Business Franchise Australia and New Zealand Guide 12th Edition

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AUSTRALIAN AND NEW ZEALAND BUSINESS

Your key to buying, managing and profiting from your own franchise

See inside for

FRANCHISES AVAILABLE Right now!




The Franchise Guide 2019 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 $19.95 Š 2018 CGB Publishing Pty Ltd all rights reserved. ISBN 978-0-646-59800-0


Contents Preface. ............................................................................................................................................................................................................1 Chapter 1: A Bright Future for Australian Franchising..............................................3 Mary Aldred, Franchise Council of Australia Chapter 2 : The Foundations of Franchising.....................................................................................7 FC Business Solutions Chapter 3: Franchising in New Zealand – Issue to be aware of..................... 13 Stewart Germann, Franchise Lawyer Chapter 4: How to Conduct Due Diligence when Buying a Franchise................................................................................................................................................ 19 DC Strategy Chapter 5: Franchising Advice from the National Retail Association. .............................................................................................................................................. 33 Dominique Lamb, National Retail Association Chapter 6: Mastering Local Media Coveragefor Franchisees.......................... 41 Pete Burdon, Franchise Media Training Chapter 7: Why it’s Crucial for Franchisees to be Proactive when it comes to Payroll..................................................................................................... 47 Jane Wood, RSM Australia Chapter 8: The Role Alternative Lenders Play in your Finance Toolkit..................................................................................................................................... 53 James Scurr, Cashflow It Chapter 9: Franchise Law 101........................................................................................................................... 59 Raynia Theodore, MST Lawyers Chapter 10: Franchise Marketing in the 21st Century..................................................... 67 Ali Okaily, Reliance Partners Chapter 11: Good News for Franchising ............................................................................................ 75 Brain Keen, Franchise Simply Franchise Listings:................................................................................................................................................................. 79 Professional Services Listings:........................................................................................................................... 91 Helpful Organisations:.................................................................................................................................................... 99 INDEX. ...............................................................................................................................................................................................................1



Preface Meaghan Galindo | Editor CGB Publishing Pty Ltd

W

elcome to the 2019 Australia & New Zealand Business Franchise Guide.

If you’ve picked up this guide, chances are you’re thinking about embarking on

a major investment decision and lifestyle change. Becoming the owner of a franchised

business or franchising your existing business is a big decision, and this guide is full of useful and insightful information to get you started on your franchising journey.

Inside you will find informative chapters written by renowned specialists within the franchising sector, including the Franchise Council of Australia (FCA), a national not-

for-profit industry body that represents the franchise sector; and the National Retail Association (NRA), and the Australian Taxation Office (ATO).

Franchising has many advantages over independent business ownership as it allows

franchisees to own their own business without being totally alone, which is an attractive prospect for many entrepreneurs.

Franchising has helped realise the business dreams of tens of thousands of Australians and New Zealanders and with more than 1600 systems to choose from. Franchising

offers ‘anybody and everybody’ the opportunity to own and operate a business, so no matter what your work background is, or qualifications are, there is a franchise system to suit your finances, family, skills and lifestyle.

Franchising in Australia and New Zealand together adds more than $170 billion to our countries’ economies and provides employment opportunities for more than half a

million Aussies and Kiwis. The 2017 Franchising New Zealand survey shows that New

Zealand is the most franchised country in the world with 37,000 franchise units – that’s one for every 124 Kiwis!

There are a multitude of franchise opportunities available in Australia and New Zealand, ranging from café and restaurant businesses, to health, fitness and beauty opportunities.

Franchising offers flexible, mobile businesses, or the option to work from home. Within the franchising sector, there really is something for everyone.

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Business FranchiSe Guide

Set out to assist you as you embark on your journey to becoming a member of a very special community of business owners, this book includes a wealth of information from leaders in the franchising industry – giving you professional insight on how to research, select, buy and successfully run your own franchise. We have asked franchisors,

franchise lawyers, accountants and consultants to share with us their tips and tricks to achieving personal and financial stability.

Once you are convinced that franchising is the right move for you, browse through the listed franchise systems and see which interests you most.

No matter where you are on your franchising journey, this book will help you on your

franchising path to success. Enjoy the read, and welcome to the prosperous world of franchising!

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Chapter 1

A Bright Future for Australian Franchising Mary Aldred | CEO Franchise Council of Australia

About the Author The Franchise Council of Australia Limited (FCA) is the peak body for the $146 billion franchise sector in Australia, 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.

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T

he franchise sector plays a vital role in Australia’s economy, generating $146 billion in revenue, providing almost 80,000 small businesses with a stable operating framework, and providing employment for nearly half a million people across the nation. As CEO of The Franchise Council of Australia (FCA), I am privileged to represent the interests of everyone whose livelihood depends on a thriving franchise sector, including franchisors, franchisees and the many, many thousands of people who are employed within head office teams and franchisees’ businesses. Since commencing in this role in April 2018, I have been fortunate to meet some of the entrepreneurial individuals who epitomise the passion, commitment and drive that that make franchising such a vibrant and strong way of doing business and look forward to the opportunity to continue getting to know more of you in 2019. To be a successful business enterprise, you must be robust. It’s a competitive market place. I know that from growing up in a family run small business. Since then I’ve worked in the private sector and government, as well as for several peak industry bodies. Joining the Franchise Council of Australia presented me with the opportunity to combine my passion for advocating on behalf of business, working with member organisations and helping the sector at a challenging time. Many Australian businesses are currently ‘doing it tough’, with several well-known brand names closing outlets in recent months, citing mounting costs and a weak retail environment. Unfortunately, such closures are often associated with franchising, even though both franchised and non-franchised businesses have been struggling to cope with escalating rents and wages bills. Retail is often the canary in the cage as far as how the rest of the economy is travelling, and its particular challenges extend well beyond anything to do with franchising. In fact, a franchise outlet is more likely to succeed than a business without a supportive franchise framework. We have to recognise that running a business comes with an element of risk, especially in small business. No one wants to see anyone experience hardship and difficulty but sometimes businesses fail. The reasons can include workplace issues, quality control, unfair rentals or simply poor management. However, we need to accept some of the underlying messages that have come with recent criticisms of both franchise and non-franchise failures and learn from them. Amidst intense national scrutiny, the Franchise Council of Australia has been proud to stand up for a robust, respected and represented franchising sector, including looking closely at how we can play a stronger role in achieving that.

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A Bright Future for Australian Franchising

As CEO of the Franchise Council, I have four key priorities in 2019: • Bolster credibility and confidence in franchising; • Create real value in FCA membership and the FCA brand; • Minimise government intrusion and regulation of franchising; and • Ensure that the FCA delivers on its core objective of promoting the growth and development of franchising in Australia. The franchising vision for 2020 must start with an honest assessment of where we are. It must also look beyond the current issues we face to the issues we may face in future. The FCA is not prepared to excuse poor behaviours. We’re committed to improving standards, providing our members with better access to information and education, and ensuring that regulations and rules are adhered to and enforced. The current regulatory and dispute resolution framework for franchising in Australia has been carefully devised and is generally regarded as one of the most comprehensive and effective regimes in the world. Any instance of wrong doing in the sector reflects badly on everyone else who overwhelmingly do the right thing. Any business, franchised or non-franchised, not running a compliant business should be held to account. That’s why the FCA has called for more transparency and accountability. In 2018, we learned that the franchise sector must take an interest in matters beyond the franchisor / franchisee relationship. If there’s an issue in a network, the brand owners need to know about it and be seen to do something about it. Brand damage is now a higher risk than damages claims or prosecution. To some degree franchise systems are victims of our own success, as we have created valuable brands that can be tarnished by adverse publicity. Franchising is a model of business which crosses diverse sectors, from rural real estate to retail. Although the root causes of many problems raised in 2018 were not specifically franchise related, franchising needs to own the problems and take responsibility for finding and implementing solutions. The legislative framework is comprehensive, and the Franchising Code of Conduct provides extensive protection for franchisees. Industry driven reforms can address root causes of problems, including issues that are raised in the context of the franchise relationship, but have nothing to do with franchising itself. Government can provide structural and collateral support, but industry driven reforms are the key to restoring public confidence. We need to take our members with us on this journey, and we will not be rushing in. Our vision for 2020 is for a better regulated business sector, with a mix of current regulation and industry generated initiatives that genuinely help reduce the incidents of business failure and inappropriate conduct.

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As a business model, franchising is unrivalled in its capacity to take a business idea and expand it into a nationally or internationally franchised network. Of equal importance is its ability to provide franchisors and franchisees with the opportunity to achieve their business dreams, and for committed employees to fulfil their career goals. Australia is a very franchised economy. With around 95% of franchisees representing small business, the economic and employment contribution is too big to ignore - over 500,000 Australian jobs and an economic contribution of around $146 billion every year. The opportunity to improve franchising is too important to pass up. Healthy businesses sustain healthy communities. From contributing tax revenue, to driving a demand for skills and jobs to re-investing locally, sustainable businesses drive a strong national economy and well-resourced local community, and franchising can play a significant role. One of my first impressions when I joined the FCA was that franchising is an incredibly supportive business community. I’ve seen how FCA members are willing to give freely of their time and knowledge to help others in the sector. There are terrific things happening in franchising, from deep community involvement through to people realising lifelong goals of running their own business. We need to make sure these stories are told in the broader community, and that is something that the FCA is actively working on. I urge all franchisors and franchisees to join with me and the FCA Board in the task of creating a stronger and more resilient Australian franchising community that sets the global benchmark.

Franchise Council of Australia 1300 669 030 info@franchise.org.au www.franchise.org.au

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Chapter 2

The foundations of franchising FC Business Solutions

About the Author FC Business Solutions is the only integrated consultancy focused exclusively on the franchise community. Our team of professionals has been providing specialised and expert services to franchises for many years. The FC Business Solutions team are actively involved members of the Franchise Council of Australia regularly attending events, participating in committees and assisting in raising the profile of franchising in Australia. FC Business Solutions is a business which has proudly been certified in accordance with the internationally recognised ISO 9001: 2008 management system which focuses our business on delivering a consistent level of quality to our clients defined by regularly reviewed processes and procedures.

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When considering if your business is ready to become a franchise, be sure to check your foundations to save time and money and the reputation for your business in the long run. If you have purchased a house, you may well have acquired a building inspection to check the foundations of the house – the wiring, the plumbing, the roofing, the stumping and all those parts of a property the untrained eye cannot see. When looking at a property, it can be easy to get swept up in what is visible – the paint colours, appliances and soft furnishings. While these may look great, the reality is that replacing a dishwasher, or a light fitting is much easier and cost-effective to do than having to have a house restumped. A building inspection will go beneath the fittings, deep into the structural elements that make up a house. After all, these are the foundations that will help a house weather the storm and stand up to wear-and-tear year after year. A nice paint job may be visually appealing, but it won’t hold the house up. A business is similar. While on the outside, you may see a great product, a fabulous shop front and an attractive website, it can often be challenging to understand what is going on at a structural level. What is holding the business together? How are the financials? What are the processes in human resources and industrial relations management? What are the long-term marketing plans and goals? In essence, how stable are the foundations of the business? Can it weather storms of economic uncertainty, or hold up to shifting consumer demand? These are just a few areas that need to be considered by anyone considering a move into franchising.

Why does it matter? When considering whether a franchising model is best for your business, there are many factors to consider concerning transitioning the business from a standalone, successful business into a series of successful businesses owned and operated by franchisees you recruit. It could be argued that the most critical of these is to undertake the equivalent of a building inspection on the business. We have seen franchise brands make the news for all the wrong reasons when critical elements such as policies, procedures and product have quite simply failed. And when poor human resource practice or an inferior product offering is at the heart of the business, the problems are then repeated throughout the network. This, in turn, creates a ‘chain of pain’ with franchisees losing money, the reputation of the brand suffering, sales taking a downturn, and at the extreme end, legal challenges and closures. This is not what you want to happen to the business you have poured your heart and soul into – you want the franchise model to stand up to the most stringent scrutiny for you, your employees and your franchisees. Getting the basics right before you embark on a franchise model is the simplest way to help secure a strong foundation for a franchise model that is not only a more robust

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The foundations of franchising

product for your prospective franchisees but a sustainable model for growth, innovation, profit and reputation in the community.

What are you looking for? Where do you start when looking at the foundations of your business? To undertake a full and comprehensive audit, there are seven key areas to analyse and scrutinise. Do they stack up and give the business a solid base, or are there gaps and improvements to make ahead of a move into franchising.

1. A solid financial base

Your business may be making money but how long since you have updated your budgets or projections? The financials are what your prospective franchisees will start with, and everything needs to be accountable, up-to-date and realistic. It is a good time to carefully examine forecasts, projections and the environment around you. Can your business withstand some movement on foreign currency or interest rates, or a decline in consumer confidence? Robust financial models, projections and budgets will help your business weather economic storms or consumer trends, and in turn, set franchisees up with a solid base.

2. Efficient operations and detailed procedures

One of the key reasons people buy into a franchise is the fact they can purchase a business that has been replicated from an existing, successful business. Operations is a core part of this. Everything from customer service to food handling to ordering procedures to security and beyond. However, before replication, it is vital to assess all operations and procedures to ensure they are up-to-date, accurate and easy to follow and understand. It is a common mistake for people who are familiar with a business to think that something they do may be ‘easy’ or a ‘given’. Ensure that every task is written down and can be followed by someone unfamiliar with the industry or sector. It’s a good time to get all the processes out of your head and onto paper.

3. A quality product that is meeting a consumer demand

Your product is paramount. It is vital before you franchise to ensure that there is enough general demand for your product or service to create a strong customer base for any additional franchisees. Part of this process should also be considering what procedures you have in place to enable innovation to meet changing customer demand and ensuring that you can stay ahead of the competition.

4. Marketing with clear goals and measurable outcomes

Don’t be lulled into thinking you have marketing all done and dusted because of a pretty website and a Facebook page. How are you reaching new customers? What are your marketing goals? Which social media platforms are you engaged with? How are you tracking advertising, public relations and marketing outputs? To

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replicate a successful standalone business and translate it into a franchise network, a clear brand-level marketing strategy is required.

Furthermore, you will also need to consider what local marketing plans can be tailored and specified for individual franchises based on needs and expectations within their local communities. Ensure that this can be balanced with a clear, brandlevel message, look and feel.

5. HR, OHS and industrial relations that is compliant

Any business will require employees to make it work, but without the correct, upto-date and compliant policies and procedures in human resources, your business could find itself with a high turnover of staff, poorly trained staff or potentially in breach of conditions such as paying the correct award rates or leave entitlements. Ensuring these are all up-to-date and correct will not only save you headaches but help a smoother replication of professional standards across a franchise network.

6. Looking ahead to the franchising nuts and bolts

How ready is your business to move into a franchise model? Do you have a great product to sell to a prospective franchisee? How are you going to attract franchisees? Do you have a clear idea of the selection criteria for prospective franchisees? Seriously considering these questions rather than just advertising a franchise investment on a whim will help attract the right investors who will nurture and invest in your brand.

7. Governance and input

It is important to consider what structures are in place around a business to ensure that it is managed effectively. What is the internal structure of your business? Are there clear roles and responsibilities? Do you have a board or advisory council to help steer decisions and drive innovation? If you don’t, it is an excellent time to consider how this may be enhanced, and how it might look once the business is franchised. How can you alter your model to allow input from franchisees and have clear and ethical two-way communication?

Don’t go it alone – seek expert help Most people are not builders, or plumbers or electricians. You utilise qualified trade services for undertaking renovations in a house as you have an increased assurance of quality, knowledge, safety and support. In the same way, when assessing the foundations of your business, make sure you draw on professional services with expert knowledge of franchising. Your local accountant or solicitor may be excellent for the needs facing a standalone business but are they across the challenges and intricacies of handling matters of a franchise network? Some lawyers specialise in creating franchise agreements and contracts. Seek them out. Some accountants are experts at supporting the bookkeeping and accounting needs of franchise models. Talk to them. Transitioning a business from a standalone small business to a franchise model can create tax and

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The foundations of franchising

legal implications and the last thing you want is problems in the contract that could cost you time and money because you failed to get the right advice. Seeking operational advice from franchise experts is another great way of ensuring you are developing the right foundations for now and your business of tomorrow. Seek those who can thoroughly assess the validity of your planning and preparation.

Leveraging resources to enhance your knowledge and understanding of the industry In addition to expert professional services, there is a range of tools available to use when considering the move to a franchise model. The Franchising Code of Conduct is an excellent place to start to ensure that you have a good knowledge of the behaviours and standards expected within the industry. The peak body for franchising, the Franchise Council of Australia, is a valuable resource to draw upon for advice and networking. Moreover, don’t underestimate the power of networking. Speaking to people who have successfully transitioned a standalone business into a franchise model will be invaluable to talk with. Attend franchising events, conferences and seminars. Meet those who have done it. What are their regrets? What worked, what didn’t? This industry-specific advice will help ensure you can smooth over any potential issues or concerns ahead of moving to a franchising model.

