Khushbu Sundarji
If you are considering taking up a franchise business, you should consider a number of issues before such an undertaking.
Evaluate your business
You must take a critical look at your business.
Is it profitable? If your business is not profitable, Franchising will not fix the problem.
You must invest money to change your business into a franchised business.
Can your business be taught easily to others? There should be effective training processes and resources in place well before you make a move into Franchising.
You must also protect your intellectual property by having a Registered Trade Mark.
Assess the market
You must thoroughly research the market to see what is already out there.
Is there a business in your particular industry that is already doing what your business does? If so, is your business distinctive and have an edge on the competition?
You should also look at similar businesses that have both succeeded and failed in your industry. You should be realistic about whether your potential franchised business can make a mark in your industry and succeed. It may be that you will need to adjust your business model after conducting your research.
Seek legal and accounting advice
We recommend that you seek expert legal and accounting advice.
An accountant will tell you if it is financially viable to start Franchising at the point of time and the potential costs and investment involved.
Use a lawyer who is experienced in Franchising to explain your obligations as a franchisor and draft the Franchise Agreement.
It is essential that you understand your obligations before you start issuing franchise agreements. You should also ensure that training and accounting systems are set up before you start Franchising.
Advantages and Disadvantages
Like any business model, Franchising has both advantages and disadvantages.
The operating costs will be reduced as it is the franchisees who will be paying the costs of day-to-day running of the business.
You will also receive ongoing fees and royalties for the use of your system.
You will be able to expand much quicker than if you were opening stores yourself and you will have the capital from the franchisee as opposed to borrowing to obtain these funds.
Your system will also be centralised and manuals will advise how the business is run.
This will mean that your customers will receive better service, no matter which outlet the customer visits.
Less disciplinary control
However, you have less disciplinary control over the franchisees and it may be tough to remove unsatisfactory franchisees. There is always a risk that any unsatisfied franchisees may damage your reputation.
You must disclose a lot of confidential information about your system to potential franchisees and there is the danger of franchisees exiting the franchise after the initial term and then becoming your competitors.
Tread carefully
You should not rush into becoming a franchisor. The payoff may not be foreseeable in the short term and may in fact take a few years.
Franchisors have failed in the past for a number of reasons.
These include not fostering the relationship with the franchisees, not providing assistance to the franchisees or not acting in good faith.
Successful Franchisors have been able to ensure that their franchisees are aware of their obligations and make sure that the business is run correctly under the franchise agreement and manuals; but are always willing to assist and adapt to their franchisees needs if a franchisee is struggling.
Khushbu Sundarji is an Associate at Stewart Germann Law Office. Phone: (09) 3089925
Email: khushbu@germann.co.nz; Website: www.germann.co.nz
Legal Disclaimer: The above article should be considered only a general guideline and not as specific advice. Indian Newslink and its Management, Stewart Germann Law Office and Khushbu Sundarji absolve themselves of all obligations in this connection. Please consult your lawyer and/or accountant before taking up any business mentioned in the above article.
Image Source: Franchise New Zealand
