never be quite the same again, and returning to something close to normal, particularly in the context of international travel, may still be some time off. But that does not mean the world has stopped, far from it.
Are financiers still lending to the franchise sector? The short answer is yes, but you may have to look a little further afield and work a little harder to get the funding you need. In its report on The Covid-19 Outbreak and Access to Small Business Finance the Reserve Bank of Australia said “The COVID-19 pandemic has adversely affected the business sector. Overall, small businesses have been disproportionately affected because they are more likely to be in industries that have been harder hit by the pandemic.” Most franchises certainly fall into the category of Small Business and lending to new businesses particularly has always been a niche market, with the major players typically shying away from what they consider to be the danger zone (the first two years in the life of any new business venture). This is where non-bank lenders tend to play, often combining their own funds with wholesale funding sources to support the risk that new businesses pose. What we are seeing from some of the larger players is a much longer turnaround on lending decisions, with big banks often taking weeks (or even months in some cases) to determine whether or not to issue a loan. It’s clear that there have been adjustments to how lenders view the risks associated with any business, and particularly certain types of business, in a post-covid world.
Does my business need to be pandemic proof? Not necessarily. It is hard to define what pandemic proof means, but obviously some industries and business types are more impacted by measures such as social distancing and lock-downs than others. So far grocery and essential goods suppliers are the only businesses that have shown any real immunity to the impacts of lock-downs, with online goods supply businesses coming in close behind. In the hospitality sector those businesses that can easily supply take-away food and that don’t rely heavily on foot traffic have also weathered the storm better than most. It is important to note however that lenders tend to think more about their overall portfolio than individual businesses when making macro decisions (such as whether or not to lend to a particular sector). This means that lenders may seek to lend across a wider variety of industries and geographies to help distribute and dilute their risk.
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Even segments that might on their face appear to be of comparatively higher risk, such as fitness which often requires people to come together indoors in groups, can still be very attractive to some lenders as long as it forms part of a balanced portfolio.
Have lenders changed how much they will lend? Most lenders want to see borrowers have some ‘skin in the game’ when it comes to their business venture, so few will lend the full price of establishing a new business. Lenders tend to talk in terms of Loan to Value Ration (LVR), how much have they loaned vs. the value of whatever secures their loan whether that is individual assets or the business overall. LVR’s can range from 50% to 100% depending on a variety of factors, but 70% to 80% is more common. As a general rule the banks will want the security of a lower LVR whereas a non-bank lender may be comfortable at the higher end of the scale. Each lender is different, but most would prefer to fund against what they see as the realisable assets of the business (as opposed to intangible costs such as franchise fees). Historically lenders have tended to consider their fall-back position in the context of ‘What if it all goes wrong?’ (so when a business is forced to close permanently). Now we are seeing more lenders give greater consideration to things like the amount of working capital in the business, or how many weeks a business could survive a suspension in trading without outside assistance. All-in-all whilst some lenders may still advance the majority of the setup or acquisition costs for a new franchise, they do generally expect to see a little more held in reserve for a rainy day.
Do I need to own my own home to borrow money? The RBA estimates around half of all SME loans are secured by residential property, but that doesn’t mean that all lenders will require that you own your own home before you can borrow money to start a business. There is little doubt though that most lenders will look more favourably at borrowers that demonstrate stability, particularly through home ownership. Some will even want to see significant equity in the property, but we are starting to see more acceptance of people choosing to invest in a business before they buy property (particularly with the price of property in the major metropolitan cities), which is something that has traditionally been more common in many northern hemisphere countries.
What do i need to do to get approved for finance? Each lender will have different criteria for individual business types and finance products. So whilst it’s impossible to give an answer that applies to every circumstance every time there are some common aspects to applying for and obtaining finance that are pretty universal…
Put your best foot forward Going in unprepared can lead to a declined application, and turning a declined application into an approval can be very hard work indeed. Even if you end up taking
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your deal to another lender they will generally see the previous enquiries and they’ll be asking themselves ‘What’s wrong with this? Why didn’t Lender XYZ approve the deal?’. It pays then to make sure you put your best foot forward and try to get it right the first time.
