10th August

Should I franchise my business?

In this article we’ve set out some initial considerations on starting a franchise business and whether it is the right option for you and your business.

The team at ASCO Legal has a wealth of experience acting for both franchisors and franchisees. Alistair and the team at ASCO Legal have many years’ experience acting for clients in both New Zealand and overseas. They have been involved in drafting the Code of Practice for the Franchise Association of New Zealand Inc. which is the industry standard. In addition, ASCO Legal is also the author of the franchising precedents for a market leader which is used by lawyers nationwide.

Read more below about whether or not franchising your business might be right for you...

Am I a suitable franchisor?

Not only should your business be capable of being franchised but you should be the right person, or ensure you are supported by the right team, to run a franchise operation. The types of skills which are required will depend on the nature of the franchise business and its structure. Skills that you will need as a franchisor include:

  • Good management skills – being able to run your operation in a smooth and efficient manner while dealing with the operational matters which require your attention.
  • Time - A willingness to commit substantial amounts of time and funding to ensure the initial and ongoing success of the franchise system.
  • Good communication skills – the ability to communicate with people of all types in a clear and efficient manner is essential.
  • Passion & Motivation - An ability to motivate others, being able to instil in others the same passion you have for your business system and to promote and market your business.
  • Training – an ability to train or provide others to train franchisees and their staff how to use and operate your business system.
  • Commitment - Being able to make an ongoing commitment once the system is established to provide long term support for the system and its people, to monitor performance of the system, create marketing initiatives, provide further training and to assist franchisees to achieve success.
  • Knowledge - having a good understanding of your business, and an ability to develop a good understanding of franchising and your franchised business.

Can my business be franchised?

Not all businesses are suitable for franchising, traits of a business which can be franchised include:

  • A great system of operation – this is the key to a successful franchise is having a well-defined system of operation.
  • Sustainable profitability – your business must have been profitable for a long enough period of time to predict continuing success. Indicatively, a franchisee should be able to earn a decent salary comparable to what they would earn if they were the manager plus approximately a 15% return on their capital.
  • Simple and efficient method of doing business – your business must have a simplified, standardised or uniform method of doing business which is efficient and can easily be duplicated and taught to a reasonably intelligent person in a relatively short space of time.
  • Transferable to other markets – your business must have broad geographical appeal and be easily transferable to other markets within New Zealand and even overseas.
  • Distinctiveness – is there something unique or unusual about your business that gives it a point of difference? For instance, the way you do business or your product or service.
  • Branding – your business must have a brand which is distinctive and has a reputation in the market
  • Long term trends – your business must be sustainable in the sense that it is not built on short term fads but long term trends.
  • Inexpensive to operate – your business must be relatively inexpensive to operate.
  • Financeable – the easier the franchisees are able to get finance to purchase the franchise the easier it will be to sell franchises.

Characteristics of a business which may not be suitable for franchising include:

  • Limited marketability – the product or service is likely to have a market for a short time.
  • Gross Margins too low – the gross margins are too low to offer a return on the franchisee’s investment.
  • A limited geographically defined market – the market for the product or service is likely to be limited to a certain geographical location and it is unlikely that this will change.

How can we help?

ASCO Legal can assist you with:

  • Developing your franchise concept.
  • Drafting of franchise documentation including franchise agreements and disclosure documents.
  • Advising in respect of legislative compliance obligations arising from the Fair Trading Amendment Act, 2021 regarding “standard form small trade contracts” as applicable.
  • Bringing foreign franchise systems to New Zealand.
  • Granting of Master Franchises and Regional Franchises, Area Agreements, Distribution Licences, Land and other forms of agreements and licences.
  • Compliance with business law, including competition and consumer legislation - including the Fair Trading Act 1986, the Commerce Act 1986, the Consumer Guarantees Act 1993, and the Privacy Act 1993 and employment laws.
  • Staff issues, including drafting of employment contracts and health and safety compliance requirements.
  • Dealing with franchise agreement breaches.
  • Termination of franchise agreements.
  • Intellectual property protection, including trade mark registrations.
  • Company incorporation, set-up and asset structuring, and also the creation of trusts as required.
  • Property and leasing.

Being a franchise specialist law firm means our team can provide you with experienced specialist advice drawing on a bank of experience knowledge and skills and other resources tailored to help you with the important steps you are taking.