Give those foundations a firm shake If there is ever a time to grab your business and give it a firm shake, this is it. If your business can stand up to the vigour of a detailed and comprehensive structural assessment before you consider franchising, you are likely to be well-placed to transition the business with greater success and profitability. Ultimately by doing this, you will be selling franchisees a more stable, robust business; which in turn will support them make a success of their business and encourage further franchisees to engage with your brand. It’ll be a better product for your franchisees and a more stable future for your business.

FC Business Solutions (03) 9533 0028 hello@fcbs.com.au www.fcbs.com.au

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Chapter 3

FRANCHISING IN NEW ZEALAND –

ISSUES TO BE AWARE OF Stewart Germann | Franchising Lawyer Auckland, New Zealand

About the Author Stewart Germann who is acknowledged as New Zealand’s leading franchising lawyer with over 35 years experience in this area, is a recognised national and international guest speaker at franchise conferences in New Zealand, Australia and USA. Stewart Germann Law Office (SGL) is New Zealand’s longest established specialist franchising law firm and Stewart is included in the International Who’s Who of Franchise Lawyers for 2017. SGL’s clients include many of New Zealand’s best known national and international franchise brands and Stewart has extensive franchising contacts worldwide and locally. Stewart Germann is actively involved in international franchising, has published articles in the International Journal of Franchising Law and has attended and participated in many FCA conferences. Stewart Germann has just been honoured in Melbourne, Australia at this year’s Franchise Council of Australia Legal Symposium for his “outstanding contribution to franchising”. He was presented with an award in recognition of his “longstanding legal services to franchising” for over 30 years.

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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,

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FRANCHISING IN NEW ZEALAND – ISSUES TO BE AWARE OF

full disclosure of any payment or commission made by a franchisor to any adviser or consultant in connection with a sale, listing of all components making up the franchise purchase, references and projections of turnover and possible profitability of the business. 3. Certification - the Code requires franchisors to give franchisees a copy of the Code and the franchisee must then certify that he or she has had legal advice before signing the franchise agreement. 4. Cooling Off Period - all franchise agreements must contain a minimum 7 day period from the date of the agreement during which a franchisee may change its mind and terminate the purchase. This is very important and the cooling off period does not apply to renewals of term or re-sales by franchisees. 5. Dispute Resolution - the Code sets out a dispute resolution procedure which can be used by both franchisor and franchisee to seek a more amicable and 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

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

Code of Practice Prospective franchisees will usually be given a disclosure document and franchise agreement by a franchisor. The Code of Practice states that franchisors must provide the disclosure document to prospective franchisees at least 14 days prior to the signing of the franchise agreement. The disclosure document must provide certain information including the following: • Details of the franchisor and its directors including experience and a viability statement with key financial information of the franchisor; • Details of any bankruptcies, receiverships, liquidations or materially relevant debt recovery; • Criminal, civil or administrative proceedings within the past five years; • A summary of the main particulars and features of the franchise; • A list of components making up the franchise purchase; • Details of any financial requirements by the franchisor of the franchisee; and • Other information as listed in the Code. Franchising in New Zealand covers goods and services in many areas including general retail, leisure and education, business and commercial, food and beverage, health and fitness, computer and technology, home and building services.

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.

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FRANCHISING IN NEW ZEALAND – ISSUES TO BE AWARE OF

• It is estimated that franchised business contribute 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 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.

Cartels Legislation The Commerce (Cartels and other Matters) Amendment Act 2017 became law in New Zealand in August 2017. This new Act forms part of the Commerce Act 1986 and key changes include the following: 1. Cartel Conduct Restrictions

New “cartel conduct” restrictions are as follows: (a) The previous restriction on competitors fixing prices; and (b) New restrictions on competitors jointly restricting output and market allocating.

These new restrictions will have the most far-reaching impact on business.

2. Collaborative Activity Exemptions

This is a new cartels exemption for permitted “collaborative activities”. Competitors will be able to seek clearance for proposed collaborative activities giving certainty that the proposed activities will not breach the Commerce Act.

3. Vertical Supply Contract Exemption

This is a new exemption for cartel provisions that are included in vertical supply contracts where certain requirements are met.

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4. International Liner Shipping Exemption

This is a new exemption for international liner shipping from the prohibitions against anti-competitive agreements and cartels.

The amendments to the Commerce Act will affect New Zealand businesses including: (a) Many suppliers and resellers – for example distribution agreements with territorial allocation clauses; and (b) Most franchisors and franchisees since most franchise agreements contain territorial allocation clauses and restraints of trade. Because the new cartels legislation impacts upon key areas contained in franchise agreements, in my opinion it is very important to explain the basis of a number of clauses which are commonly inserted in franchise agreements. Such clauses include approved products, approved services, restraint area, restraint period and location of a franchised operation. The New Zealand courts do not like restraints of trade per se and they have power to amend unreasonable clauses. Having said that, restraints on competition are essential in the area of franchising, and if the restraint is reasonable it should be enforceable.

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. 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 is thriving worldwide as it is such an excellent way to expand the brand and the system. 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 - 18 -


Chapter 4

How to Conduct Due Diligence when Buying a Franchise DC Strategy

About the Author Building the foundations of successful businesses for over 30 years, DC Strategy is Australasia’s only end-to-end consulting, legal, recruitment and brand and marketing firm. Working with retail, food, industrial, financial, community, IT, professional, trade and service organisations, DC Strategy’s multidisciplinary approach ensures that the appropriate talent and experience are applied at every stage and that clients’ business needs are served professionally and cost effectively under one roof. DC Strategy have advised over 200 networks and established over 2000 franchised locations in Australia alone, creating well over $2 billion worth of enterprise value for clients.

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T

he last few years will be characterised for some time to come as a period of turmoil in the franchise sector. From the relentless press exposure of dodgy franchisors and franchisees and detailing some spectacular network failures to legislative updates to the Franchising Code of Conduct (the Code), the Fair Work Act and Australian Consumer Law, franchise businesses have been subject to some rigorous examination. So what does this mean for you if you are considering purchasing a franchise? How does the due diligence process help you assess and manage the risk of buying the business you are interested in? Recent ABS data tells us that 60% of independent new businesses will fail or enter voluntary liquidation within the first three years of business. Contrast this with National Retail Association data, telling us that less than 1 out of 5 franchisees fail in a similar period. Certainly most franchisees buy into a proven business network rather than set up their own business because they want to improve their chances of being successful. However, just because you buy a franchise won’t ensure you will be - even in profitable networks, some franchisees thrive while others struggle. And as we’ve seen, some franchise networks - even mature ones - fail. So you need to gather as much information as you can, weighing up the variables carefully to understand how you will manage the risk. And that’s simply what due diligence means - appraising a business to evaluate its commercial potential.

I want to buy a franchise - where do I start? With 1200+ franchise systems in Australia, due diligence commences as soon as you ask “which franchise is the right one for me?” On average franchisees invest around 7 years of their lives and many borrow quite heavily - often against the family home - to invest in their franchise. Knowing the criteria you will apply from the moment you start looking will save you a lot of time, twaddle, false hopes, puffery and ultimately grief! There are many issues you should assess in investigating a business to ensure to the very best of your ability, your investment will return a profit. So let’s categorise them as follows: 1. The finance questions; 2. The operations questions; 3. The location questions; 4. The brand and culture questions; 5. The legal questions; 6. The independent verification questions; and 7. The specialist professional legal and commercial advice questions. There are specific characteristics and concerns associated with certain sectors and industries. But whether it’s retail, quick service restaurants (QSR), financial services, trades, professional, hospitality, IT, health and beauty, mobile or bricks and mortar, B2B or B2C business, we will tackle the key issues to guide you through.

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How to Conduct Due Diligence when Buying a Franchise

THE FINANCE QUESTIONS i) How much can you afford to invest?

Your investment will be your time as well as your money and we’ll talk more about that in the operations section. But here’s the most important piece of information in this chapter: to be successful, franchising is an owner/operator proposition.

How much do you really need? Work out the total investment including operating capital for rent, staff and operational costs until the business is profitable. Include interest on loans, your wage as an owner operator and the period it will take to recover your capital costs. Can you service your existing home, car, credit card or other loans and still maintain your lifestyle if you buy into a franchise business? It may take many months to build up enough turnover to make a profit or match your current income.

ii) How do the financials stack up?

First up you will need to develop a business plan that is based on financial data or a financial model, preferably a Profit and Loss statement (P&L), to figure out if the business is a sound financial proposition. Ask the franchisor for their data and what the numbers are based on – preferably other franchisees’ and/or corporate store performance.

Does this financial data make sense? Break the numbers down so that you know how many products or services you need to sell, how many clients you need to service per day, and what would they have to spend on average to break even, after meeting all your overheads. If you don’t have the information, ask the franchisor for the average ticket price (ATP) or the number of clients they service a day. And ask for the average unit volume (AUV) or turnover of a range of businesses. This will allow you to see if the financial assumptions in the data add up, and also whether the franchisor has a good understanding of their own business.

Next you need to get a good understanding about the operating costs. As a rule of thumb in QSR, retail and similar store front businesses, rent should not be more than 10% of sales, cost of goods (COGS) about 30% and wages no more than about 30% of turnover.

You also need to figure out if a site will generate enough revenue. Look for more information about this in the location questions, but even the best franchise business concept won’t work if there is not enough passing foot traffic to make sufficient sales.

iii) How do you figure out how much operating capital you will need?

Operating capital will vary from business to business. It is the amount of money you will need to cover your overheads such as rent, wages, utilities, cost of goods, loan repayments, franchise fees etc until the business starts to be profitable. And don’t forget your salary during that time so you can meet your rent/mortgage, school

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fees, etc and maintain an adequate standard of living. A QSR in a busy mall may only take a month or two, but in the financial services sector where revenue may be commission based – it may take 9-12 months.

Be realistic about what the business can return factoring in all the outgoings for as long as it will take to return a profit ensuring you can carry on during that period. Ask other franchisees in the network how long it took them to be profitable and estimate how long you could survive if the business didn’t turn a profit as quickly as you may have anticipated.

iv) How will you calculate your return on investment (ROI)?

In simple terms, working on the numbers you have obtained and verified as closely as possible, how long will it take you to get back all the money you have invested? This includes any interest you may be paying on the loans you have taken to fund the investment in your franchise and the operational capital you put up. And remember the business will need to pay you a living during this period.

Generally the larger the investment, the longer the period to realise the return will be. As a very rough guide businesses under $100K should return the investment in 12-24 months. Businesses from about $180-400K should see the return in 2.5 to 3.5 years. Businesses from $500-$850 or so may take over 4 years and investment over the $1M mark may take 5 or more years. But the higher the investment, the higher you would generally expect your reward to be on an annual basis. An investment under $100 may return a $50-70K annual return whereas a $1.2M business may see annual returns of $250-400K.

But be realistic! If you can service the debt, pay your interest and a reasonable wage, by the end of the first year – great, you have the foundation of a good business. Typically your business should grow most rapidly over the next 3-4 years and your ROI will maximise as your business becomes fully established.

The aim is to pay down residual debt more quickly from this point and to be debt free in 5 years. Calculate this period and ensure the term of your franchise agreement (and your lease) are sufficient to give you time to get your initial investment back, and hopefully to build some capital, plus the eventual goodwill you will achieve when you sell.

Ideally the term of the lease should line up with the term of the franchise agreement which in retail or QSR is generally 5 or 6 years. So if we take an average for that sector of about 3.5 years to see the return on the capital investment and franchisees average about 7 years in any system, you should get the initial investment (plus your annual salary) back in your first 5 year term. So definitely look for a second 5 year term option in your franchise agreement as you’ll be a couple of years into that term when you may want to exit and crystallise the capital gain that is the reward for your hard work.

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How to Conduct Due Diligence when Buying a Franchise

THE OPERATIONS QUESTIONS i) How much time can you truly commit?

You already know the successful franchise requires an owner/operator to be truly profitable. QSR (fast food) franchises can operate 12 or more hours a day, 7 days a week, evenings and public holidays. You may need to employ staff, or members of your family may work in the business, or be giving up their job to work with you. Running your own business impacts not only your lifestyle but also the lives of your family, and a 7 day business may not work if you have a young family. So be realistic about how much time it will take to operate the business properly and how much time you can and really want to invest.

Are you looking for a part time opportunity to fit with children at school or a semiretirement plan? There are many franchises, such as work from home and mobile opportunities that allow greater flexibility as do many B2B businesses that only require a Monday to Friday commitment. However, if you are looking at a parttime opportunity, be sure that the numbers you are working on to assess your returns relate to the amount of time you intend to work.

For example, operators in a mobile food or coffee concept might be earning good revenue because they work on weekends and Friday evenings at sporting events and markets. But if you’re only looking to work on weekdays then break down the potential earnings from financial data to calculate exactly what can be earned in the hours you intend to work, and what proportion in the period you don’t, and see if that is still enough income for you.

ii) Look for possible trading cycles and seasonality

Is the business seasonal; do sales vary significantly throughout the week/year? Are sales consistent throughout the day or are they focused on specific times? Knowing this will govern how you staff the business, the hours that you should work and also whether the franchisor has considered a product or service offering for all parts of the day or month or year.

Ice cream and frozen desserts businesses are a good example. In warm climates, revenue will not fluctuate as much from summer to winter as in a cold climate where there can be a significant drop off in winter sales. But provided the summer trading is profitable enough to cover the lower income months then the numbers should average out for the year to create a profitable business. Or in some cases, the business may offer say a hot beverage range which may form 25% or more of revenue in the winter months. So break the numbers down to each of the revenue streams and understand whether the fluctuations in trading still create an overall profitable business model.

iii) Induction and training

Some of the major reasons you are considering buying a franchise are access to systems, thorough on-boarding and training, marketing and supply, as these will help ensure you can run a profitable business. So you need answers to all the

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following questions. What is the on-boarding and induction process, how long does it take and where is it conducted? How will training be delivered, will there be an additional cost, what about training your staff and what ongoing support is offered? What marketing will the franchisor do, what marketing collateral is provided and how will you be able to use that to market your business locally? What are your responsibilities to the franchisor regarding financial reporting, attendance at conferences and minimum performance criteria? What about the supply of goods, ordering, inventory management and payment terms? Assess and consider whether all the tasks required match your skills and whether you can outsource the tasks that you are not good at, or don’t want to do. iv) Check out the Operations and Training Manuals

The Operations, Procedures and Training Manuals should tell you exactly how to run your business with all the systems and procedures clearly explained. Ensure you have access to the Operations Manual during the due diligence period. Franchisors are often reluctant to provide you with a copy before you sign the Franchise Agreement because it contains confidential information. However, you should be able to look at the manual, in hard copy or online in many cases, at head office. Read every line and note the sections relating to performance criteria and your legal obligations. Your ability to comply with the Operations Manual is generally part of your compliance with the Franchise Agreement.

You may find that a breach of the Operations Manual may also be a breach of the Franchise Agreement and could potentially lead to the termination of your franchise. So it’s really important that you read the Operations Manual very carefully and take legal advice about unfair contract terms if the cross breaches seem unreasonable.

THE LOCATION QUESTIONS i) Location, location, location

The location of your franchise business will obviously affect the profitability and there can be significant variation between sales figures in units in the same network. This includes mobile as well as bricks and mortar businesses. Let’s say you’re thinking of locating in a retail shopping strip or mall. Thursday night would be very different to Sunday morning, so visit at various times during the day and the week. And yes, that could mean sitting in a shopping centre and literally counting the number of people that walk past your intended site at different times of the day and on different days of the week.

Go to the site or suburb where you want to operate. Are potential customers in the area? Do you have an exclusive operating or marketing territory in your franchise agreement? Who are your competitors? Look carefully at the factors that have made the most successful operators profitable and what may be the factors for those who are less so. Is being in a mall or the high street, or near another high volume business or a seasonally based tourist attraction part of any business’ success?

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If it is a shop or premises or a mobile territory, how far will you have to travel from your home to get there? A couple of hours travel a day on top of your labour commitment could be a deal breaker after a few years. See if you can get an outlet in your district which also has advantages of being part of the community and market you know.

ii) Purchasing an existing franchise business

If you are purchasing an existing franchise, check the details of any lease or licence agreement to make sure there is enough time left on the lease to get a reasonable return on your investment. We’ve seen a number of cases where franchisees have purchased an existing franchise business without realising there may be only 1-2 years left on the lease. You may need to arrange for the lease to be transferred (or negotiate a new lease) and definitely consider negotiating a further term. Ideally the term of the lease should line up with the term of the franchise agreement which in retail or QSR is generally 5 or 6 years. If the franchise is an existing mobile business with a vehicle lease – check the terms of the vehicle lease and any renewal options for the same reasons.