Know your numbers If you’re at the stage where you’re actually applying for finance, then it pays to have done some groundwork. As they say on Shark Tank “know your numbers”. You should have a very clear picture of your setup costs, everything from your franchise fee to insurance and stock. Make sure you can also show where the money is coming from to get up and running. It will be a combination of your own funds and the amount you’ve borrowed, but don’t forget to include things like landlord contributions to fitout and grants. It is also important to know the timing of when money is expected to both come in and go out. Do suppliers need deposits? Will the financier advance funds before goods are delivered? Does that landlord rebate get paid 3 months’ in? You want to be able to show the financier that you understand your cashflow and that you are not going to get caught short.
Help the lender to understand who you are Lenders are looking at large numbers of applications every day. The more they have to dig into yours to figure out who you are and why you’re embarking on this business venture, the longer it will take them to make a decision (and your chances of a favourable outcome are reduced). If your new venture is intended to be a passive investment, then say so. If you are planning to work in the business day-to-day then say so. Many franchise systems provide comprehensive training as part of their system, but a lender wants to know why you are a good fit for this franchise. It will not help you to go on and on about your years of experience washing dogs for the local pound when you are wanting finance for a new fast-food outlet. That assistant manager role you had at McDonalds in your early 20’s however better make it on to your summary of experience.
Shop around (without shopping around) When it comes to obtaining credit your credit history can be negatively impacted by having a large number of recent enquiries on file. For this reason it’s important not to take your business to every lender in town (or let your broker do so on your behalf). If you’re working with a finance broker then they should already have a clear idea of who your most likely funding options are by the time you’ve finished explaining your situation and business plans to them. If you are going directly to a finance company then it pays to talk to others about who to use. Talk to your franchisor, other franchise operators in the group, or look for a lender that specialises in the sector to minimise the impact to your credit score and maximise your chances of approval.
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Be honest Car dealerships used to use a common trick to help customers get finance. They would increase the price of the car they were selling and the value of any customer deposit / trade-in until it passed the tests of the finance company. We truly hope those days are gone, and nothing makes a lender slam the coffers shut faster than porkpies on a credit application. If your broker suggests a few ‘white lies’ be very wary, they may come back to haunt you. It can be very tempting to ‘overestimate’ the value of your house or other assets, or to ‘forget’ to put down that personal loan or credit card on your liabilities. Modern lending assessments draw information from a wide variety of sources and quickly match it all up, smart software highlights discrepancies and puts it up in lights for the lender to see. Nobody expects perfection, either in an application or an applicant, you are far more likely to get an approval if you have been honest about that old dispute with your telco, or the business partnership that didn’t work out. Remember too that if the lender finds out something material has been omitted from an application even after they’ve issued an approval, they can usually withdraw that approval without notice.
Be persistent Applying for finance can seem initially daunting, will at times be disheartening, and occasionally it might just feel disastrous… just like running a small business. As well as all of the bits of ‘data’, what the lender really wants to know is that you are serious and committed to your new venture, that you’ll hang on through thick and thin, and that giving up just isn’t in your nature. If you get the opportunity to talk to the lender directly then do it. Give the lender a taste of the passion that you’ll bring to your new business and you might just be surprised by how much that lender is willing to support you on your journey.
