Australian & New Zealand Business Franchise Guide - 8th edition

EXPERT ADVICE FROM INDUSTRY LEADERS HOW TO BUY, MANAGE AND PROFIT FROM YOUR OWN FRANCHISE

The Franchise Guide 2015 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 $29.95 Š 2014 CGB Publishing Pty Ltd all rights reserved.

ISBN 978-0-9803923-7-1

Contents Preface ................................................................................................................................................................................................ 1 Chapter 1 What is franchising?............................................................................................................. 3

Jason Gehrke, Franchise Advisory Centre

Chapter 2 What franchisors look for in franchisees......................................13

Robert Graham, CEO Consulting

Chapter 3 What makes a successful franchisee?...................................................21

Kate Groom, Smart Franchise

Chapter 4 Due Diligence...................................................................................................................................29

Asia-Pacific Centre for Franchising Excellence, Griffith University

Chapter 5 Financing your franchise...........................................................................................37

Sharen Verrenkamp, Westpac Banking Corporation

Chapter 6 Understanding the legal documents........................................................45

Robert Toth, Wisewould Mahony Lawyers

Chapter 7 Ongoing franchisee legal obligations. ...................................................57

Esther Gutnick, MST Lawyers

Chapter 8 Investing in an international franchise..............................................71

Rod Young, DC Strategy Group

Chapter 9 Franchising in New Zealand....................................................................................81

Graham Billings, Franchise Association of New Zealand

Chapter 10 How to structure your franchise.................................................................89

Richard Brodie, Deloitte Private

Chapter 11 Where should I locate my new store?......................................................99

Peter Buckingham, Spectrum Analysis Australia

Chapter 12 Growing the franchise............................................................................................... 109

Tania Allen, Vision Alliance

Chapter 13 Marketing your franchise..................................................................................... 119

Katherine Grace, Graceful Solutions

Chapter 14 Franchising your own business.................................................................... 127

James Corne, The Franchise Institute

Chapter 15 The Franchise Council of Australia......................................................... 135 Franchise Listings.................................................................................................................................................... 145 Professional Services Listings.............................................................................................................. 175 Publications...................................................................................................................................................................... 187 Helpful Organisations....................................................................................................................................... 188 Index. ............................................................................................................................................................................................ 189

Preface

By Joanne Tuffy Editor CGB Publishing Pty Ltd

I

f you’re contemplating a move into business ownership, the endless options and knowing where to start can often appear daunting at first. Starting a new business from scratch brings with it a lot of unknowns and associated risks, so before you start on your franchise journey, it’s wise to do your research and this publication is a great start.

Franchising has many advantages over independent business ownership and is a valid option for the budding entrepreneur and in recent times, offers more opportunities than just fast food and mobile services. In Australia, franchising generates more than $131 billion and there are approximately 1,180 franchise systems. The sector has about 73,000 individual franchise owners and employs more than 400,000 people nationwide.

In New Zealand there are 446 franchise systems with 22,400 units employing over 100,000 people.

The business represented by franchising today extends to nearly every business sector; from food to furniture, fitness to financial services, building to bedding, printing to professional services‌ the list is constantly evolving as new market entrants and models emerge.

In this publication we bring together a collection of franchise sector experts who have imparted their knowledge to help you become your own boss and start your franchise journey well-armed with the knowledge you need to make an informed decision.

It is designed to assist new and potential franchisees as they proceed on their way to becoming a member of a very special community of business owners.

It begins with an explanation of the basic fundamentals of franchising, the legal requirements under the Franchising Code of Conduct, financial and banking related information, taxation considerations and business ownership structures, operating an international based franchise, site selection, ongoing financial concerns and developing a franchise to maturity.

-1-

Business FranchiSe Guide

An additional chapter included in this edition is ‘Franchising your own business’. This has been added to assist existing successful business owners create a more valuable asset and a more profitable business by franchising if viable.

Each chapter has been written by a specialist within the franchising community, including past and present franchisors, specialist lawyers, business advisors, accredited bankers, and separate chapters on Franchising Codes in New Zealand, and in Australia.

