Franchising: what you need to know

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A few business owners we’ve come across that have 3 or more locations start thinking: Franchising. Franchising can seem like a great option; sell your idea to others while you sit back, relax and watch your business grow… right? Wrong. Franchising, while great for some businesses isn’t always the best option for others. It can seem like an easy way of starting or expanding your business, but it’s not something you should not rush into without seeking expert advice on the road ahead.

Before you franchise: Points to consider

The Franchising Code of Conduct

Yep, there’s a code of conduct for all franchisors and it must be adhered to. As a franchisor, you’re required by law to comply with the Franchising Code of Conduct. The Code sets out your rights, obligations, what information you must disclose to franchisees, what your franchise agreement must contain, and what procedure to follow for resolving disputes.

Looking at the code is a great starting point, because if you don’t think you can adhere to the rules and regulations then there is no point pursuing the idea any further.

Tax obligations

Often a stunning oversight from first time franchisors is an understanding of tax obligations and the treatment of franchising fees for tax purposes. Getting a hold of this information is important from the get go.

Payments received from your franchisees can be treated as assessable income, and you will also need to review your income tax and Goods and Services Tax (GST) reporting requirements.

Franchising agreement & manual

To start your franchise, you’ll need to compile a franchising agreement and manual. These documents will set out the rights and obligations of you (the franchisor) and the franchisee, including how your intellectual property will be covered and what your Occupational Health and Safety (OH&S) obligations are to your franchisee.

Getting an expert involved in this stage is crucial. This is a common point where agreements fall apart or franchisors are later burned for poorly executed agreements and manuals.

Thinking of setting up a Franchise or know someone who is? We specialise in business structuring and franchising. Give us a call to arrange a consultation.

Or check out our website for more information on Franchising.

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