PHIL CHAPLIN | CEO Cashflow It Group www.cashflowit.com.au www.franchisefinanceaustralia.com.au
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Chapter 11
The crucial elements of a 21st Century Franchise Media Relations Policy Pete Burdon | Founder Franchise Media Training
About the Author Pete Burdon is founder and head trainer of Franchise Media Training and author of ‘Media Training for Modern Leaders.” He is a former daily newspaper reporter and government press secretary. This puts him in a unique position, having worked on both sides of the media interaction and understanding the needs of both reporter and media spokesperson. Pete has Masters Degrees in Communication Management and Journalism from universities in New Zealand and Australia and now operates in both countries. Check out his free Online Masterclass: “The Franchise Leader’s Survival Guide to Dealing with the News Media when the Stakes are High,” at www. FranchiseMediaTraining.com
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T
he news media is far more relevant and important to franchises than other businesses for two major reasons. Firstly, they have much more to lose when negative media attention comes their way. This is because it can, and does, impact the bottom lines of every franchise in the network literally overnight. That means they need to be ready for this, even if they think negative publicity is unlikely. The good news is that the damage can be limited if a Crisis Communication Plan is in place to deal with this. It’s too late to plan when something happens or call in a PR company. On a more positive note, franchises are in a position to generate a lot more positive media publicity than other businesses because of their name recognition and instant credibility as serious enterprises. This can be done at a State or National level by the leadership and locally by franchisees. More on this later. Those that take advantage of this develop great reputations. This is not only good for business, but severely limits the damage if negative media does eventuate. If the only time you appear in the media is for the wrong reasons, guess what people will think of your brand?
What does this mean? All this means that it’s crucial that franchises have a three-pronged media relations policy. The first element must be the development of a Crisis Communication Plan. If something went wrong at a franchisee outlet and media went rushing in with cameras blazing, are they and you ready to deal with that? How would you all react, what would the franchisee staff do? People are always more concerned how businesses react to negative events and crises than the fact they happened in the first place. This is why it’s vital that any franchise is ready. I’ve presented to franchise groups across Australia and New Zealand and I’m always surprised how few franchises have such a plan, despite the damage that can be caused without one. More about developing this plan in the following pages. The second element is the ability to face media interviews. This is a difficult task, but there are ways to stay out of trouble and get your points across. But it’s a learned skill and your spokespeople need to be ready before these skills are needed. Once developed, these skills are not only crucial when facing difficult questions, but also handy talking to media about positive issues. Despite what many people say, you do have a degree of control when you talk to media. Lastly, you or your communications team need to know how to generate media publicity for everyone in the network. This involves far more than writing and sending off a press release. There are many tactics involved. Over the next few pages, I’ll outline briefly the key steps needed to get these three elements working in your franchise.
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Element One: A Crisis Communication Plan A Crisis Communication Plan is a document that prepares an entire franchise to deal with crises or negative situations that can damage reputations and bottom lines. Lots of franchises don’t have one or have a document that hasn’t taken into account the transformational changes in the news media over the last decade and the advent of social media. There are usually one of two reasons for not having one. It’s common for franchise leaders to think they won’t need one because nothing will happen that could require one. This is a mistake. There are many things that could go wrong that lead to sudden and damaging media and public scrutiny and often, it’s not even the fault of the franchise. Allegations of varying sorts are common here. The other common reason for not having a plan is the belief that a public relations company or department could be called in to fix the situation. This may have been possible 10 years ago, but not today with the internet and social media. The success of your response will be determined by your speed. That’s why people within the franchise will need to get the response underway. Media will swoop on a franchisee within minutes, fling a microphone in their face, and that may end up on tonight’s television news. Do your franchisees know what to do in these situations and on social media? Do you have pre-prepared statements on possible issues ready to send to media and other stakeholders within minutes of the event erupting? If you don’t, media stories will say that you “refused to comment.” Those stories will then be spread through social media like wildfire. These are a few of the reasons why you need a Crisis Communication Plan. It’s like an insurance policy on your reputation, just like an emergency management plan is an insurance policy on personal safety. See the following section for what this plan needs in it. The 5 key steps to creating your franchise Crisis Communication Plan Step One: Assign roles for your crisis communication team There are a number of roles that need to be filled both before and during a crisis or negative event. Someone needs to lead the communication response from head office, media spokespeople need to be identified and trained, while other roles include an Online Manager and Media Liaison Officer. Remember that franchisees will also need to be in the loop as the issue is likely to emerge from one of them. Step Two: Predict crises and prepare statements The best way to plan is to predict what could go wrong and prepare brief holding statements for those scenarios. These can then be tailored on the day and sent out quickly. It’s too late to do it when something happens and it’ll be too late to get a public relations person to write it. The success of your response in today’s world is determined by how fast you react.