And finally, once you are convinced that a franchise system is the right move for you – we have some of the leading franchise systems listed in the back of the book. Browse through the categories and see which systems interest you most.

Best of luck on your exciting journey.

-2-

Chapter 1

WHAT IS FRANCHISING?

By Jason Gehrke Director Franchise Advisory Centre

About the Author Jason has more than 20 years’ experience in franchising and has worked at franchisee, franchisor and advisor level. His firm, the Franchise Advisory Centre, advises both franchisors and franchisees on pre-entry considerations as well as on sector best practice across a range of franchising issues, and conducts specialised franchise education events around Australia.

He is often quoted in franchise articles in the business media, writes a regular column on franchising, and publishes Franchise News & Events, a free national email news bulletin on franchise trends and issues.

Jason has a Masters of Business Administration (MBA), is a former award-winning CEO of a mobile service franchise system, and teaches undergraduate and postgraduate franchising programs at Griffith University’s Asia-Pacific Centre for Franchise Excellence.

He is a member of the Australian Competition and Consumer Commission’s (ACCC) Franchising Consultative Panel, the Franchise Council of Australia, and has made submissions to state and federal government reviews of the franchise sector.

-3-

Business FranchiSe Guide

What is franchising?

As you read these words, you are surrounded by franchising. It is highly likely that today you have bought (or will buy) a product or a service from a franchised business.

Franchising touches our lives so frequently in so many ways that we often fail to see the wood for the trees. We live in homes bought from or built by franchised businesses. We maintain these homes with the help of franchised lawnmowers, gardeners, handymen, pest controllers, and so on. We furnish these homes with furniture from franchised retailers, clothe ourselves in goods from franchised businesses, and entertain ourselves with the latest gadgets, games and videos from franchised stores.

We drive cars bought from franchised dealerships (or made by auto franchisors).

These are also maintained by franchised repair specialists. We buy fuel from franchised fuel retailers, pick up last minute supplies from franchised convenience retailers, and buy food from franchised eateries.

Franchising is everywhere and we interact with it constantly without even realising how it works. It surrounds us in almost everything we do, buy or consume. It exists in almost every business sector and industry around the world, and yet it is commonly misunderstood by the very people who rely on it to provide them with the goods and services they need to live.

Franchising in Australia is big business. According to the most recent Franchising Australia Survey conducted by Griffith University, there are 1,180 franchise systems with a total of 73,000 outlets employing more than 400,000 people and an annual turnover of AUD$131 billion.

To understand franchising is to understand one of the most dynamic forms of business in operation today. As a concept, franchising is remarkably simple, but in execution, it can be incredibly complex.

This chapter looks at some common perceptions of franchising and highlights what franchising is, as well as what it is not.

What is a franchise?

Definition - in simple terms, a franchise is a conditional grant. A franchisor offers a grant to use its brands and business systems to the recipient of the grant (the franchisee). The grant is conditional upon the franchisee meeting certain standards to maintain the integrity of the brands and business systems. The grant is usually limited by time and can be withdrawn if the conditions under which it has been provided are not met by the franchisee.

-4-

What is franchising?

The table below outlines some common perceptions of franchising held within and outside the franchise sector.

Franchising is…

Franchising is not…

• a way to get into business without reinventing the wheel;

• just fast food;

• small business that can take on big business; • a method of growing a business; • a business unlike any other;

• a license to print money; • suited to everyone or every business; • for the unprepared.

• a structured and regulated business partnership; • an interdependent relationship.

These perceptions vary according to the perspective of the beholder (eg. franchisee or franchisor). Each are considered in more detail below:

Franchising is a way to get into business without reinventing the wheel This view is commonly held by most potential franchisees, who are drawn to franchising as a way of starting out in business but with the guidance and support of a larger organisation to fall back on. The oft-repeated cliché is that franchising offers a way to be in business for yourself, but not by yourself.