The person selling an existing franchise with a leased premise, should also give you a Lessor’s Disclosure Statement which should have information about any plans for demolition or redevelopment. However it’s a good idea to contact centre management personally and confirm there are no plans for redevelopment that will impact your business for the duration of the lease. And if you do proceed with a lease in a centre where redevelopment is scheduled, be certain you, the franchisor, a leasing agent or your lawyer have negotiated adequate compensation and that the franchisor is party to that understanding.

Irrespective of whether you are purchasing an existing business or opening a new site, check with centre management. Plans for demolition or redevelopment by the landlord and relocating your premises for redevelopment even temporarily could be highly disruptive and possibly even permanently damaging to your business. It also may incur unexpected fit-out costs and ongoing operational costs such as re-printing brochures, modifying the website etc with your new location. Even remaining in the same location in the midst of construction or the movement of other tenants may reduce access to your customers and impact your sales.

iii) A Head Lease and a Licence to Occupy

In many cases, such as large shopping malls where a premises lease will be required, the landlord (also referred to as lessor) may not grant a lease directly to the franchisee. Instead they require that the franchisor take the (head) lease and grant occupancy rights to the franchisee. This may be in the form of a Licence to Occupy or a Sublease. In these circumstances, the franchisee will be responsible for the franchisor’s obligations to the landlord such as bonds, guarantees and payment of rent, which the franchisee provides directly to the landlord. You should take professional advice that this is in order and your rights and obligations are clearly explained.

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iv) A Lease and a Step-in Deed

This is another lease arrangement you may encounter when leasing a premise to operate a franchise business. In this scenario, the landlord grants a lease directly to the franchisee. Franchisors may request the landlord enter into a step-in-deed with the franchisee and the franchisor. The deed provides that the franchisor has the right, but not the obligation, to have the lease transferred to the franchisor (to take over or ‘step-in’) in the event that the franchisee abandons the business or their franchise agreement expires or is terminated. Again, take professional advice so that you understand your rights and obligations.

v) Fit-out costs

Fit-out costs are often overlooked in the due diligence phase and can lead to major fallout between the franchisor and franchisee before the business is even launched, Check with the franchisor whether the fit-out costs are fixed or just rough estimates that could change at any time during the fit-out period. If the costs are only estimates (as they often are), contact the fit-out contractors directly to either pin them down to a contractual arrangement for the fit-out or manage how the costs could change and ensure you have enough money to deal with any possible increase. Some franchisees have been left with very large unexpected invoices during the fit-out period which has seriously impacted their financial capacity to launch and operate the business as they did not have access to more funds.

THE BRAND AND CULTURE QUESTIONS i) Does the business match your experience and skills?

Are you passionate about the industry, service and products? And is being a passionate customer enough to qualify you to run the business? You need to be sure as not only are you investing some serious money, you’re potentially committing 7 years of your life! You need to believe in what you are doing to be really successful. Cultural allegiance drives performance so it’s important that you support and believe in the company’s values and that you are aligned with the founder’s vision.

Your genuine commitment to the brand will also drive your employees’ commitment, your customers’ loyalty and ultimately your profitability. This applies to the franchisor and to the other franchisees - you want to work with competent people you respect and who are as dedicated to the brand’s success.

ii) Assessing your own compliance

You are an entrepreneur certainly, and now you have an opportunity to own and run your own business. But remember the reason you are buying into a franchise and not establishing your own business is to reduce the risk of becoming one of the ABS statistics of 60% of small business failures.

You are buying access to the franchisor’s intellectual property, their operational systems and procedures, brand and marketing, proven products, services and

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supply, and training and support. Your success is dependent upon your willingness and ability to comply fully with every aspect of the franchise business as outlined in the operations manuals and the franchise agreement. So understanding what that requires entirely before you commit, and genuinely being prepared to comply operationally, legally and personally is fundamental to your success.

THE VERIFICATION QUESTIONS i) Get independent verification of everything you can

The core of your due diligence is to ask questions and get answers! Speak with the franchisor (or recruiter) with any concerns and see what independent verification you can get for everything they tell you. Research the business on the internet, look up old press releases and stories, go into several outlets and watch how the staff and customers interact. Most importantly however, speak with other franchisees, former franchisees, and even competitors of the franchise you are considering, to gain as much information as possible.

ii) Talk to other franchisees present and past

Under the Code, the franchisor is expected to provide contact details of all existing and even former franchisees. Get that list and then visit and ask other franchisees all the questions you have. How was training delivered when they joined and was it was sufficient? Can they confirm whether it was available for their employees and at whose cost was the training provided? What ongoing access and support is available? They may verify financial performance so ask how long it took to become profitable, how much operating capital they needed, about seasonality, rents and staffing.

Ask other franchisees about the franchisor. What they are like to deal with for support and how responsive they are to individual franchisees, what is the culture like and are they happy? Speaking to a range of franchisees is useful in assessing how you think you might fit in, as franchisees’ experiences can differ greatly and you want to get a balanced view of the network. This doesn’t necessarily mean that if a former franchisee has a gripe with the franchisor or the system, it should deter you per se. Weigh up what they say and if there are profitable, happy franchisees as well, it could be that the disgruntled party was in part at least, responsible for their own demise.

iii) What happens at the franchisor interview?

Your interview with the franchisor should not just be one where you answer questions about your background and ability to run the franchise. It is also a chance for you to ask the franchisor questions about their business plans, the level of support they give franchisees and the details of training, including where it will take place and what expenses may be involved. It is also an opportunity to understand their vision for the brand and the culture of the network to see if your values are aligned.

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THE LEGAL QUESTIONS A critical part of your due diligence is to examine carefully all of the legal documents that the franchisor provides as this should outline what you are purchasing and the terms. Engage a specialist lawyer who is experienced in drafting and reviewing franchise agreements and knows the sector well to assist you. You may receive a stack of documents 10-12cm thick including the Franchise Agreement, the Disclosure Document, a copy of the Code and a Lease, if you have a premise. So let’s break them down and examine them one by one. i) The Franchise Agreement

In simple terms, a franchise agreement is a contract - written, oral or implied - under which: a) one party (the franchisor) grants another party (the franchisee) the right to carry on a business in Australia supplying goods and/or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor or its associate; b) the business is associated with a particular trade mark, advertising or a commercial symbol owned, used, licensed or specified by the franchisor or its associate; c) the franchisee is required to pay, or agree to pay an amount to the franchisor or its associate before starting or continuing the business (this excludes certain payments).

It’s imperative that you and your business partner/s read every line in the franchise agreement. Don’t be intimidated by the language. Get a highlighter and highlight anything you do not understand or agree with. Make notes on the margins with questions to ask your accountant or lawyer as you’ll get the best response from your advisors by being as proactive as you can in gaining that understanding.

ii) The Disclosure Document (DD)

The DD is mandatory under the Code. The purpose is to give a prospective franchisee key information about the franchise system, and an existing franchisee current information about the running of the franchise, including: Franchisees

The DD has a list of current and previous franchisees as well as their contact details. You should contact at least 3 current franchisees and a number of franchisees who have left the network and ask the questions outlined in the ‘Get Verification’ section above. Litigation

The DD will also let you know about any litigation or disputes past or present so you will know if there have been any serious issues between any of the franchisees and the franchisor or the franchisor and other parties.

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Experience of directors

Look at the experience of the directors and officers of the franchisor. A franchise system whose operators have management skills and years of experience in their chosen or a related business is more likely to be secure than a business that has been operating for a short period of time or where the directors do not have much experience in management or business. You need to exercise your judgement however, as every system starts out small and sometimes even well-established networks can experience difficulties, retraction or in some cases, collapse. Establishment Costs

It is a good idea to check the Disclosure Document in relation to Establishment Costs and see if this is broadly aligned with the fit-out costs quoted. The DD may have a range, as there may be different layouts depending of the franchise location. But try and pin the franchisor and their contractors down contractually on costs, the time frame and who will be managing the process. Intellectual Property and Trade Marks

The intellectual property (IP) of a franchise business is fundamental to your due diligence as you are essentially ‘renting’ access to use the franchisor’s brand for the term of the franchise agreement. A trade mark is a key piece of the franchisor’s IP and you need to be certain the franchisor owns (or is licensed to use and to sub-license use of) the trade mark in the relevant jurisdiction and in respect of the relevant goods and services, especially if the franchise is not yet well established. It is important to check that any registered trade marks appear in the DD, and that you review the scope of protection which has been sought. If a trade mark has only been applied for but is not yet registered, this could mean a number of things. So it is important to obtain legal advice as you want to be sure that the system you invest in has exclusive ownership of the trade marks and can grow the brand and the value of your mutual investment without threat of a future re-brand.

iii) The Code

You will also receive a copy of the Code outlining all of the measures, guidelines and procedures the government regulator, the Australian Competition and Consumer Commission (ACCC) has provided. It governs the way in which franchisors and franchisees conduct their business and their franchise relationship. You should read this document as well as it is important to understand your obligations and what recourse you and the franchisor will have in the (hopefully unlikely) event of a dispute.

iv) The Information Statement

This is another mandatory document that the franchisor will provide giving some broad information about franchising in general. It will be part of your learning journey as you decide whether a franchise business is for you.

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v) Leases

Be certain to include the examination of the lease as part of your due diligence. This subject is dealt with in the location section in detail and your lawyer will assist with explaining your rights and obligations under the various forms this may take.

SPECIALIST PROFESSIONAL LEGAL AND COMMERCIAL ADVICE i) The Statement of Independent Advice

The Code provides a clear protection for franchisees in conducting due diligence. This is called the Statement of Independent Advice and it directs franchisees to seek independent advice from a legal adviser, and from a business adviser or accountant. Franchisees are required to provide a signed statement to the franchisor prior to entering into the franchise agreement confirming that they have sought the advice from the relevant advisers - signed either by the advisers or signed by the franchisee. If you choose not to engage any of these advisers, the Code requires you to provide to the Franchisor a signed statement that it was recommended that you seek that advice but have decided not to do so. This underscores the serious nature of the agreement between you and the franchisor and the responsibility each party must take for their own actions in the proposed relationship.

ii) Protection under the Code

The Code is there to protect you so speak to a lawyer and an accountant/business advisor who specialise in franchising because it is complex. Not only could it save you thousands of dollars in potential litigation, a good franchise lawyer can assist you through negotiation of the Franchise Agreement and give you the peace of mind that you’re making an informed, legally and commercially sound decision.

You wouldn’t buy a house without professional input such as a building or pest report or without engaging a professional conveyancer or lawyer to handle the contracts. Buying a franchise is no different. No matter how modest the purchase price of your franchise, it is simply common sense to pay the relatively small amount to engage professionals to assist and protect you. Be certain to get the commercial and legal advice in writing and try to negotiate a fixed fee for the services.

iii) Your ultimate protection is taking specialist legal and business advice

Remember that when you’ve done everything outlined above to verify everything you can on your own, taking independent specialist legal and business advice is the most valuable insurance you can purchase. It will ensure that you have covered all your bases in assessing the business before you make your decision. The ACCC regards it as sufficiently important that they have a mandatory 14 day disclosure period and a 7 day cooling off period to ensure you have time to complete this process. But don’t wait until then, commence your commercial and legal reviews as soon as you get serious about your proposed purchase. It is astounding how many franchisees who have had a subsequent falling out with the franchisor and even lost their business, failed to take this critical step to complete their due diligence.

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Understanding and managing risk is your key to success The 7 category process outlined above gives you systematic guidelines about how to conduct your due diligence from the period where you first consider buying a franchise to the final execution of the legal documentation. It is quite simply gathering and assessing as much information as you can to evaluate the risk of going into that business and deciding if it is acceptable or not. To summarise the most valuable take away pieces of information in this chapter: 1. To be successful, a franchise is an owner operator proposition; 2. Get all the actual financial data you can from the existing franchise network and do the maths to see if the valuable proposition can work for you; 3. Use the protection the Code provides and take specialist independent legal and business advice. Although the statistics tell us buying a franchise is less risky than starting up a business on your own, there is no guarantee that your franchise business will be a success based solely on the fact that it is a franchise. The sector has had some bad press and there is some work to be done going forward, but Australia has one of the most highly regulated franchise sectors in the world with effective statutory protections in place already. There are over 80,000 franchised businesses in Australia employing around a half a million people. It spans every form of commercial activity and last year contributed over $170 billion to the economy. So keeping that in mind as a platform, buying the right franchise still offers a good risk provided you conduct your due diligence thoroughly.

DC STRATEGY 1300 682 657 www.dcstrategy.com

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Chapter 5

FRANCHISING ADVICE

from the National Retail Association Dominique Lamb | CEO National Retail Association

Abouth the author Dominique Lamb is the CEO of the National Retail Association and Director of NRA Legal, who has extensive experience providing industrial relations and employment law advice to a range of small, medium and large businesses across a range of industries. Dominique brings a level passion and motivation to her role which is hard to find. 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.

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W

e talk a great deal about doing due diligence – from buying a home, to sourcing a tradesperson, or even working out whether to accept that lucrative job offer. But when it comes to franchising, how do you know when you’ve done enough? In most cases, franchising is a terrific and highly-reputable option for those who don’t want to start up a business from scratch. It’s an exciting, competitive, dynamic and highly-rewarding option that’s worked incredibly well for hundreds of thousands of people over the past fifty years. But what used to be a specialised niche in the 1970s and 80s has grown into one of the most sought-after paths into business in Australia – so much so that there are now franchise opportunities to choose from in almost every business category, most of which are locally-grown models. The most recent figures from the Franchise Council of Australia show there are 1,284 franchise business formats in Australia, with as many as 80,000 individual franchisee businesses under their umbrella. They come in all shapes and sizes, from something small you can buy into for as little as $25,000, right up to the mega-franchises where you won’t get change out of $1 million. According to research specialist IBISWorld, these franchise formats are creating jobs for almost 600,000 people across the nation, and will have collectively turned over a projected $177 billion in 2018. That means there is an incredibly varied level of complexity, price points, contract terms, operational models and requirements between them all, and this requires meticulous due diligence – on the business structure, franchisor, financial records and projections, requirements, contract terms and on yourself.

Firstly, what are the pros and cons? When you’re buying a franchise, you must be willing to relinquish certain controls in order to benefit from some of the established systems, including: • an established brand name;

• strong consumer recognition; • terrific training avenues;

• clear and compliant staffing guidelines and protocols; • a proven market appetite; and

• being part of a strong community and support structures.

And the cons you’ll have to accept in exchange can include: • paying designated franchise fees;

• paying designated mark-ups on merchandise;

• having to wear the costs of discounts and promotions led by the franchisor; and

• paying designated marketing fees (although you then don’t have to worry about doing it yourself).

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The franchisor will also control elements such as your site approvals; the design, look and fit out of your store; how you employ your staff; and the physical area you can cover.

Why am I leaning toward a franchise? As many as one in every five small businesses will not make it past the first year – a rate that tends to remain relatively steady across both franchising and private business. It sounds like a pretty harsh reality, but on the flipside, there are four times more small businesses who go on to survive and thrive. But there are key differences between the influencing factors. Franchising, for example, tends to give you a far greater protection against common start-up issues like: • establishing a brand from scratch (which means having no reputational capital to draw upon); • a lack of consumer/public awareness; • inadequate market testing; • inadequate marketing and customer service capabilities and channels; • inadequate support channels (financial and mental); and • a lack of resourcing. Franchisees often say that what they love the most is being part of a supportive environment where they are able to use the resources of the franchisor, connect with the entire community of franchisees and take full advantage of the years of brand building that have already been done. Most importantly, it has to be a good fit for you from the start. Just because you love it as a customer does not mean you’ll feel that way about it as a business model, so it may even be worth working in a store for a few months to better assess the inner workings of the business first. The good news is that other than being a bad fit for you, the most common franchising issues can usually be identified very early during negotiations - long before even a single dollar has changed hands. They include: • a bad business model; • unfair contract terms; • poorly represented or inadequate financial records; • a lack of clarity surrounding how established (or how emerging) the brand really is; • inadequate training and support measures; • inadequate planning requirements; and • unrealistic expectations.

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The takeout for a future franchisee is that maximising your chances of success really boils down to how much homework you’re willing to do.