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Step Three: Create list of core people
You need a list of everyone you may need to contact in a crisis. Obviously, this includes your crisis communication team, but also other franchisees, a public relations person to help as the situation develops, possibly your lawyer, possibly your insurer and others. Every franchise is different and will have different groups to contact. This may need to be done by franchisees at the local level and the franchisor at the national level. Step Four: Have multiple ways of contacting everyone
You need two or even three ways of contacting your relevant stakeholders. Obviously, the nature of the issue will determine who needs to be prioritised, but generally telephone, email and text message should be available for everyone. Failure to contact the right people quickly is a common reason for failure during a crisis response. You will want stakeholders to hear the news from you before they hear it in the news media and on social media. This contact information should all be in the same place in your plan. Step Five: Places to organise
There are important places to organise before you may have a crisis or issue. If media arrive at reception, who will be responsible for them and where will they be taken? Also, if it’s very serious, you may need to hold a Press Conference. Where would that be? You don’t want to leave these decisions to crisis day. All of this, plus other additional documents such as Staff Guidelines focused on traditional and social media, will form your Crisis Communication Plan.
Element Two: Mastering media interviews The ability to competently handle media interviews is important. Media interviews are like no other conversation, and must be approached in a totally different way. That’s because only snippets of what you say will make it into many of the stories that reporters and producers put together. That’s why so many people complain that they were quoted out of context. The last thing you want is to be thrust into the media spotlight without the skills to deal with it. In a nutshell, for both positive and negative interviews, you need a three-point message that you focus on and come back to throughout the interview. You make the same points in different ways and always transfer back to them when you’ve briefly answered a question. There are ways to make these points irresistible for reporters, meaning you can have major control over what parts of your interviews make it into the media stories. There are also invisible traps to avoid when talking to media. See the following section for the 5 key steps to preparing for pain-free media interviews. The 5 key steps to mastering media interviews Step One: Buy some time and find out what they want
When the journalist first contacts you, it’s important that you buy some time. Never do an interview on the spot. But having said that, don’t wait too long. You do have some breathing space if a statement has been sent out, but if you want to control the situation, you need to be available to media.
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The crucial elements of a 21st Century Franchise Media Relations Policy
Step Two: Create your media message
The next step is to prepare your media message. This is the three most important things you want to say on the issue. You must be able to sum these up in 25 seconds. They must be of interest to the audience of the media outlet. Your plan will be to transfer back to these throughout the interview so that they become the focus. Step Three: Predict difficult questions
While your aim in the interview will be to keep using bridging statements to get back to your key points, you do need to answer questions asked of you. That’s why you must predict the difficult questions (in negative situations). Don’t spend hours on this but do look for the obvious ones and have brief answers ready for them. Step Four: Dress up your points in interesting ways
For each of your three key points, dress them up with attractive language. For example, by using analogies, examples and emotion. This gives reporters and producers good material to use in their stories while also maximising the chances of your points becoming the focus. This will also stop you sounding like a broken record because you will have different ways of making the same points. Step Five: Practice, Practice, Practice
This is the most important step of all. The theory is one thing, but putting it into practice is quite another. This is why media training is vital.
Element Three: Attracting positive media attention In the introduction, I mentioned that franchises have more opportunities to attract positive media attention than other businesses. There are two reasons for this. Firstly, because a business has been franchised, media know it’s credible and media only want to work with credible businesses for positive stories. Secondly, because franchisees are scattered throughout a region, country or countries, there are huge opportunities for them all to approach local media in their patch with the same information. For example, a press release could be distributed to all franchisees about a simple national fundraising campaign the franchise is holding. They add their name to the release and send it to local media. This can lead to masses of free media exposure in local media across a country or countries. That can’t be done by other businesses. Also remember that we’re talking about news stories and guest articles here, not advertising. So it’s absolutely free and the reputation-building benefits of this can’t be matched anywhere. See the following 5 key steps to mastering this process. The 5 key steps to attracting positive media attention for your franchise Step 1: Decide what media to approach
As a general rule, franchisors will focus on state or national media, and franchisees on local media. With franchisees, it may be a single community newspaper, while franchisors might look at niche national media as well as more general outlets. This will depend on the industry.
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Business FranchiSe Guide
Step 2: Give media what they want
It’s important to give media what they are interested in, rather than some advertisement dressed up as news. As a general rule, they look for things related to topical issues and other things that are out of the ordinary. Obviously local media want stories with local angles. The focus of individual franchises will again depend on their niche and the outlets they target. Step 3: Communicate properly with media
Media generally like to be contacted in the first instance by email. However, there are exceptions. A few prefer the telephone, while a small minority like social media. It’s important to find out what your target media prefer. It’s also important to find the personal email address of reporters and producers, not general news addresses. Step 4: Organise a national campaign with franchisees
There are many ways that franchises can launch national media campaigns. This is a simple job and allows them to get masses of media coverage by involving franchisees in their local communities through local media. The key is to organise an event that would interest media. For example, a fundraising campaign where franchisees across the country organise a quirky event while taking donations for a well-known person in need. It could also relate to a worthy cause in their own niche. Step 5: Create a plan
A simple media publicity plan can be created. This should be sliced into monthly sections, highlighting times where publicity opportunities are greatest for your niche. For example, a florist should plan something around Valentine’s Day. There are other things that should be included in this simple plan such as identifying specific issues in your area of expertise with a plan to comment through the media when they become topical. The plan should also include a schedule of meetings (often monthly) to discuss publicity opportunities.
Conclusion A media relations policy can make or break a franchise network. By taking advantage of positive opportunities and being ready for the negative, everyone can thrive. But failure to be ready for that media onslaught can be disastrous. Warren Buffett summed this up perfectly with the following quote. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
Pete Burdon Founder | Franchise Media Training +64 29200 8555 Office@FranchiseMediaTraining.com www.FranchiseMediaTraining.com (Includes access to the Online Masterclass)
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What is a Franchise?
Franchise Listings categories: Accounting & finance:................................................................................................................. 88 building products & services:............................................................................................ 89 Business Services:............................................................................................................................ 90 Courier Services:. .............................................................................................................................. 91 Food:................................................................................................................................................................. 92 Retail:.............................................................................................................................................................. 94
Professional Services categories: Financial Institutions:................................................................................................................ 97 Lawyers:...................................................................................................................................................... 98 Support Services & Consultants:................................................................................ 102
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Business FranchiSe Guide
accounting & financial services
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:
COMPANY DETAILS:
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.
Date of first franchise: 1991 Membership: FCA Training provided: Ongoing training and development Territories available: Designate territory
• Build yourself a business for yourself but not by yourself
FRANCHISE OUTLETS AUSTRALIA:
• Strong upfront and trail commission
Current: 50
• Powerful online and TV presence
• Designate territory
FINANCIAL DETAILS:
• Owned by W estpac, Australia’s oldest company
Initial franchise fee: : $35,000 + GST Minimum investment: $200,000
• Ongoing training and development • Build your own successful and motivated team • Support your local community • Enjoy the comraderie of a large RAMS family
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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 (Australian Industry Group) Training provided: Training hands on, onsite with Deckseal Master Franchise 4 weeks. Territories Available: QLD, SA, WA, TAS, NSW, ACT FRANCHISE OUTLETS AUSTRALIA: Current: 14 FINANCIAL DETAILS: Initial franchise fee: $40,000 + GST Minimum investment: $65,000 +GST (Inc Franchise fee + vehicle) Royalty fee: Monthly royalty Financial assistance: On assessment Advertising/Marketing fee: No Fee
Business FranchiSe Guide
Business Services
InXpress Australia & New Zealand 3/14 Burke Crescent, North Lakes, QLD Contact: Geoff Hargreaves | Phone: 1300 097 857 Email: sales.au@inxpress.com | Web: inxpressfranchises.com
BUSINESS DESCRIPTION:
Territories available: All states in Australia
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.