My bookkeeper’s a gun – shouldn’t they be able to handle it? If you’re heading down the franchise road – regardless of whether it’s a new one or existing – there are plenty of steps you’ll already have taken. You’ve likely explored a whole raft of opportunities and invested a great deal of time and resources in narrowing down your final options. You’re busting to get out of the gate and get going. You’re confident the model you’ve chosen has been tested, re-tested and then tested some more to iron out the creases. The products and services have been market tested and rolled out strategically, so you’re certain they’re viable. The public awareness is well-established. Even the marketing has been taken care of which means you don’t have to worry about a thing! You’re equally confident in your own abilities. You know you have a great work ethic. You’re motivated. You’ve been dreaming about running your own business for a long time and know you’ll make a great boss. You’re convinced it’s a match made in heaven. But the contract says you should engage independent legal and financial advice – you know it’s going to cost you more money (and time), but your bookkeeper knows your financial position, they’ve gone over the numbers and they stack up, so…

STOP! Do not sign anything until you’ve engaged a qualified, experienced, independent legal professional! Legal professionals who specialise in Industrial Relations law will tell you how often they are called in to major disputes after a franchisee has relied solely on the advice of their bookkeeper when buying an existing franchise business. But it’s 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. Time and again, franchisees do not approach an IR expert 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.

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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.

What due diligence should the franchisor be doing on me? You should expect your franchisor to have serious vetting processes in place to weed out unsuitable candidates (and that covers everyone from those with poor decisionmaking skills, right through to the downright unscrupulous). Every franchisor should be highly-focused on minimising their own risk of financial and/or reputational damage through the poor decision-making and breach of contract by their franchisees. As such, you should expect them to want extensive financial information from you. You should anticipate they’ll want to work with you to create a comprehensive business plan before you get started and you should expect this to be a thorough process. Your business plan is your roadmap for success, so your franchisor should want it to spell out clearly how you’re going to achieve certain profits by certain milestones, how you’ll manage your working capital and how you’re going to reinvest in the business as you go along. It may come as a surprise however, to learn that some franchisors can be quite lax when it comes to doing even basic due diligence on you. If they’re not putting you through your paces, this should be a red flag in itself!

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What due diligence should I do on myself? At the end of the day, it’s still up to you to spend as much time scrutinising yourself and your own capacity and motivations, as you do scrutinising the business. To get the ball rolling, think about how willing you are to discuss openly the answers to the questions below with your family, friends and most importantly, with an independent financial advisor. 1. What’s my motivation for wanting to run my own business?

2. Why am I attracted to franchising, rather than starting a new venture?

3. What are my expectations about the workload ahead, time commitment, financial projections, staff management and lifestyle? 4. How realistic are these expectations? 5. How much am I willing to sacrifice? 6. What will I do if I lose interest?

7. How willing am I to evolve the business and evolve my own expectations alongside it? 8. What will I do if I don’t like the rules and don’t want to follow the prescribed system? 9. How much do I know about Australia’s complex Industrial Relations laws?

10. What’s my default conflict resolution approach, and will it work for dealing with staff/supplier/customer/franchisor disagreements? 11. How well do I cope with stress?

12. What’s my attitude toward money in general? 13. How financially literate am I?

14. What further learnings or training do I need? 15. Do I favour instant or delayed gratification?

16. How have I managed my own, personal finances throughout my life? 17. How will I handle unexpected costs and liabilities?

Will the franchisor take care of my leasing arrangements? Larger franchisors may have a specialist leasing person or even a full property team inhouse to source sites suitable for the franchise and to negotiate lease terms in line with the business model, which can be a distinct advantage for the franchisee. There are many franchise businesses however who simply utilise what’s called ‘Territory Managers’. These Territory Managers may not have specialist knowledge or skills in property, retail lease legislation, or the negotiation of leases to be able to secure suitable sites on the best possible terms. Some franchisors may even leave it up to you to source your own site and negotiate your own lease.

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The NRA’s Leasing and Tenancy Services partner, The Leasing Department, recommends that if you are taking on a franchise and the site is already selected, with a lease in place, you should look very closely at the lease agreement and Lessor Disclosure Statement to understand all of your obligations under the lease. Founder of The Leasing Department Kyle Swain, says in most cases in-house property teams provide a good base upon which to operate a successful business. However, you can be at significant risk when franchisor representatives without specialist property and retail leasing knowledge conduct site sourcing and lease negotiations. “Your lease is the most valuable asset you have, or it can be your biggest liability, depending on how well the site was selected for your business and what terms and conditions were negotiated upfront,” Kyle says. “Over the past few years, the number one challenge facing retailers has been occupancy costs. Rent and other occupancy costs like outgoings and marketing levies should make up an affordable percentage of your business turnover – ideally 8-12%. “If your turnover is not as high as it should be because your shop is in a bad location, or you’re paying too much rent on the space compared to the sales that location is capable of, then your business is at significant risk of failure before you even get started”. Kyle warns that there are a number of other risks to be aware of. “Poorly-negotiated leases can have significant impact on franchisees during the lease term, or at the end of the term when it comes time to renew, or to va cate the premises.” His advice is to get independent, specialist advice on any lease you are being offered by the franchisor, or to help you source a suitable site and negotiate the best terms.

So, what now? If anyone tells you running a business is easy, they’ve clearly never run one, because the truth is, they’re hard work! It takes abundant dedication, determination and patience, but on the flipside, hundreds of thousands of Australians do so (and well) because it can also be one of the most rewarding things you can do - when the foundations are laid properly. If you are looking to sell or purchase a franchise business, please contact the NRA on 1800 RETAIL (738 245) to seek the correct legal advice on your obligations to your franchisor and to your future employees. It is absolutely vital to turn your mind to these considerations as a matter of priority, rather than a mere afterthought once the contract of sale has been signed.

Dominique Lamb | CEO National Retail Association 1800 738 245

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Chapter 6

Mastering Local Media Coverage for Franchisees Pete Burdon Franchise Media Training

About the Author Pete Burdon is founder and head trainer of Franchise Media Training. He is a former journalist and government press secretary. This gives him a thorough understanding of both sides of any media interaction. He presents both on and offline courses and workshops. Franchise Media Training prepares franchisors to protect their bottom lines against future media attacks and how to grow those profits by becoming proactive with media. For more information and to get the free report, go to www.franchisemediatraining.com.

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hen franchisees think about marketing through local media, most automatically think of paid advertising. There are, however, major opportunities to be part of the news sections of your local media as well. Most people, including franchisees, never consider this as a major part of their local marketing plan. Many think they have nothing that would be interesting enough to make the news pages, while many also think they need to use the services of expensive public relations companies to get featured. None of this is true, and this chapter will provide you with the tips and tools you need to make the most of these no-cost marketing opportunities. The beauty of adding this to your marketing mix is twofold. Firstly, there are massive lead generation and reputation-building benefits, as when current or potential clients and customers see you in the news, they see you as standing above the competition. It also creates additional consumer trust, as it is not a paid advertisement and you don’t have control over what’s published. This validation from the editorial staff gives your franchise added credibility. That’s not to say you should avoid local advertising. It can certainly be a worthy place to spend your marketing dollar. By adding this public relations pillar to your local marketing, you can have the best of both worlds and significantly boost your bottom line. Secondly, this coverage is completely free. Editors and reporters don’t charge when they choose to feature people and businesses in their publications for editorial or news purposes. That means you can add this to your marketing plan without cutting back somewhere else. These are the reasons the column has been introduced. The knowledge you gain will be valuable and will help you grow your business.

So who am I? I’m the founder of Franchise Media Training and a former newspaper reporter and government press secretary. That background has shown me what it’s like to be on both sides of any media conversation or relationship. I know what it’s like to be the journalist at the other end of the telephone or email message. I also know what it’s like to be in your shoes and what it’s like to approach media with suggestions for news stories. It can seem daunting, but it really isn’t - as you’ll find out in this chapter. I started Franchise Media Training because I could see the huge untapped potential for both franchisees and franchisors when it comes to promoting themselves through the media, and in turn, what that can do to their bottom lines. The sector is in such an amazing position to attract media publicity for several reasons, as you will find out in this chapter. We will begin by covering the basics of what franchisees need to know when attracting local media interest.

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Firstly, we will look at how to approach local media. This is one of the most important parts of the process and needs to be done properly. It is simple, but it is vital that you know what to do and how to do it.

Approaching the Local Media Relationships with reporters are like other relationships in many ways. But there are some things you need to be aware of to maintain a good working relationship. We’ll cover all of this. Some things to consider before my next column; what is your relationship like with your local news organisations? How much, if any, contact do you have with local reports, journalists or editors? Franchisees need to understand how to grow this contact and develop a fruitful relationship that will help them significantly boost their bottom line and standing in the community. Local media coverage is one of the most effective ways of getting your franchise local recognition. Reporters may seem intimidating, but it’s really just a matter of knowing what they want and understanding how to communicate with them. The first step is getting on their radar - they need to know you and your franchise business exist!

The Elephant in the room Before I carry on, I need to deal with the fears some people have around the media. Reporters, particularly local ones, are not out to get you. They have one job and that’s finding story idea that will interest their audiences. For local reporters, that means stories that involve local people and businesses, just like your franchise. These can be hard to find, particularly when some local newspapers have one reporter to write an entire weekly publication. Often, they rely so much on people approaching them with interesting ideas. That’s where you come in. They will be so pleased when you contact them with good, positive ideas and will subsequently see you as someone who is helping them, and even someone who could be useful on an ongoing basis. I used to be one of these people, and whenever someone came to me with a story idea, I never even considered taking a negative angle. Firstly, local newspapers are almost always positive in their news. Secondly, I knew that if I did take a negative angle, I would lose that source for good.

So how do you get on their radar? The first step to getting on their radar is finding out who they are and getting their phone number and email address. Never use an address like news@somewhere.com. Always find their personal contact details. Then, take a look at some of their back stories to get a flavour of what they write about. This will be helpful when you pitch ideas to them.

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The best thing you can do next is to try to meet them in person. If you have a mutual acquaintance, get introduced, but if not just send an email with a follow-up phone call. Say what you do and that you want to buy them a coffee at a café of their choice. Explain that you want to discuss how you could be of help to them in the future as a possible source for stories. Ask what they look for and discuss possible areas of where you could help, but don’t pitch anything specific unless they ask you to. Whether they agree to the meeting or not, you will now be high on their radar and they’ll take you seriously when you do pitch stories to them. They’ll know you are not looking to ‘score some free PR,’ but genuinely wanting to help. If they do turn you down, still ask them if they would like you to send through story ideas in the future that may interest them. Also ask what channel they would prefer you to contact them through. I strongly recommend you do this, but if you really don’t want to, there is another approach that’s better than not contacting them at all before pitching. This is where you find a story they’ve written on a topic that you could have commented on. In an email, tell them who you are and that you really enjoyed reading the story. Then mention a particular point they made and sign off by asking them to consider you as an expert source for future stories like this. This creates an additional point of contact, so they will know you if you do eventually pitch them a story.

Get Free Media Attention The key to getting free local media attention for your franchise is to understand what the reporter is looking for. We’ve outlined above how important it is to get on his or her radar, the next step is giving them what they want.

So what do they want? It sounds simple, but local media really want stories that interest local people and are focused on the local area. When I was a reporter in a small area, I was always surprised how many story pitches I got on topics that would never interest my readers and had nothing to do with my patch. This is a complaint I hear from almost every reporter I speak to. The problem is that we all have our own interests and we assume that others will be equally as interested in our story idea. For example, if you are offering a new service or product, that will be huge for you, but may have minimal interest from the average reader of the local newspaper. That is unless it has a major news hook that would grab the reader’s attention. A news hook is something that makes your idea stand out. It’s what will attract the eye of the reporter purely because he or she will know that it’s something that will interest the audience. In my experience, there are three major news hooks to focus on.

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Topical issues Commenting on issues that are already topical is the best way for franchisees to get regular coverage in the news pages of community media. This is something that most businesses overlook, but they’re so simple to find and so simple to sell because the reporter already knows they are of interest. For example, if national real estate figures come out talking about how much house prices have risen over the last month or year, a real estate agent franchisee could comment on whether he or she has noticed a similar trend. This is gold for local media because they need local stories. This is called localising national stories. So, whenever a national story focused on your niche comes out, localise it for the community newspaper. It’s simple.

Out of the ordinary All media love stories that are different. There’s an old saying, “Dog bites man” is not a story, but “man bites dog” is. What could you do that’s out of the ordinary? This could be anything from staff dressing up in an interesting, fun way on a particular day to raise funds for a worthy local cause, to you making an outrageous prediction about something related to your niche. The possibilities are endless here. Just remember that if it’s different, it’s newsworthy.

Human Interest These are interesting stories about local people. Do you have staff with an amazing background, someone who has been with the franchise for 50 years, or have you come to this role from something completely different? These are all potential stories in your local paper along with another bottomless pit of possibilities. Hopefully this gets you thinking and realising how many opportunities there are for you. There are a multitude of interesting, positive stories for franchisors and franchisees to share, so why not try and get on your local reporter’s radar today?

Pete Burdon Franchise Media Training Office@FranchiseMediaTraining.com

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Chapter 7

Why it’s crucial for franchisees to

be proactive when it comes to payroll Jane Wood | Associate Director RSM Australia

about the author Jane leads the human resources tax practice at RSM in Melbourne. She has over 20 years dedicated experience primarily in the areas of employment and expatriate taxes. Domestically Jane provides relevant tax advice to both employers and individuals, on all manner of employment related tax matters. This covers issues such as FBT, state employment taxes, employee share schemes, termination of employment and remuneration planning for not for profit organisations. Globally Jane manages expatriate tax programs within RSM for both inbound and outbound clients. This entails assistance to employers in designing and managing expatriate tax programs, and to participating employees in meeting their global personal tax compliance obligations. In addition, Jane supports and advises non-resident employers with start-up operations in Australia.

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F

ranchisees usually get a lot of help from franchisors when it comes to marketing, branding, and daily operations. One area where some franchisees seem to be left out in the cold is in managing payroll. This could be partly due to the complexities around payroll; changing and complex requirements can make it difficult for franchisors to keep pace with requirements and communicate them clearly to franchisees. It’s therefore important for franchisees to take responsibility for managing payroll proactively. This will reduce the risk of accidental errors that can damage the brand and the business. Even honest errors can turn into branding disasters if not handled correctly and promptly. Recent changes to workplace laws are aimed at protecting franchise workers. They were drafted in the wake of recent, high-profile misconduct by different franchises, although they apply to all businesses. These laws also hold franchisors to account if franchisees and subsidiaries don’t meet their obligations around remuneration, pay slips, awards, payment schedules, and more. As a franchisee, it’s essential to be aware of obligations around payroll to avoid falling foul of the Fair Work Ombudsman, and potentially having to backpay wages and fines. Some of the requirements that franchisees and other small businesses need to be aware of include:

1. Paying wages Staff must be paid according to their award or enterprise agreement, which sets out whether they need to be paid weekly, fortnightly, or monthly. In the absence of specific information, employees must be paid at least monthly. Employees must be paid with money, not with goods or services provided ‘in-kind’.

2. Deductions Employers can take money from an employee’s pay in some limited circumstances such as if the employee agrees in writing and it’s for their benefit, or it’s allowed by a court order or under the employee’s award. Employees can’t be forced to agree to a deduction and any deductions must be shown in writing on the employee’s payslip and wages records. Employers must not deduct money for things like till shortages or breakages, as this is illegal.

3. Upfront payments Some employers ask potential employees to make an upfront payment to secure their employment. This most often happens when an employee is asking for visa sponsorship. Such payments aren’t lawful and franchisees cannot ask potential employees to make any upfront payments to secure a job offer or keep their job.

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4. Spending requirements Employers can’t dictate how employees spend their money, regardless of whether that money is from wages or another source. Some employers demand that employees spend money in their shop or their associates’ businesses; this is not allowed.

5. Cashback schemes Some employers pay workers their full entitlements on paper but demand that the employee give back some of their pay in cash, effectively lowering their income. This is unreasonable and not allowed. Employers must pay employees according to their agreement employment terms.

6. Sham contracting Some employers require workers to act as independent contractors, which lowers the cost of employment for the business but places undue risk on the worker. If a worker isn’t genuinely working as a contractor, and instead fits the definition of an employee, then the business must treat them as an employee and pay them accordingly.

7. Keeping records Franchisees should keep accurate and transparent records regarding time and wages for seven years. These records must be in English, legible, and readily accessible for audit purposes. Failing to keep adequate records can result in fines. It’s essential to keep good records to prove that employees haven’t been underpaid or subject to any unlawful schemes.

8. Payslips Payslips form part of the record keeping requirements and must be given to employees within a day of their payday. Payslips must include full details of each pay period. Businesses that don’t comply with payslip requirements can also be fined. If a franchisee makes an honest mistake, it’s unlikely to be a problem as long as the mistake is reported as soon as it’s discovered and the franchisee takes all reasonable steps to rectify the error. This includes paying backpay promptly.