& New Zealand - city and regional.
Awards: 2021 Global Franchise Awards - Best White. Collar Franchise and Global Franchise Champion Award. Australian Finalist - 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.
FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 450+ world-wide
60+ in Australia & New Zealand FINANCIAL DETAILS: Initial franchise fee:
$64,950 + GST (Australia) with no additional outgoings *Young Guns Program for under 35’s Royalty fee:
Percentage of margin (not revenue) Advertising/marketing fee: Included
COMPANY DETAILS: Date of first franchise:
Established in 1999 Training provided: 2 week comprehensive
system training and ongoing coaching. - 90 -
Courier Services
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:
COMPANY DETAILS:
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.
Date of first franchise: 1994
The Aramex network across New Zealand and Australia now includes 40 regional franchises and over 1200 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.
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: 40
FINANCIAL DETAILS: Initial franchise fee:
Available upon application Minimum investment: Dependent on
territory. Please visit our website to see current opportunities.
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food
Noodle box 13A/663 Victoria Street, Abbotsford VIC 3067 Contact: Michael McNamara Email: michael@concepteight.com.au | Web: noodlebox.com.au/franchising
BUSINESS DESCRIPTION:
FRANCHISE OUTLETS AUSTRALIA:
Noodle Box is an iconic Australian brand which is easily recognizable and stands on its own in the busy retail food sector. Noodle Box has been operating for over 25 years and has a wealth of history, experience, knowledge, and expertise in franchising. Think inside the BOX!
Current: 78 Locations
across QLD, VIC, SA, WA, TAS FINANCIAL DETAILS: Initial franchise fee: $40,000 + GST Minimum investment:
$250,000 - $350,000 + GST Royalty fee: 7.00%
COMPANY DETAILS:
Financial assistance:
Date of first franchise: 2002
Assessed with application
Membership: FCA
Advertising/marketing fee: 3.00%
Training provided: Yes – Comprehensive
induction and ongoing training provided plus online learning capabilities. Territories available:
QLD, VIC, SA, WA, TAS, NSW and ACT
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food
Pattysmiths Premium Burgers 13A/663 Victoria Street, Abbotsford VIC 3067 Contact: Michael McNamara | Phone: 0409 337 257 Email: michael@concepteight.com.au | Web: noodlebox.com.au/franchisingu
BUSINESS DESCRIPTION:
COMPANY DETAILS:
Smash Life with Pattysmiths - At Pattysmiths we are on the hunt for the best of the best to join us as Franchise Partners and capitalize on this exciting growth phase as we open new locations across Australia.
Date of first franchise: 2018
We will assist in finding the right location, lease negotiations, store design and build, and then provide you with full training and ongoing operational and marketing support to ensure you are set up and ready from your very first day.
Membership: FCA Training provided: Yes – Comprehensive induction and ongoing training provided plus online learning capabilities. Territories available:
QLD, VIC, SA, WA, TAS, NSW and ACT FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 17 Locations
FINANCIAL DETAILS: Initial franchise fee: $40,000 + GST Minimum investment:
$300,000 - $400,000 + GST Royalty fee: 7.00% Financial assistance:
Assessed with application Advertising/marketing fee: 3.00%
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retail
7-ELEVEN STORES PTY LTD Building 2, 658 Church St, Richmond Vic 3121 Phone: (AUS) 03 9550 0600 - VIC, (AUS) 02 9798 1200 - NSW, (AUS) 07 3291 9400 - QLD Web: www.7elevenfranchise.com.au
BUSINESS DESCRIPTION:
COMPANY DETAILS:
7-Eleven is a global success story with more than 59,000 stores world-wide. 7-Eleven Australia is growing rapidly and you can be a part of the growth opportunities by becoming a 7-Eleven Franchisee.
Date of first franchise: 1977 Membership: FCA, AACS Training provided: Our extensive training
As a 7-Eleven Franchisee you will benefit from our position as market leader. Our business is committed to being the best in Australia in convenience retailing, we will work with you to deliver our market leading customer offer. We are continually investing in innovation, delivering compelling customer marketing and promotional campaigns, and evolving our offer to meet customer needs. You will be backed by our comprehensive support system. Our system gives you a complete turn-key set up including industry leading POS systems and extensive training and operational support services.
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program includes classroom, in-store hands on training and also support in your store during your first four days of trading. Territories available:
VIC, NSW, QLD, ACT, WA FRANCHISE OUTLETS AUSTRALIA: Current: 700+
FINANCIAL DETAILS: Initial franchise fee: Site specific Minimum investment:
$400,000 - $1,000,000 (site dependent) Royalty fee: Gross profit split, determined
progressively. Other income stream profits, such as commissions, are also shared.
retail
BEAUMONT TILES National Office - 225 Marion Road, Marleston, SA Contact: Trevor Dixon | Phone: 0418 239 875 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) & new franchise system 2004 Membership: FCA Training provided: Extensive in house training program provided.
FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 91 Franchise stores as part of
our 117 strong store network. FINANCIAL DETAILS: Initial franchise fee: $63,000 + GST which
includes opening promotion and advertising costs. Minimum investment: Indicative Range
$340,000 - $430,000 + GST Royalty fee: 4% Financial assistance: NA Advertising/marketing fee: Group advertising and marketing levy 5%
Territories available: NSW, VIC, QLD and SA
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retail
TSG PO Box 4296, Ringwood VIC 3134 Contact: Head Office | Phone: 03 8873 7900 Email: enquire@tsgfranchise.com.au | Web: www.tobaccosg.com
BUSINESS DESCRIPTION:
COMPANY DETAILS:
The TSG story began over 20 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.
Date of first franchise: 1996
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.
Membership: FCA Training provided: Yes Territories available: All FRANCHISE OUTLETS AUSTRALIA: Current: > 500 FINANCIAL DETAILS: Initial franchise fee: $6500 Minimum investment: $150K - $200K Royalty fee: Annual fixed fees ($4620) Franchise + $360 IT Support) Financial assistance: No Advertising/marketing fee: N/A
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automotive products & services Professional services - Financial Institutions
CFI Franchise Finance Phone: 1300 659 676 Email:applications@cfifinance.com.au Web: www.cfifinance.com.au/franchise/
BUSINESS DESCRIPTION:
About Us CFI Franchise Finance is a specialist funder to the franchise sector. We have unrivalled knowledge of franchisees funding requirements as well as direct relationships with the franchise networks operating in Australia. Founded in 2014 by directors with a background in franchising, we have remained committed to offering flexible funding solutions that allow franchisees to start a new business or improve their existing business. What Can We Fund? CFI Franchise Finance have a solution for all business funding requirements including: • New Store Fitouts • Store Refurbishments • Business Re-sales • Equipment Purchases • Vehicles, Trailers & Vehicle Fitouts • Change of Ownership & Re-Sale requirements • Refinancing Existing Finance Contracts Why Choose CFI Franchise Finance? • Competitive Rates • 24/7 Customer Service • Preserve Precious Capital • Fast Online Application Process • Broad range of products and terms • Repayments Can Be 100% Tax Deductible - 97 -
Professional services - lawyers
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.