Payroll tax Another area that can cause issues for franchisees is that of payroll tax. Different in each state, payroll tax is complex and many-layered. A franchisee’s obligation is based on many factors such as the amount of remuneration paid, whether the franchised business is part of a group, and whether the business shares employees with other businesses. Employers only have to pay payroll tax if the total amount of remuneration it pays is above a certain threshold. Each state’s threshold is different. For example, in New South Wales, the annual threshold is $850,000, while the Queensland threshold is $1.1 million. In Victoria, the annual threshold is much lower at $650,000. However, the thresholds are measured against the Australian wide payroll.

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For many franchisees, these thresholds may be sufficiently high to mean they don’t have to pay payroll tax. However, if the franchisee’s business is considered part of a group for payroll tax purposes, this could change. When groups are assessed, the threshold is only available to one business in that group, so all other businesses in the group must pay payroll tax regardless of their total payroll bill. A group exists where there’s a corporation and related corporate bodies, where there are common employees used in the businesses, or where the same person (or entity) has a controlling interest in at least two of the businesses whether they’re a silent partner or an active partner. To determine whether they’re part of a group, franchisees must consider how independent they are in carrying on their own business, or if they’re interrelated with other businesses. Recent caselaw in Victoria noted that, in major chains that operate under a business franchise model such as McDonald’s and KFC, each franchise is considered a separate business for payroll tax purposes. Even though these businesses run under a formula, set criteria, and common branding, they are still considered totally independent of each other for taxation purposes. It’s important for franchisees to get independent, expert taxation advice if they’re not sure whether they should be grouped with other businesses, whether that includes the franchisor’s business or other franchisees in the system. Understanding these obligations is crucial because of liability concerns. If an organisation is grouped with other organisations, they become liable for each other’s payroll tax liabilities. For example, in a group of five companies where four have lodged their payroll tax returns correctly and one hasn’t, the remaining four will become liable for the fifth company’s payroll tax. Getting away with error-ridden or fraudulent payroll management will no longer be quite so easy with the introduction of the Australian Taxation Office’s (ATO) Single Touch Payroll (STP) requirements. These requirements will make it easier for the ATO to collect information about payments and match that information to tax returns. This will illuminate anomalies or other indicators that employers aren’t doing the right thing. Similarly, it will make it easier to detect when employees aren’t reporting their income in line with their employer’s records. Although the requirements currently only apply to businesses with more than 20 employees, in mid-2019 the requirements will expand to include all businesses that pay salaries or wages. This means the ATO won’t only catch out large businesses that are underpaying employees. Instead, the ATO will be able to identify and prosecute any business owner that fails to live up to their payroll obligations. STP requires franchisees and other business owners to report payroll payments every time they pay their employees. This will force many business owners to rethink and modernise their payroll practices. Using a spreadsheet or other manual tool to manage payroll will no longer be tenable; business owners will need to invest in compliant software that lets them meet STP requirements.

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In these early stages, the ATO understands the additional cost burden STP compliance places on businesses. While businesses will need to invest in the right accounting systems, the ATO is looking to reduce the overt involvement in compliance from businesses. Ideally, businesses will be able to set up their payroll management system to integrate directly with the ATO so that information is automatically provided to the ATO each time the payroll is run. Given all organisations will be subject to this requirement sooner or later, it makes sense for franchisees to start considering options now and, potentially, earmarking funds to pay for upgrades or technical support to achieve full compliance. There are other benefits to implementing a modern system to manage payroll. For example, doing so can make it easier to manage the myriad of awards and conditions that apply to individual employees. It can be easy to inadvertently fail to comply with these requirements when trying to manage payroll manually. Therefore, updating the details of awards and enterprise bargaining agreements (EBAs) within a more sophisticated payroll system means these conditions will be automatically applied to workers’ wages and entitlements in each pay run. It’s important to continually update this information, however, to avoid mistakenly using outdated information. By choosing the right solution that complies with the government’s STP requirements, franchisees can remove that burden from their own shoulders. Another key step that franchisees should take is to seek professional advice to help them keep up to date with evolving tax rules or changing awards. This can dramatically reduce the risk of accidental over- or underpayments to employees, or getting tax and superannuation payments wrong. When choosing a system, franchisees should consider opt for a cloud-based software. These are backed up on multiple servers in real time so that, even if the business experiences a major disaster, they’re unlikely to lose important data that could affect their ability to comply and report to the ATO. Cloud-based systems have the additional advantage of being easy to use by nonaccountants. These makes it easier for franchisees to take control of finances and understand their position, as well as get payroll correct. While franchisees will need to invest upfront in new systems and setting them up correctly, this investment will pay off in the future, as franchisees can save time on payroll management and reduce costly errors. Where possible, it’s worth considering automating some of the payroll process. This can be done by integrating bank feeds, using optical character recognition (OCR) to avoid having to manually type in information, and implementing HR and payroll modules as part of accounting software. Doing this helps franchisees mitigate or even eliminate many of the risks they could face around payroll, including ensuring all employees are paid correctly on time, every time, and meeting all tax obligations without fail. Paying the right amount of superannuation

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and tax, and managing employee leave entitlements effectively, means franchisees can worry less about payroll and concentrate on building and growing the business. An added bonus of a system like this is that it will assist in recognising errors when they happen. This means franchisees can act immediately to rectify the situation, whether it’s to correct underpayments, meet tax requirements, or adjust leave entitlements. It also helps avoid overpayments, which can be awkward for franchisees to manage. Employees can’t necessarily be forced to return overpayments immediately. This means that the company would potentially be out of pocket for some time if it overpaid an employee. Overpayments can be one-off errors that happen during a pay run or they can occur as a result of inaccurate award or agreement details being used to calculate pay. Using a system that minimises this risk is an important way to save money and avoid having to negotiate repayments with an overpaid employee, who could become resentful. It’s also worth reiterating the value of seeking independent, professional advice from a payroll and taxation expert. They can help franchisees choose and implement the right system, stay aware of all relevant legislation, and get the best performance from their business while managing risk.

Jane Wood | Associate Director RSM Australia www.rsm.global/australia

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Chapter 8

The Role Alternative Lenders Play In Your Finance Toolkit James Scurr | Founder and Managing Director Cashflow It

About the Author James Scurr is the Founder and Managing Director of Cashflow It, a specialist equipment finance company and the only equipment-funder focused solely on the Australian franchise industry. He has almost 20 years’ experience in the franchise industry having spent time as a successful multi-unit franchisee for companies, including Boost Juice Bars. James has extensive franchising and small business experience and has an acute understanding of franchisees’ requirements. James holds a Bachelor of Business, majoring in Management and Accounting from Queensland University of Technology. He is also a member of the Franchise Council of Australia, a Certified Franchise Executive and a Registered Franchise Lending Specialist.

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any franchisors don’t seem to get involved with where their franchise partners access finance. However, helping your franchise network gain access to the right finance is the first step in setting up your network for growth and success. There are a wealth of different lenders and finance options available to your franchise partners, yet unfortunately obtaining finance remains a common obstacle in the franchising journey. This is why establishing a finance toolkit is important in making the process as simple as possible for your network. Whilst banks play an important role in financing the Australian franchise sector, they are not the right fit for every prospect. Often franchisees may seek finance from multiple lenders in order to find the right combination to meet their circumstances.

BARRIERS TO ACCESSING FINANCE Despite the number of lenders in the market, accessing finance is one of the biggest barriers for franchisees looking to fund their set-up or expansion. Banks represent the major players in the finance market and are often the first point of contact for small businesses seeking funds. However, in today’s challenging climate, many banks are re-evaluating their offers to small business in favour of the less risky residential home loan market. The Banking Royal Commission and Franchising Enquiry have disrupted the relationship between franchisees and their lenders significantly. A distrust in the running of large banking institutions combined with a scepticism around the ‘proven success’ of the franchise model has resulted in both parties looking elsewhere. As a result, many SMEs which represent the majority of franchise businesses, struggle to gain access to finance through traditional banking institutions. This is for a number of reasons, including complex application processes and high collateral requirements. Many franchise partners will likely find that the application process and criteria required by banks are designed to cater the large businesses, and fail to fit the needs of their small business model. As a result many franchisees may apply for finance and get declined, which can be discouraging and impact negatively upon franchisors recruiting activities. Ultimately, unless franchisees have access to considerable equity in property or have managed to build up a high level of cash savings, seeking all of the finance required from a traditional lender is likely off the table. Finance is a vital step in the opening of a franchise business, and is not a one-off interaction with the lender. Down the line franchisees are likely to seek further funds for expansion, refurbishment or to become a multi-site owner, and having a reliable source of funds ensures that there are no barriers when these opportunities arise.

FINANCING WITH ALTERNATIVE LENDERS Why Alternative Finance Is On The Rise Over the past decade the concept of alternative finance has gained traction within

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Australia. Despite being available for quite some time, recent changes have further fuelled engagement with alternative lenders, and the franchise industry is set to benefit. Recent Equifax data shows that many SMEs are turning away from traditional lenders and opting for alternative sources of finance. Where such lenders were once approached with caution, opinions on the industry have adjusted as both consumers and businesses begin to see the benefits. A 69% growth in commercial demand for alternative finance reflects this cultural change, with the highest adoption rates among SMEs, who represented 98.8% of all alternative finance enquiries in 2017. When examining what is behind the move, it is clear that experience plays a major role. A recent Banjo Small Business Finance Survey stated that 90% of those surveyed preferred their experience with alternative lenders to that of banks. As franchisees often have repeated interactions with finance suppliers throughout the life of their business, it is important that they feel the lender can continue to cater to their needs in a longterm capacity. Alternative lenders offer flexibility and transparency that the banks just can’t, something that is vital in the eyes of SMEs who often have unique circumstances requiring a unique solution. Further research suggests that adoption rates are only set to grow, as young consumers are more likely to opt for an alternative finance lender. 62% of enquiries come from millennials, and data also shows that younger businesses are showing higher demand and adoption rates. This information suggests that as young Australians get more involved in the business and lending economy, there will be further demand for financing options outside of the big banks. Accreditation with Alternative Lenders Accreditation is an important part of your finance toolkit, and allows your franchise partners to utilise their connection to the brand as a tool to gain quick and seamless access to finance through your accredited lender. Accreditation programs act as a platform for franchisors to offer their network access to a pre-approved amount of finance with a particular lender. A franchisor isn’t limited to establishing accreditation with just one lender either, they can establish this with various banks and alternative lenders to ensure that they can offer a finance solution that will suit each of their franchisees. Where accreditation with an alternative lender differs from that of a bank lender is its accessibility. Generally speaking, bank lending is only available to larger franchise networks of 50+ units, and the process to be undertaken by the franchisor is often lengthy and time consuming. In addition to this, bank accreditation alone may not be enough to cover the purchase of a franchise, often allowing finance for only 50% of the purchase price. As a result, franchise partners often come up short and their savings are not enough to bridge the gap, or would leave them with little to no working capital within the business.

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Accreditation with alternative lenders are generally more flexible and offer a quick approval process for franchisors, and their subsequent franchisees. Alternative finance providers are often willing to take on more risk and work more flexibly around smaller loan amounts. This is beneficial as throughout their franchising journey, franchisees are likely to need access to smaller amounts of finance for refurbishments, equipment upgrades or re-branding activities. Whether franchisees opt to utilise only an alternative lender, or a combination of finance options, having an accreditation in place is vital in ensuring no prospects are lost due to finance barriers when growing your franchise network.

THE APPLICATION PROCESS What you need in order to successfully apply for franchise finance Many franchisees have the perception that being a part of an overarching brand means that they don’t need to prove the success of the business model when applying for finance, and hence don’t supply vital documents such as business plans. Each franchisee and their business has variables that need to be assessed to ensure that the business can operate profitably. This is why in addition to completing the lenders application form and supplying basic documentation such as ID, it is vital to provide evidence that shows a lender why the business is viable and how it will repay the debt. Such evidence will likely include documents such as asset and liability statements, financial statements and future projections, personal and company tax returns, documents from the ATO including Notice of Assessment and Business Activity Statements, and a business plan. About The Business Plan When developing a business plan, whether it be for a finance application or another purpose, the document should be comprehensive. When writing the plan there are some key points to keep front of mind. Ensuring that the business plan is adequately explaining the critical functions of the business and the role they play in its success and communicating the objectives of the business to lenders, investors, business partners and employees is key. The document is also a useful tool for franchisees, as they can use it as a reference guide to monitor their progress towards the goals and targets set when they initially established their business. There is no set structure that a business plan must follow, but there are some important elements that should always be included. To start off, all key information about the business such as its entity and trading name, legal structure, shareholders and franchise information. Despite being part of a franchise network, each business can be formed in a different manner and hence it is important to cover this information. This is also where franchisees can discuss the management team and key personnel roles and relevant experience. In any business operation, it is important to have up to date knowledge of the market

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you are operating within, in order to make smart decisions for the business. An in depth market analysis should be included, preferably featuring a SWOT analysis. This section should also include a breakdown of the franchises target market, demographic and any relevant trends influencing the industry it operates within. This information can vary significantly based on the franchises location, and the consumers demographic and behaviour in that particular region. Another important consideration for franchisees is marketing. Many franchisees have the opportunity to invest in their franchise brands national marketing fund, which will conduct large scale marketing plans on their behalf. However, local area marketing plays an important role in the success of each individual location and is important to the franchises long-term success. These ideas don’t necessarily have to be fully formed and ready to execute, but it is important that franchise partners show they understand the importance of local area marketing and have taken the time to consider what their business can do in this space. Finally, and potentially most relevant to lenders is the financial information section. This is where franchise partners have the opportunity to include financial statements and outline the set-up costs of the business. This is also the place to show financial projections that can help support the potential future earnings of the business. Such information acts as an indication to the lender about how the business will service the debt, so it is important that it is realistic and accurate.

CONCLUSION Alternative lenders play an important role in your finance toolkit, which should ultimately contain a spectrum of different lenders and strategies to make accessing finance easier for your franchise partners. Helping your network understand what alternative lenders offer in comparison to banks and other more traditional sources of finance helps franchise partners make smarter choices for their business. As you try to promote growth within your own franchise network, the last thing you would want to see is a prospect lost due to difficulty gaining access to finance.

James Scurr Founder and Managing Director | Cashflow It www.cashflowit.com.au

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Chapter 9

FRANCHISE LAW 101 Raynia Theodore | Principal, Corporate Advisory & Franchising Team MST Lawyers

About the Author Raynia is a Principal in the Corporate Advisory and Franchising Team at Melbourne based law firm MST Lawyers. Raynia has been practising in franchising law since 1998 and acts for a number of well-known national and international retail chains and franchise brands in a variety of industries. Raynia dedicates her practice to advising franchisors and franchisees in all aspects of franchising, including: • the setup of new franchise networks, including the drafting franchise documents for Franchisors and advising on Franchising Code of Conduct compliance • advising in relation to structuring, restructuring and joint ventures, in particular advising on structuring and asset protection for franchise networks; • acquisition and disposal of franchise networks and franchises; • advising franchisees, in particular master franchisees relation to the acquisition or sale of franchise businesses and review of franchise documentation • Consumer Law compliance, specifically in relation to pricing and supply issues, misleading or deceptive conduct and unconscionable conduct claims and dealing with the ACCC. • Franchise dispute resolution. Raynia is a regular contributor of articles for a variety of franchise publications on topical issues in Franchising.

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W

ading through stodgy, unfamiliar legal documents for the purchase of a franchise can be daunting. In this article, we focus on the key legal questions you should consider when investing in a franchise and reviewing the franchise documentation.

1. What Due Diligence Should I Do When Purchasing A Franchise?

Conducting adequate due diligence is an essential step before entering into a franchise agreement to ensure that you are fully informed and aware of the risks. As part of proper due diligence, you should: (a) Visit the website of the Australian Competition & Consumer Commission (the ACCC). The ACCC is the national regulator of the franchising industry and publishes informative guidance such as the Franchisee Manual (https://www. accc.gov.au/publications/the-franchisee-manual); (b) Read the Franchising Code of Conduct (the Code), which is a mandatory code governing franchising (https://www.legislation.gov.au/Details/F2017C00182); (c) Analyse the proposed location and/or territory of the franchised business. For example, does the franchisor have a site selection policy and did the franchisor conduct demographic and traffic flow analysis of the site? Is the franchisor planning on expanding within or around the territory and what rights will you have to purchase any adjacent, competing territories? Are there any competing businesses within the area? What are the occupancy costs, such as rent and outgoings, of the premises and are there any refurbishment works required? (d) Read the franchisor’s disclosure document. This document provides important details about the franchisor and the system, including details of the key people involved in operating the system, any current legal proceedings, the estimated costs of running the franchise and the contact details of existing and certain former franchisees; (e) Approach existing and former franchisees of the franchise system in which you are intending to operate and ask them questions to glean first-hand information as to how the system operates, the training and ongoing support the franchisor provides and the actual (rather than estimated) costs of running the business; (f) Request financial data or earnings information from the franchisor. However, a franchisor may be reluctant to provide such information to avoid the risk that it may subsequently be found to be misleading or deceptive; (g) If you are buying an existing business from the franchisor or one of the franchisor’s franchisees, request a copy of the contract of sale of business, the existing lease of the premises (if relevant) and any disclosure statement that must be provided to you. In some states of Australia, a vendor of a small business is required to provide a disclosure statement to the purchaser containing financial and operating information about the business. Even if the vendor is not legally obliged to provide a disclosure statement, you should nevertheless ask to see the business’ recent financial statements;

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(h) Request a copy of the franchisor’s operations manual to enable you to understand the precise details and procedures governing how the business operates on a day-to-day basis. Given it contains confidential information about the system the franchisor may be reluctant to give you a copy or allow you access to its operations manual. As an alternative you can request that you be allowed to inspect it at the franchisor’s head office. (i) Attend franchising exhibitions or conventions;

(j) Obtain advice from an independent legal advisor on:

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

(ii) any lease and disclosure statements provided by the landlord in relation to the proposed premises from you will conduct the franchised business. You will have different rights and obligations under such documents 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 licence agreement with the franchisor; and (iii) your employee obligations under the Fair Work Act 2009 (Cth);

(k) Obtain advice from an independent accountant and/or business adviser on the most appropriate and cost and tax effective business structure you should adopt to run the franchised business. Your adviser will be able to advise you as to the best structure in order to minimise tax and personal risk and protect your personal assets, such as the family home. The common structures include: (i) Sole trader; (ii) Company;

(iii) Partnership; (iv) Trust;

(v) Corporate Trust. You will need to make this decision well prior to entering into the franchise agreement so that you and your advisers have sufficient time to prepare the necessary documentation. Some franchisors have policies in relation to business structures that franchisees may adopt accordingly, before spending time and money establishing such structures you should seek the franchisor’s approval of your chosen structure.

2. What Documentation Will I Have To Sign Before Purchasing A Franchise?

The volume and lenghth of the franchise documentation which will be provided to you before entering into a franchise agreement can be overwhelming. Such documentation will likely include (a) The franchisor’s “Deed of Confidentiality” which may be required to be signed before you are provided with access to any of the franchisor’s confidential documents;

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(b) The franchisor’s disclosure document; (c) The franchisor’s franchise agreement;

(d) The Information Statement that is contained within the Code;

(e) The franchisor’s lease or occupancy licence in respect of the premises from which the business will be conducted (where relevant); and (f) “Ancillary” documents such as legal advice certificates, acknowledgement forms, representations statements and authority forms.

The law stipulates that you must be given a 14 day “disclosure period” to read, understand and seek advice on the disclosure document, the franchise agreement and the Code before signing the franchise agreement or entering into the franchise. If, after reading the documents, you do not understand them, ask your legal advisor and/or ask the franchisor. To document any particular deal you have reached with the franchisor you should negotiate the inclusion of special conditions in the franchise agreement. 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 from a franchisee a signed statement that the franchisee obtained legal and accounting advice or chose not to do so.

3. What Types Of Fees Will I Have To Pay? Understanding the financial investment required to operate a franchise is a key aspect of the proper due diligence and budgeting that is described above. As you will discover, there are many one-off and on-going payments that you will likely incur before purchasing, while operating and even upon exiting, a franchise. These fees include: (a) The initial, up-front franchise fee or purchase price for the grant of the right to operate the franchise and use the franchisor’s branding, trade marks and systems. The franchisor may also request that you pay a refundable deposit as evidence of your interest in purchasing the franchise. You may be able to negotiate this fee with the franchisor or request that it be payable in instalments. The fee is typically included in the disclosure document and franchise agreement; (b) Equipment costs, whether to purchase or lease equipment; (c) Initial stock costs;

(d) Security deposits or bank guarantees required to be provided to the landlord of the premises and any other occupancy costs (if applicable); (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 your gross income or sales in the business;

(f) Ongoing marketing or advertising contributions or levies. These fees, either a fixed fee or a percentage of your sales, are typically held by the franchisor in a marketing fund to pay for promotional activities on behalf of the entire

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franchise network and system. The Code strictly regulates the use of marketing fund contributions and the financial statements of the fund that must be given to you. However, franchise agreements often give a franchisor broad discretion as to the use to which the fund can be put and negate any liability of the franchisor to spend any part of the fund on particular franchisees or their territories; (g) Local area marketing costs. In addition to paying the general marketing fund contributions, you may also be required under the franchise agreement 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. This may involve initial training programs provided by the franchisor prior to the start of the franchise plus additional training required during the term of the franchise agreement, including refresher training or new product training. Moreover, you will likely be required to bear any travel and accommodation costs associated with training and staff wage costs if your employees are also required to attend training. You will need to clarify with the franchisor whether the initial training fee is included within the initial franchise purchase fee; (j) Renewal or further term fees. If you have an option to renew the franchise for a further term after the initial term expires, you may be required to pay an additional franchise fee to the franchisor for the right to operate the franchise for the further term; (k) Sale, transfer or assignment fees. If you wish to sell or transfer your franchised 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, in addition to the franchisor’s costs of approving the sale and the new franchisee. Some franchise agreements contain a variable transfer fee which is calculated according to the year in which the franchise is sold, with a higher fee being payable the earlier the business is sold. It is prudent to incorporate such fee within the sale price of the business; (l) Legal costs. Franchisors usually require franchisees to pay their legal and administrative costs incurred in drafting, preparing, negotiating and executing the franchise documentation, including the franchise agreement, disclosure document, lease or occupancy licence and any ancillary documents; and (m) Default costs. Most franchise agreements include a clause requiring you to pay any costs and damages incurred by the franchisor as a result of a breach of the agreement by the franchisee and any enforcement of the franchisor’s rights.

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4. Can I Sell My Franchised Business?

You will need to obtain the franchisor’s consent to any sale, transfer or assignment of the franchised business. A franchisor is legally obliged not to unreasonably withhold its consent to a transfer or sale of a franchise. However, a franchisor may reasonably withhold its consent to a sale if: (a) You have failed to pay an amount owing to the franchisor; (b) You are in breach of the franchise agreement;

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

(d) The purchaser fails to meet a reasonable requirement of the franchise agreement; (e) The purchaser does not meet the franchisor’s selection criteria;

(f) The transfer would have a significantly adverse effect on the franchise system; or (g) The purchaser does not agree, in writing, to comply with the obligations under the franchise agreement.

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

5. When Can I Terminate The Franchise Agreement?

Unless the franchise arises from a transfer, renewal or extension of an existing franchise agreement, under the Code, you are entitled to a seven day “cooling off period” after you have signed the franchise agreement or made any payment under the franchise agreement. During this period, you may give notice to 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 (less the franchisor’s reasonable expenses). Otherwise, you may only terminate the franchise agreement if the franchisor consents to the termination.

It is not common for a franchise agreement to give you any other right to terminate the agreement. Accordingly, if you wish to do so, you will need to seek legal advice to determine whether you have the right to terminate under the general law of contract or under statute. 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. Relatedly, if the franchisor engages 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.

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6. When Can The Franchisor Terminate The Franchise Agreement?

Generally, a franchisor is given more extensive rights to terminate a franchise agreement. For example, a franchisor may terminate a franchise agreement immediately (and without serving prior notice on you) in the following circumstances: (a) If you breach the franchise agreement and do not remedy the breach within a reasonable time after being given a breach notice by the franchisor to remedy the breach. The franchisor must allow you a reasonable time to remedy a breach, however, this does not have to exceed 30 days; (b) If you no longer hold a licence that you must hold to carry on the franchised business; (c) If you become bankrupt or insolvent; (d) If the franchisee is a corporation it is deregistered by the Australian Securities and Investments Commission; (e) If you are convicted of a serious offence; (f) If you voluntarily abandon the franchised business or the franchise relationship; (g) If you operate the franchised business in a way that endangers public health or safety; (h) If you are fraudulent in connection with the operation of the franchised business; or (i) If you agree to the termination of the franchise agreement.

A franchisor may also be entitled to terminate a franchise agreement even if you have not breached the agreement if the franchise agreement allows for such early termination but subject to the franchisor giving you reasonable written notice of the proposed termination and the reasons for it.

7. Can I Operate another Business after the Franchise Agreement Ends?

Most franchise agreements provide for a “restraint of trade” or “non-competition” period after the expiry or termination of the agreement. This means that you are restrained, or 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.

If you are concerned about how you will be able to earn a living after you cease to operate the franchise, you should seek legal advice as to whether the restraints in the franchise agreement are enforceable or otherwise try to negotiate a more relaxed restraint with the franchisor.

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8. When 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 try to negotiate an option to renew the franchise agreement for a further term before you sign the franchise agreement.

Despite that, 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. These conditions may include: (a) You failing to provide the franchisor with the proper notice exercising the option within the timeframes required by the franchise agreement; (b) You being in breach of the franchise agreement; (c) You failing to sign the renewal franchise documents within the timeframe required by the franchise agreement; (d) If there is a lease of business premises for the operation of the franchise, the lease not being renewed by the landlord; (e) You failing to refurbish or upgrade the premises from which the franchised business is conducted in accordance with the franchisor’s current corporate image and brand; or (f) You failing to pay any money owing to the franchisor.

The above explanations aim to give you some preliminary assistance in navigating the legal documents which you will be faced with on the purchase of a franchise. Although the Disclosure Document follows a standard format and Franchise Agreements contain common provisions such as those discussed earlier there is no substitute for reading the Franchise Documents thoroughly and obtaining professional advice. Disclosure Documents and Franchise Agreements are complex lengthy documents and buying a franchised business is a serious undertaking. It is one of the most significant decisions a person can make. It is therefore essential that you obtain advice both qualified financial and legal advice from an accountant and a lawyer who each have significant expertise in franchising.However, it is no substitute for conducting your own due diligence and seeking independent legal and financial advice.

Raynia Theodore Principal, Corporate Advisory & Franchising Team MST Lawyers 03 8540 0242 www.mst.com.au

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Chapter 10

Franchise Marketing in the 21st Century: A Cluttered Digital World Ali Okailey | National Marketing Manager Reliance Partners

About the Author Ali Okailey is the National Marketing Manager at Reliance Franchise Partners. He is a Marketing Specialist, Graphic Designer and Video Maker. Ali has led various national strategic marketing projects in the franchising industry for over five years and had acquired substantial knowledge to provide us with his expert advice on the Marketing and Branding of franchises.

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F

ranchise marketing in its basic form is all about the marketing team making the business attractive to potential franchisees, but it doesn’t stop there. At the same time, the franchise marketing team at head office is also making sure that the franchise is an attractive choice for the end user. Then there are the franchisees, who function as a frontline sales team marketing the franchise under the direction of head office. What binds them together is that franchises are built on a promise shared by the franchisor, franchisee and end user; a promise that the service delivered will be of a consistent quality. This promise is the franchise’s unique selling proposition, and if it is not defined or marketed properly, then the franchise will fail. Imagine a travel franchise: its agents sell the promise of an experience made up of dozens of intangible elements – meeting wonderful people, breath-taking views, candle lit dinners. Similarly, franchisors are marketing the support services, the reputation for quality and the infrastructure that go along with the franchise. It’s these elements that make up the franchise promise.

Marketing a service vs marketing a product Franchises need to be marketed differently to products such as soft drinks or cars. They are more similar to a service in that they are: • Variable • Intangible • Perishable • Suffer from quality and quantity trade offs Franchise variability occurs because their services are heterogenous: each interaction between the service provider and client varies in some way. For example, a hairdressing franchise loses a hairdresser who is popular with customers. The replacement hairdresser cannot give exactly the same service. But if they are trained along franchise lines they can deliver something very similar, and that operational capability to replicate services is crucial to the franchise promise. The intangibility of services also differentiates them from products. Before experiencing the service, it’s difficult for the end user to judge its worth. As a result, achievements and endorsements are important: a business coaching franchise whose client wins a Business Person of the Year award will market the achievement. Branding also plays an important role, since it represents what the franchise would look like if it were tangible: soft and approachable, or hard-edged and businesslike. Like a service, franchises are perishable because what they produce can’t be stored away for future use. The franchise’s resources, processes and systems are assigned for delivery during a definite period in time. So if the lawyer isn’t present at the franchise, the legal service can’t be offered; there is no backup supply in the warehouse.

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Quality and quantity trade offs occur when hotels run out of premium rooms, or fast food outlets run out of a key ingredient at a high demand time. The franchise promise of enjoying chips is broken if the end user arrives at an outlet to find a potato shortage. Franchises need to be secured from these potential pitfalls, and that’s a key part of the promise made between franchisors, franchisees and end users – that the franchise delivers the same quality of service every time.

Branding: the public face of the franchise promise There must be a coherent look and feel throughout the franchise. Marketing materials for online, print and social media must have uniform branding. Marketing guidelines dispensed by head office stipulate fonts, colours, positioning and accepted syntax when promoting a product. Branding must be differentiated from other franchises who may offer similar products or services. Differentiation is key, because without it there is no reason for the end user to choose one franchise over another. One franchise even stipulates that online portals hosted by suppliers must be branded along franchise lines, even though these are never seen by the public. This immersion in the brand perpetuates the idea that it is the promise inherent in the brand that binds franchise stakeholders to it, including external stakeholders. When franchisees are on social media, they are the brand ambassadors – they comment, they share – but all videos, images, graphics and articles posted should be produced by head office to control the brand image. Other than that, franchisees should be free to comment, engage and support the community.

Communication key to franchise promise Communication is the lifeblood of franchise marketing teams. That’s because a nonfranchised company has a finite in-house sales team but in a franchise the franchisees are the sales team too — and there can be hundreds of them. As frontline brand ambassadors for head office marketing campaigns, individual franchise units need to be on message and prepared to meet customer expectations. Communication between franchisor and individual units is essential because it’s common for head office to lose track of what’s happening at the customer interface, and vice versa. If head office is broadly advertising a new discount on services and a franchisee fails to do the same – or worse, has no knowledge of it – then the customer is put in the position of having to explain to the franchisee what’s happening within their own franchise. At that point the franchise ‘promise’ is well and truly broken. Franchisors are the coaches of the franchise, its team leaders. The franchisor should be able to say: these are the services, these are the products, this is the branding and this is the forward plan for the next five years. Without these guides, the franchise will no longer resemble a group. It will merely be a number of completely separate business units using replicas of branding guidelines that once existed, the franchise promise long forgotten.

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Technology keeps the franchise in touch A centralised email marketing system, CRM and marketing intelligence system are central to any franchise; and there should be no competing or isolated system existing outside head office’s immediate control. Google Analytics and other ‘paid’ tools show how well a marketing campaign is performing. That’s the beauty of digital marketing: you can put out a campaign, gauge its effectiveness, fine tune it and send it out again. You can do simple A/B testing, or create multiple versions of a page, each with a slight difference in CTA or image, then filter the results using AI to find the most engaging. But there is another form of feedback. Once they have complied with the head office marketing strategy, franchisees must report back on its effect on the end user. This means there are two marketing feedback systems: the digital analytics performed by head office and the grassroots indications from individual units about what did and didn’t work.

The collective vision Having a collective vision is crucial to the marketing of franchises. It can be likened to a promise, a pact made between franchisor, franchisee and end user. Franchises can fail because the franchise units look different – a different colour scheme, layout or menu offering. For fast food restaurants, the marketing is seen every time the customer sees one. But for a specialised service such as an insurance provider franchise, the client may only interact with the brand once or twice a year, and that’s why marketing standards are so important. The franchises must look the same, sound the same and reinforce the message that the company is an expert in its field. As brand ambassadors for the franchise, franchisees need to stay in constant communication with head office marketing. Franchises are by their nature not unique businesses, they are the products of a shared promise, one that can only be kept through compliance and vigilance.

Is there such a thing as too much information? When companies realised the internet was an arena in which they could advertise themselves for free, it substantially lowered the barrier to entry. Whereas before the online craze, these same organisations had to budget for advertising expenses – newspaper ads, TV spots, etc – now they were able to offer their products and services and even interact with existing and potential customers without spending a cent. Blogs are perhaps the easiest platform to create and maintain. Why? Because any business or individual can self-publish whatever they want on their own website. There’s no set calendar for producing content, and neither is there a time limit on what topics will become successful. So a business could publish an evergreen article about their industry, and then several years down the track it gains traction – for whatever reason – and ends up earning them new clients with no advertising spend.