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Professional services - lawyers
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
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Professional services - lawyers
Marsh & Maher richmond bennison Lawyers Level 2, 100 Wellington Parade, East Melbourne VIC 3002 Contact: Robert Toth | Phone: 03 9604 9400 Email: robert@mmrb.com.au | Web: www.marshmaher.com.au BUSINESS DESCRIPTION: Wow, what a year in franchising it was in 2019 and 2020 looks just as dynamic! Our franchise group have been extremely busy advising new Franchisees, establishing new Franchise Systems and advising Overseas Franchisor’s and Companies, as well as Dispute Resolution and Mediation. Our Franchise, Licence and Distribution Group has over 30 years industry knowledge and experience. Members of the Franchise Council of Australia (FCA), the International Franchise Lawyers Association (IFLA) and the US Commercial Service. We can assist clients with: • Development and Advice on establishing innovative new models; • Company Structures; • Master Franchising; • Advising International franchisors; • Franchise Code Compliance; • IP and Trade Mark advice; • Leasing; • Dispute Resolution and Mediation We provide clients with fixed fees based on the scope of services and offer a long-term supportive role.
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Professional services - lawyers
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 2020. 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).
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 Business Since: 1993 Stewart was instrumental in the formation of the FANZ in 1996 and he wrote the original - 101 -
Professional services - Support Services & Consultants
FC Business Solutions Contact: Corina Vucic | Phone: (AUS) 03 9533 0028 Email: hello@fcbs.com.au | Web: www.fcbs.com.au
BUSINESS DESCRIPTION:
MARKETING
FC Business Solutions is a national consultancy firm, specialising in developing and growing businesses, including franchise systems.
• Branding & Experience
Whether your business wants to grow or discover a fresh approach, FC can provide the support and advice needed – e.g., strategy; innovation; operational reviews; marketing – including social media; HR; bespoke digitalisation.
• Design & Print • Marketing & Strategy • Digital Marketing • Website & Development • Analytics and Reporting • Conferences & Events OPERATIONS • Audits • Financial Modelling • Franchise System Modelling • Franchise Operations Manual • Online Manuals • Operations Support and Consulting • Strategic Growth Planning PEOPLE & CULTURE • Payroll Audits • HR Help Desk • HR Tools • Training and events • Executive Recruitment
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Helpful organisations APRA (Superannuation)
FRANCHISE COUNCIL OF AUSTRALIA
GPO Box 9836 Canberra ACT 2601 Phone: (AUS) 1300 55 88 49 Website: www.apra.gov.au
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
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
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
AUSTRALIAN RETAILERS ASSOCIATION
REAL ESTATE INSTITUTE OF AUSTRALIA
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
www.reia.asn.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
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
Tired of working for someone else? Ready to be your own boss? Worried about going it alone? this guide is your key to financial independence through franchising Franchising offers you the opportunity to buy a business with a proven system, business model and brand that people already know and trust. This comprehensive guide will help you on your franchising path to success, utilising decades of experience from experts in the sector, featuring insightful chapters such as:
FCA maintains focus on member support
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.
Tips to help you get your tax right in the 2021–22 financial year by Tony Goding, Assistant Commissioner, Small Business ATO.
Tony Goding is an acting Assistant Commissioner in the Small Business area of the ATO. His role involves engaging and supporting small businesses so that it’s easier for them to meet their tax, super and registration obligations. He is also focussed on advancing the ATO’s digital services and helping small businesses manage their cash flow.
Along with: Tips to help you get your tax right in the 2021–22 financial year Dominique Lamb, National Retail Association Accounting Aspects to consider for your Business Kate Groom, Franchise Accounting and Tax FINANCING YOUR FRANCHISE IN A POST-COVID WORLD Phil Chaplin, Cashflow It Group WHAT TO BE AWARE OF IN RELATION TO FRANCHISING IN NEW ZEALAND Stewart Germann, Franchising Lawyer Understanding the Legal Documents Robert Toth, Marsh Maher Richmond Bennison Lawyers
Don’t miss the listings pages Featuring a selection of leading franchise systems available right now! SUPPLIER FORUM
ISBN 978-0-6487795-2-0
9 780648 779520 >