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Franchise Marketing in the 21st Century: A Cluttered Digital World

But this is the exception rather than the rule. In fact, most experts will tell you there are already too many blogs out there. That may be the case, but when you get blogging right, it can actually be a mechanism for continued success.

Good content will always win out This overwhelming amount of information isn’t restricted to blogs. Social media posts, white papers, long-form articles – there is an oversupply of written content, but only a few key channels through which most internet users find it. Consider that the vast majority of consumers only find what they’re looking for through the standard discovery funnels. Top of the pile is Google, where over 3.5 billion search queries are answered every day. Next are popular social media platforms like Facebook, Instagram and Twitter. Then email lists, where users have subscribed to e-newsletters and updates that are relevant to their interests. While this sounds like a lot of content, it pales in comparison to the amount of information online that cannot be found through these popular channels. In this way, it creates a winner-takes-all scenario – one in which most of the web traffic only goes to the most prominent content. In a perfect world this content would always be the best as well, but that’s not always the case. The good news is that this information is free – for the most part. Of course the major media corporations have taken to barring their content behind paywalls, but that solution will only last so long. Smaller outlets are delivering equally if not more compelling content on the same topics, and the typical user will flock to free content over a site where they are forced to pay a monthly subscription. It is true that as the amount of information online increases, a percentage of it will be ‘bad clutter’, or sub-par content. But there will also be relevant, timely and insightful information. And over time, that high-quality content will be more accessible.

Knowledge is free, but quality must be sought out While the above is true – with free content becoming much more abundant over time – there is still a place for paid content, and businesses shouldn’t shy away from monetising their information. If the knowledge is useful and relevant – particularly to niche industries – there will always be a market of willing buyers. Take Netflix, for example. Media consumers had long been crying out for an ad-free solution to high-quality media; at the same time, the Hollywood elite were fighting a losing battle against online piracy. Netflix filled the gap, and today online streaming is one of the hottest and most competitive markets. It’s easy to assume that just because there are no ads, monetisation can’t work. But that couldn’t be further from the truth. The rise of the ‘influencer’ means people are willing to pay for good content so long as it’s (a) provided by an authoritative industry figure or source, and (b) insightful enough to warrant the cost.

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Business FranchiSe Guide

Similarly, many businesses are investigating the native advertising method. While still technically ‘advertising’, companies promote their products or services through sponsored posts. They serve to inform the reader while also carrying them through the sales funnel with a ‘soft’ advertising approach. One advocate for native advertising is “experiential storytelling platform” Apester, which in 2016 alone earned over a billion content shares from major media publications like The Huffington Post and The Telegraph. The bottom line? For consumers, it’s that high-quality information is out there – if they know where to look. For businesses, it’s that there are alternatives – and hugely rewarding ones – to the standard ad-based model in order to monetise their information.

Changing economies Such a massive transformation from the standard revenue models has seen new and exciting economies and partnerships emerge. For native advertising, traditional media corporations are working side by side with youthful, tech-driven start-ups. In the influencer market, there’s a new generation of experts who are earning a living solely from the information they provide to their online audience. It’s this very human element of ‘advertising’ that is perhaps most surprising, particularly to the corporate giants of yesteryear who have spent years investing in programmatic ads and interruptive marketing – like pop-ups and banner ads – in order to sell their product or service. Instead, the most successful businesses will be those that embrace these new revenue models and use them in a way that is ethical rather than intrusive. The modern consumer is savvy and quick to turn against any business that it sees as invading their online experience. It’s one reason why big newspapers have, for the most part, failed to fully adapt to the online world.

Big media is crumbling – can new media fill the gaps? Old media’s stranglehold on distribution meant they could charge whatever they wanted for ads. But perhaps their biggest mistake was refusing to change their methods in the online arena. They wanted everything to stay the same – just delivering their information through a different (paid) platform. However, in a world where almost everything is free, that approach was never going to be sustainable, let alone profitable. In this way, new media had – and still has – a leg-up on their old-media competitors. Forced to be lean with costs and aggressive with the content they deliver, the result was a culture of innovation. They needed to innovate in order to find new ways to not only survive against the media monoliths, but thrive. Some adapted better than others – Buzzfeed, Vice and Gizmodo are some of the most popular media outlets among the younger generations. And in fairness to traditional outlets, publishers like News Corp did their due diligence and spent their advertising dollars wisely to turn resources like news.com.au into the go-to news hub for everyday Australians.

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Franchise Marketing in the 21st Century: A Cluttered Digital World

As with all things related to online information, there must remain a constant vigilance. In an industry as fast-paced as online media, opinions can change in an instant. AOL, Yahoo!, MySpace, GeoCities, Digg, Netscape – all titans of industry at one time, and all-but-forgotten today. The rise of clutter is a clear problem, but perhaps a bigger threat is the issue of apathy.

The best way to slice through the clutter? Aesthetics Not all businesses have aspirations to become market leaders online. Instead, they want to use the internet to deliver their products and services to their customer base, while also positioning themselves as thought leaders. So for these typical organisations, how they can cut through the information clutter? What can they do – besides pouring their entire marketing budget into advertising – to reach their ideal audience? The answer will change every few years, but right now it’s all about visuals. The wisest companies have already recognised the power of aesthetics. People are timestrapped and want to consume relevant information as quickly as possible. While a decade ago they may have been content to read a white paper from start to finish in their lunch hour, today they want to find that same information condensed into a two-minute video or a visually enticing infographic. With social platforms like Facebook and Reddit also giving preference to these aesthetically pleasing forms of content, it feeds back into the winner-takes-all situation. That is, more people are likely to share easily consumable content like short videos, data visualisations and infographics. More shares means more views, and that can quickly turn into viral content. How the company decides to leverage that popularity for new business is what truly makes the best information stand out from the clutter.

Ali Okailey | National Marketing Manager Reliance Partners aokailey@reliancepartners.com.au

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Business FranchiSe Guide

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Chapter 11

Good News for Franchising Brian Keen Franchise Simply

About the Author Brian Keen has been involved in the franchise industry for more than 30 years. He is the founder of Franchise Simply. His handson business experience as a multi-unit franchisee, franchisor and consultant helping many of the big names create their own franchise systems and growth over the years has been fed into Franchise Simply, helping today’s SMEs grow their business by franchising.

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Business FranchiSe Guide

C

urrent media coverage might indicate that franchising is Australia is in strife, but that’s not the case. Let’s start with the good news about franchising.

The franchising industry frequently achieves double-digit annual gains and contributes a vast amount to Australia’s GDP. The sector is a huge support to the Australian economy and society, providing at least 580,000 jobs each year – that’s 4.4 per cent of all employment, now rivalling the manufacturing industry. Unfortunately, this is not the current message being sent either politically or by the media, who are instead indicating that problems with a few are representative of the whole industry. In 2018 I spent time presenting at franchise exhibitions in Sydney, Perth, Brisbane and Melbourne, and spoken to a couple of hundred people interested in growing their business using franchising as the model. There is no doubt that there has been a fall in the level of interest at these exhibitions due to the message being heard from the media. The unfortunate result is probably that growth of the most dynamic and rapidly expanding business sector in this country has been derailed with a possible long-term impact on the Australian economy and employment growth nationally.

Why has this happened? Due to extensive multi-media coverage, the reputation of a couple of large franchise groups has deservedly been outed for serious breaches of the expected levels of integrity and transparency in business practice. Those involved will no doubt be pursued and hopefully made to pay the price of their behaviour through the strict legislation under which Australian business is ruled. But, and here’s the ‘rub’, the resulting fall in interest in the whole sector I am seeing, unhappily looks like it has affected many in the industry. All because the often-hysterical pursuit of the franchise sector means everyone is being punished on behalf of the few. This is blown out of proportion. I know the franchise sector is mainly populated by warm, caring business people who fully understand it takes a team to deliver (I believe not more than 4 or 5 groups out of the 1160 have behaved questionably – that’s less than 0.5 per cent). Think of your favourite shopping centre brand, food hall favourite, home service provider, anything at all really, and they will likely belong to one franchise group or another. The disappearance of these will affect us all. It is this majority who understand that, to make a franchise network hum, franchisees and franchisors need to work together to bring in the money for both sides. The franchisee on the frontline, happily giving customers great service with a smile in return for well-earned dollars. The franchisor on the other hand, supporting their franchisees with a brilliant brand, fantastic product, some marketing, business assistance, business

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Good News for Franchising

training and help when things become tough – this list can be very long and, in today’s digital business environment, expensive. Most franchise systems recognise these challenges and acknowledge that they are responsible for the brand and marketing for everyone’s business in their network and they work hard to keep everyone informed and keep a handle on what is going on to keep the money rolling in for everyone. Hire A Hubby is a classic example which illustrates this point so well. They were awarded the Franchise Council of Australia’s Excellence in Marketing award in 2017. Achieving this was not easy. The journey started with changes to data management of the group which meant reports on how the group was fairing became available. By 2014 it was evident franchisees were working on much larger jobs than a simple handyman could achieve, and marketing was vastly underselling their abilities. It was also evident the traditional marketing tools being used were woefully out of date. So, the investment to go digital with improved social media and online marketing was made in conjunction with a good look at the needs of the actual 2014 target market. Yes, to begin with, there was resistance from franchisees. But within a year the results of this change were astounding and brought everyone on board with pride, increasing the value of everyone’s asset. One of the most powerful elements of franchising, and of most franchise groups is that they are on top of their numbers. They understand the importance of their KPIs and how their target market is changing and what their franchisees are actually doing matched against the market’s needs. They rigidly collect and understand data from their own digital sources and stories from their franchisees and make changes as required. Any business that fails to do this will inevitably come up against barriers to growth. Remember it is the entrepreneurial spirit most of our franchisors have which enables them to understand the market and make sure the network is still on the mark, make changes as needed to keep up with the shifting social and digital business environment, which also brings in the dollars for the group. A franchisor cannot do this without franchisee support. The bottom line is, a great franchise is one which has been structured and systemised so both sides of this business partnership can happily and profitably be working together. The truth is, this kind of sharing and caring franchising is strong, showing year-on-year growth which is overtaking the manufacturing sector as one of our major employers. It is still a proven, safe, solid and extraordinarily successful business model and destined to continue long into the future. Regulating the nebulous can end up strangling the goose that lays the golden eggs. True, some management has behaved badly, but this is not the time to suffocate the

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Business FranchiSe Guide

95% of ethical and successful franchised businesses with even more compliance and bureaucratic second guessing. Australian consumers will only suffer more if franchising is prevented from applying its entrepreneurial, innovative and disruptive skills to raise the standard of business and customer service that the modern world demands. 2019 is set to be a great year for franchising, and this ever-expanding sector will no doubt continue to be a huge and vitally important component of the Australian economy.

Brian Keen Franchise Simply 1300 960 136 brian@franchisesimply.com.au franchisesimply.com.au

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What is a Franchise?

Franchise Listings categories: Automotive Products & Services:................................................................................... 80 Beauty Products & Services:................................................................ 82 Business Services:................................................................................... 83 Courier Services:..................................................................................... 84 Financial Services:.................................................................................. 85 Food:........................................................................................................... 86 Retail:......................................................................................................... 88

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Business FranchiSe Guide

Automotive Products & services

Midas Australia 76-92 Station Street, Nunawading VIC 3131 Contact: Darren Gillett | Phone: 0419 319 697 Email: franchiseenquiries@midas.com.au | Web: www.midas.com.au

BUSINESS DESCRIPTION:

FRANCHISE OUTLETS AUSTRALIA:

Franchisees are supported in all areas of business, including workshop set-up and operation, national and local marketing, fully integrated POS system and ongoing field management expertise.

Current: 80+ FINANCIAL DETAILS: Initial franchise fee: $ TBA Franchise Fee + Set-Up-Costs

You’ll be backed by one of the biggest brands in the auto service market.

Minimum investment: $200,000 + GST

This is not just a great investment in your future, it’s the opportunity of a lifetime.

Advertising/marketing fee: TBA % + %

Royalty fee: TBA%

COMPANY DETAILS: Date of first franchise: Over 40 years Membership: FCA, AAAA, ACRA Training provided: Yes Territories Available: Australia wide

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What is a Franchise?

Automotive Products & services

Snap-on Tools 80 Holbeche Road, Arndell Park NSW 2148 Phone: (AUS) 1800 762 766 Email: sota.franchise@snapon.com| Web: www.snapontools.com.au

BUSINESS DESCRIPTION:

COMPANY DETAILS:

Snap-on Tools is a mobile franchise operation putting high quality tools and equipment into the hands of mechanics, engineers and technicians across the country. Snap-on Tools Australia & NZ is a wholly owned subsidiary of Snap-on Inc., a developer and manufacturer of innovative and technologically advanced tools with over 4,500 franchisees worldwide.

Date of first franchise: 1988

After 30 years in the Australian market, Snap-on Tools continues to grow with an increasing number of franchisees reaching the million dollar club and new growth opportunities available for existing franchisees such as sales assistants, multi-units and specialised tool storage and diagnostic sales programs. Initial training occurs in Dallas, USA and ongoing support is provided - no previous mechanical experience required. Snap-on offers an exclusive finance package to assist new franchisees.

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Membership: FCA, FANZ Training provided: 1 week training provided in the US, plus 2-6 weeks when onroad, plus ongoing training and support provided. Territories available: Territories available across Australia and New Zealand. FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 180 (AUS/NZ) 4500+ (INT) FINANCIAL DETAILS: Initial franchise fee: $40,000 ex-GST Minimum investment: $50,000 Financial assistance: Snap-on Finance Packages Available


Business FranchiSe Guide

Beauty Products & Services

Laser Clinics Australia Contact: Liz Seeto & Fiona Harcourt Email: franchising@laserclinics.com.au | Web: www.laserclinics.com.au

BUSINESS DESCRIPTION:

FRANCHISE OUTLETS AUSTRALIA:

Since 2008, Laser Clinics Australia has grown to be the largest provider of laser hair removal, cosmetic injectables and skin treatments in the country.

Current: over 110 throughout Australia and

Laser Clinics Australia offers every franchise partner a unique franchise business opportunity. Each location that is opened is a 50/50 partnership between the franchisee partner and Laser Clinics Australia. Laser Clinics Australia has recently been awarded the FCA Emerging Franchisor of the Year 2018

New Zealand FINANCIAL DETAILS: Initial franchise fee: $50k Minimum investment: $290k - $320k*

(based on financing lasers) Royalty fee: 10% Financial assistance:

Accreditation with NAB, Equipment finance support Advertising/marketing fee:

COMPANY DETAILS: Date of first franchise: 2008 Membership: FCA Training provided: A comprehensive

training program, cloud-based business management tools and ongoing operational support. Territories available: Currently recruiting

in Victoria, Western Australia, Queensland and New Zealand. - 82 -

3%


Business Services

Mail Boxes Etc Suite 202, 54 Alexander St, Crows Nest NSW 2065 Contact: Natasha Zamora | Phone: 1800 556 245 Email: franchising@mbe.com.au | Web: mbe.com.au

Territories available: QLD - Chermside, Capalaba, Townsville NSW - Castle Hill, Brookvale, Newcastle VIC - Cheltenham. Essendon, Geelong TAS - Hobart NT - Darwin ACT - Canberra SA - Adelaide WA - Mandurah, Cannington, Midland And more please feel free to enquire anytime.

BUSINESS DESCRIPTION: The MBE franchise model has been established for over 30 years internationally and 25 years here in Australia with over 2500 service centres worldwide and 37 across Australia. Unlike most franchises, MBE have 3 core streams of revenue, Mail Box Rental, Printing and Packing/Freight. It’s owning 3 businesses in 1. COMPANY DETAILS: Date of first franchise: In 1993 the first MBE Australia opened in Neutral Bay

FINANCIAL DETAILS: Initial franchise fee: $50k

Training provided: 8 weeks training. 2 weeks in an established centre. 2 weeks at Head Office in Sydney. 2 weeks online MBE Training Academy. 2 weeks post in your store.

Minimum investment: Approx. $150k Royalty Fee: 7% Advertising/marketing Fee: 2%

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Courier Services

FASTWAY COURIERS Level 9, 491 Kent Street, Sydney, NSW, 2000 Australia Shed 5, Level 1, Lever Street, Ahuriri, Napier, NZ Contact: (AUS) Fastway FSO or (NZ) Fastway FSO Phone: (AUS) 1300 FASTWAY or (NZ) 06 833 6333 | Email: (AUS) fso@fastway.com.au or (NZ) recruitment@fastway.co.nz | Web: www.fastway.com.au or www.fastway.co.nz BUSINESS DESCRIPTION:

FRANCHISE OUTLETS AUSTRALIA

Established in New Zealand in 1983, Fastway Couriers’ global network includes 63 regional depots and 1,500 Courier Franchisees across Australia, New Zealand, Ireland and South Africa.

Current: AUS over 800 Courier Franchisees NZ over 300 Courier Franchisees FINANCIAL DETAILS:

Through its industry-leading franchise system, Fastway Couriers has developed a reputation for providing fast, friendly and cost-effective service to its customers – an achievement which has earned the franchise over 50 industry accolades.

Initial franchise fee: From $25,000 + GST ($AUS) and from $15,000 ($NZ) Minimum investment: From $25,000 + GST ($AUS) and from $15,000 ($NZ) Royalty fee: N/A Financial assistance: N/A Advertising/marketing fee: N/A

COMPANY DETAILS: Date of first franchise: 1984 Membership: FCA and FANZ Training provided: Ongoing training and support is provided to our franchise partners. Territories available: Various territories are available throughout Australia and New Zealand.

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Financial Services

The Interface Financial Group – IFG 50/50 Level 32, 8 Exhibition Street, Melbourne VIC 3000 Contact: David T. Banfield | Phone: (AUS) 1300 957 900 Email: ifg@interfacefinancial.com | Web: www.interfacefinancial.com.au/franchise

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Interface franchisees provide short-term working capital for expanding businesses through a unique and proven invoice discounting programme.

Current: Australia 6 Canada 6 U.S.A. 46 UK & Ireland 10

COMPANY DETAILS: Date of first franchise: 2014

FINANCIAL DETAILS:

Training provided: Extensive initial training (5 days) covers both theoretical and practical aspects of the business. Ongoing regular training and coaching is also provided.

Initial fee: $34,500

Territories available: Single units are available in all territories.

Advertising/marketing fee: N/A

Minimum investment: Franchise fee+ working capital of $50,000+ Financial assistance: All funding is done together - franchisee and franchisor

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food

HOG’S AUSTRALIA’S STEAKHOUSE Level 1, 152 Shore Street, Cleveland QLD 4163 Contact: Greg Miller | Phone: 1800 HOGSTER (1800 464 783) Email: disco@hbca.com.au | Web: www.hogsbreath.com.au or www.hogsxpress.com.au

We also provide comprehensive Operations, Kitchen and Staff training manuals. There’s an additional 3 weeks of in-store training for new restaurant openings.

BUSINESS DESCRIPTION: Hog’s Australia’s Steakhouse is home to the famous 18-hour slow cooked prime rib and curly fries. A much loved family restaurant, Hog’s will celebrate 30 years of operation next year and boasts 75 restaurants across Australia

Territories available: Throughout Australia

and New Zealand

In 2017, Hog’s Australia launched it’s quick service model, Hog’s Express, a smaller footprint proposition that complements the full-service restaurants. It takes the form of both a static offering in shopping centres and service stations, as well as mobile food trucks, and specialises in burgers.

FRANCHISE OUTLETS AUSTRALIA: Current: 75+ FINANCIAL DETAILS: Initial franchise fee: $50,000 AUD (excluding GST)*

COMPANY DETAILS:

Minimum investment:

Date of first franchise: Established in Airlie Beach in 1989, first franchise store in 1990. Hog’s will celebrate 30 years of operation in 2019.

*Dependent on location and size Hog’s Australia’s Steakhouse: $450,000 - $850,000 AUD Hog’s Express: $350,000 - $500,000 AUD

Training provided: Hog’s eight-week

Franchisee Training Program covers: Management procedures, Front of House and Back of House procedures, Account Management, Introduction to the Support Office Team, and both Theoretical and Practical instruction.

Royalty fee: 5% of Net Sales* Financial assistance: Accredited with

a number of banking institutions Advertising/marketing fee:

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2.5% of Net Sales*


food

theobroma 3A Kia Court, Preston VIC 3072 Contact: Ben | Phone: (AUS) +61 431 727 004 Email: Ben@theobroma.com.au | Web: www.theobroma.com.au

A professional team backs the franchise at Theobroma with extensive franchising, marketing and retail experience.

BUSINESS DESCRIPTION: Theobroma is a Total Food and Beverage Concept offering consumers high quality chocolate and chocolate beverages with the added enhancement of a full food menu, with some stores even offering a licensed venue. From handcrafted artisan chocolate jewels using real Belgian Coverture chocolate to hot and cold chocolate beverages, desserts, melted chocolate dips and retail products, there is something for everyone and for every occasion.

COMPANY DETAILS: Date of first franchise: 2007 Training provided: 3 weeks and ongoing support Territories available: Australia, New Zealand and International

Our coffee blend is specially roasted for us by our Italian barista and is rated as one of the best in Australia.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 7 stores in Melbourne 4 stores in New Zealand 1 Store in the UK. FINANCIAL DETAILS:

All this enhances the commercial viability and strength of the business model. The brand has 4 concepts - Lounges, Lounge Bars, Pavilions, Pavilion Bars. What the Franchise Offers • Innovative and unique concept that includes all of life’s pleasures. Chocolate, Coffee, Food, Alcohol and Retail. • Highest quality chocolate products. • Professional team with a range of skills to assist you. • Easy to manage and full training provided. • Site selection, fit-out expertise and property leasing experience.

Initial franchise fee: $40,000 Minimum investment: $150,000 to $500,000 Royalty fee: 6% Financial assistance: referral available Marketing fee: 3%

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retail

7-ELEVEN STORES PTY LTD 357 Ferntree Gully Road, Mount Waverley VIC 3149 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

program includes classroom, in-store hands on training and also support in your store during your first four days of trading.

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.

Territories available: VIC, NSW, QLD, ACT,

WA FRANCHISE OUTLETS AUSTRALIA: Current: 670+

FINANCIAL DETAILS: Initial franchise fee: Site specific Minimum investment:

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.

$400,000 - $1,000,000 (site dependent) Royalty fee: Gross profit split, determined

progressively. Other income stream profits, such as commissions, are also shared.

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retail

Beaumont Tiles National Office: 225 Marion Rd, Marleston SA Contact: Greg Stock (SA & VIC) 0498 005 785| Marcus Allchin (NSW & QLD) 0418 791 088 Email: franchiseenquiry@tile.com.au | Web: www.beaumont-tiles.com.au

BUSINESS DESCRIPTION:

FRANCHISE OUTLETS AUSTRALIA:

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.

Current: 87 franchise stores as part of our 110 plus strong store network. FINANCIAL DETAILS: Initial franchise fee: $45,000 + gst which includes opening promotion and advertising costs. Minimum investment: Indicative Range $265,000 - $335,000 + gst

COMPANY DETAILS:

Royalty fee: 4%

Date of first franchise: 1990 (very first), & new franchise system 2004

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

Membership: FCA (Franchise Council of Australia) Training provided: Extensive in house training program provided Territories available: NSW, VIC, QLD and SA

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retail

BRIGHTEYES franchising PTY LTD 36 Cessna Drive, Caboolture QLD 4510 Contact: Ralph Edwards | Phone: (AUS) 1800 178 251 Email: enquiries@brighteyes.com.au | Web: www.brighteyes.com.au

BUSINESS DESCRIPTION:

COMPANY DETAILS:

Searching for true work-life balance in a fun and friendly retail environment focused on enhancing Australia’s active outdoors lifestyle, then look no further than BrightEyes.

Date of first franchise: 1985 Membership: FCA Training provided: Full training provided & ongoing support Territories available: Australia wide

If you like the idea of simply opening the shutters when you arrive in the morning, with no early morning preparation or late night clean-up, this is the franchise opportunity for you.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 40

Established in 1985, BrightEyes is Australia’s largest privately-owned retail sunglasses network and is eyeing new store opportunities throughout the country for Franchise Partners to share in its bright future.

FINANCIAL DETAILS: Initial franchise fee: POA Minimum investment: $120,000 Royalty fee: 5% Financial assistance: No

Owning and operating a BrightEyes franchise can be the most satisfying and fun way to earn a living that you’ll ever know. At BrightEyes, we are not simply selling sunglasses – we are selling an enhanced way of life.

Advertising/marketing fee: 1.5%

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Professional Services categories: Financial Institutions. ................................................................................................................ 92 Lawyers........................................................................................................................................................ 94 Support Services & Consultants........................................................................................ 7

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Financial Institutions

CASHFLOW IT® Level 1, 349 Coronation Drive, Milton QLD 4064 Contact: Dan Toms | Phone: 1300 659 676 Email: customerservice@cashflowit.com.au | Web: www.cashflowit.com.au BUSINESS DESCRIPTION: Cashflow It® are the franchise finance experts. We specialise in equipment finance solutions only for the franchise sector. With competitive rates and flexible terms from 12 months to 5 years, Cashflow It can provide the funding that franchisors and franchisees need today. We offer flexible rental, traditional leasing solutions and business loans tailored to your requirements. What Can We Fund?

Why Choose Cashflow It®?

• New equipment

• Competitive rates

• Used equipment • Fit-outs

• 24 hours a day / 7 days a week Customer Service

• Store refurbishments

• Preserve your precious capital

• Re-financing

• Simple, manageable, low weekly payments

• Buying an existing franchise

• Terms start from just 12 months

• National equipment roll-outs

• Repayments are 100% tax deductible • Flexible end of term options • Experts in franchising • Fast online application process

Cashflow It is a division of Thorn Group Ltd. Thorn Group is a leading Australian provider of financial services, meeting the needs of niche consumer and commercial markets. They are an ASX 200 company and have over 80 years’ experience in the finance Industry. Franchise Accreditation Cashflow It Accredited Franchise systems enjoy pre-approval and other exclusive benefits. Talk to us today about getting your franchise system accredited. Why spend your hard earned capital when you can simply… Cashflow It! In Business Since: 2014 - 92 -


Financial Institutions

NATIONAL FRANCHISE INSURANCE BROKERS (NFIB) 10 William St , Perth , WA 6000 Contact: Darryl Morris | Phone: (AUS) 1800 776 747 Email: info@mynfib.com.au | Web: www.mynfib.com.au

BUSINESS DESCRIPTION:

NFIB meets the Australian demand for a dedicated online provider of insurance cover for franchisees, franchisors and franchised businesses. How NFIB can help? Franchisors are always looking to provide a value adding facility for their franchisees. Many “blue chip� franchise systems have taken advantage of the NFIB on-line insurance solution to provide this to their franchisees. When Managed Program franchisees visit our site, they will arrive at a dedicated online area with access to a compliant insurance program created specifically for their franchise business. All information about that franchise will be pre-populated. To make things even simpler, all Managed Program insurance policies have common due dates. This creates a win/win situation with NFIB assisting franchisees to save on their insurance costs and you, as the Franchisor, have one less headache when it comes to confirming that each franchisee has insurance which complies with the franchise agreement. In Business Since: Established in 2010

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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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lawyers

Marsh & Maher Lawyers Level 2, 100 Wellington Parade, East Melbourne VIC 3002 Contact: Robert Toth | Phone: 03 9604 9400 Email: rxt@marshmaher.com.au | Web: www.marshmaher.com.au BUSINESS DESCRIPTION: Wow, what a year in franchising in 2016! Our franchise group have been extremely busy advising new Franchisees, establishing Franchise Systems and advising Overseas Franchisor’s and Companies. Our Franchise, Licence and Distribution Group has over 30 years experience and industry knowledge. 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 Franchise Systems, • Company structures; • Master Franchising; • Advising International franchisors; • Code Compliance • IP and Trade Marks • Leasing • Dispute Resolution and Mediation We provide clients with fixed fees based on scope of service.

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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 35 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. Stewart is a recognised national and international guest speaker at franchise conferences (New Zealand, Australia, USA) and he is listed in the International Who’s Who of Franchise Lawyers 2018. 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 was the winner of the Boutique Licensing Firm of the Year in New Zealand in the 2018 Corporate INTL Global Awards and has been selected by Best Lawyers in New Zealand in the area of Franchise Law for 2018. The firm has also been the winner of Lawyer International – Legal 100 – Law Firm of the Year – Franchise – NZ for 2018, winner of 2018 Global Law Experts Awards – Boutique Franchising Law Firm of the Year in New Zealand, winner of Corporate Livewire Legal Awards 2017/2018 – Franchise Lawyer of the Year – New Zealand, winner of Corporate USA Today Annual Awards 2017 – Law Firm of the Year – Franchise – New Zealand, and selected as Asia IP Experts – Licensing and Franchising 2016. SGL belongs to the Franchise Association of New Zealand, the Franchise Council of Australia and the International Franchise Association (USA). Stewart was instrumental in the formation of the Franchise Association of New Zealand in 1996 and he wrote the original rules, as well as being a Past Chairman and a current member. Stewart was awarded Life Membership of the Franchise Association of New Zealand in 2014 in recognition of his significant contribution. He was also a board member of the supplier forum of the International Franchise Association (IFA) from 2001 to 2007. He is actively involved in international franchising and has published articles in the International Journal of Franchising Law. 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 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 - 96 -


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:

FC Business Solutions offers a range of professional services for franchisors, franchisees and business owners. Whether a business structure is stand-alone, seeking to franchise or currently running a franchise network, there are a number of important areas in which FC Business Solutions supports clients. FC Business Solutions helps develop, grow and systemise businesses. We can assist clients with: • Franchise system setup • Franchise training • Franchise and HR audits • Specialist recruitment • HR support and helpdesk • Graphic design • Operations manuals • Digital marketing strategy • Franchise recruitment

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Helpful organisations FRANCHISE COUNCIL OF AUSTRALIA

FRANCHISE ASSOCIATION OF NEW ZEALAND

Suite 5B, Level 1, 307-313 Wattletree Rd Malvern East VIC 3145 Phone: (AUS) 1300 669 030 Phone:+61 3 9508 0888 Fax:+61 3 9508 0899 Email: info@franchise.org.au Web: www.franchise.org.au

PO Box 33-676 Takapuna New Zealand 0622 Phone: +64 9 274 2901 Fax: +64 9 274 2903 Email: contact@franchise.org.nz Web: www.franchiseassociation.org.nz

SPECIALISED EVENTS Level 1, 578 Malvern Rd Prahran VIC 3181 Phone: +61 3 9999 5460 Fax: + 61 3 9999 5461 Email: info@specialisedevents.com.au Web: www.specialisedevents.com.au

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION GPO Box 3131 Canberra ACT 2601 Phone: +61 2 6243 1111 Fax: +61 2 6243 1199 Email: info.centre@accc.gov.au Web: www.accc.gov.au/franchisingcode

AUSTRALIAN TAXATION OFFICE GPO Box 9990 (In your relevant Capital City and State) Phone: 13 28 66 Web: www.ato.gov.au

OFFICE OF FRANCHISING MEDIATION ADVISER Suite 205, Level 2, 370 Pitt Street Sydney NSW 2000 Phone: (AUS) +61 2 9267 0167 Fax: +61 3 8660 3399 Email: office@franchisingmediationadviser.com.au Web: www.franchisingmediationadviser.com.au

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Index of franchises & services 7-Eleven Stores...............................................................................................................................................................................................88 Beaumont Tiles................................................................................................................................89 BrightEyes Franchising.....................................................................................................................90 Cashflow It . ....................................................................................................................................92 Fastway Couriers.............................................................................................................................84 FC Business Solutions......................................................................................................................97 Hog’s Australia.................................................................................................................................86 Laser Clinics Australia......................................................................................................................82 Mail Boxes Etc. . .............................................................................................................................83 Madgwicks Lawyers........................................................................................................................94 Marsh & Maher . .............................................................................................................................95 Midas...............................................................................................................................................80 National Franchise Insurance Brokers (NFIB)...................................................................................93 Snap On Tools..................................................................................................................................81 Stewart Germann Law Office (SGL).................................................................................................96 The Interface Financial Group...........................................................................................................85 Theobroma.......................................................................................................................................87

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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:

A Bright Future for Franchising in Australia

by Mary Aldred, CEO of the Franchise Council of Australia.

The Franchise Council of Australia Limited (FCA) is the peak body for the $146 billion franchise sector in Australia, representing franchisees, franchisors and service providers to the sector.

Franchising Advice from the National Retail Association by Dominique Lamb

Dominique Lamb is the CEO of the National Retail Association and Director of NRA Legal, who has extensive experience providing industrial relations and employment law advice to a range of small, medium and large businesses across a range of industries. Along with: Franchising in New Zealand – Issues to be Aware of – Stewart Germann, SGL The Foundations of Franchising – FC Business Solutions mastering local media coverage for franchisees – Pete Burdon, Franchise Media Training Franchise Law 101 – Raynia Theodore, MST Lawyers How to Conduct Due Diligence when Buying a Franchise – DC Strategy And many more!

Don’t miss the listings pages Featuring a selection of leading franchise systems available right now!

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