Starting a new business is a daunting challenge and there are no guarantees of success. For new, non-franchised businesses, almost every step of the way breaks new ground for the business owner who can often be overwhelmed by the sheer complexity of the task they have undertaken. As a result of their lack of business experience, independents can easily overlook critical details which may be essential to the business’ success. Most commonly, these include mistakes in estimating the capital required to set up the business, the working capital needed to support the business in its growth phase, the product or service mix, marketing, supply chain management, site selection and many others.

In a franchise, the franchisee pays to access the experience of the franchisor and to access the cumulative expertise the franchisor has developed across the spectrum of business operations through the establishment of its own outlets, as well as those of all the current and former franchisees in the group.

Franchising is small business that can take on big business A key disadvantage of independent small business compared to a franchise -5-

Business FranchiSe Guide

is the lack of strength behind the brand. The brands of franchise networks grow stronger as the networks grow larger. The marketing clout of the brand becomes more and more substantial. The collective purchasing requirements of the group provide a substantial lever to negotiate better prices, quality or terms with suppliers not otherwise available to independent operators.

Franchisees are able to call on the resources available in the centrally coordinated head office of the franchisor to access advice, expertise and experience not available to stand-alone independents. Not only does this give franchisees and franchise groups greater economic force compared with independent small businesses, but it also helps franchised networks take on corporate chains in the same market place. Franchise groups can match corporate chains for marketing clout and buying power, but press their advantage further due to the profit motive of each franchise owner at individual store or territory level – a motive generally lacking among salaried corporate branch managers.

The ownership of a franchised outlet provides the operator with not only a profit motive and an opportunity for capital gain, but a greater level of focus on customer service and greater sense of achievement in building a business asset compared to that of a branch manager.

Franchising is a method of growing a business Franchising offers budding franchisors with an idea or an existing business the opportunity to grow into a household name. (At least, that’s the hype.)

Franchising is a method of growth suited to existing businesses that are both profitable and sustainable, and which have owners and management teams committed to the long term enhancement of the brand. Ideas can’t be franchised – only businesses. So any idea must be converted into a viable business before franchising can even be considered.

Once a business is determined to be viable, growing it to the next level might involve an assessment of a number of options, including franchising. If an assessment of the available growth options determines that franchising is the most effective way to grow, a long process of planning, documentation and business process review must be undertaken before the first franchise can ever be granted. After all, if franchising was easy, every business would do it.

Start-up franchisors need to confirm that their original operation is not a fluke one-off by replicating it in several other company-owned operations before franchising. These additional outlets help test the business model and over time serve as the nucleus of the franchise network if they are later converted to become the first franchise outlets.

-6-

What is franchising?

Franchising is a business unlike any other Franchising is the Place in the famous four Ps of marketing (Price, Product, Place and Promotion). Marketers recognise that Place (also referred to as distribution) is a key benefit of franchising where a cohesive distribution channel enables individually-owned and operated businesses in different states or countries to provide consistent services and products. Franchising provides the common thread that binds these businesses together.

In this regard, franchising is unique – the franchisees are individually owned, but act as a collective whole for the best interests of the brand.

Furthermore, franchisees pay for the right to join a franchise group, and are accepted only if they meet specific selection criteria (which of course will vary from one group to another).

And because the franchisees share a common brand and operating systems within a group, the franchisor has the dual role of supporting and encouraging franchisees to maximise performance, while at the same time maintaining system and brand integrity. This can mean that franchisees that are not operating in accordance with the rules of the system (or more specifically, the conditions of the franchise granted), may be required to improve or risk the termination of their franchise.

These factors combine to make franchising a truly unique method of business.

As such, both franchisors and franchisees must appreciate from the outset the finer detail of the relationship that binds them together.

Franchising is a structured and regulated business partnership The entire basis of the relationship between a franchisee and franchisor is outlined in four key documents. These are the Franchising Code of Conduct, the Disclosure Document, the Franchise Agreement, and the Franchise Operations Manual.

The Franchising Code of Conduct is the federal regulation that governs the franchise sector. The Code applies equally to all franchises in Australia, regardless of size and age, and determines the environment in which franchising operates. There are protections under the Code for franchisees, and every potential franchisee should read the Code prior to seeking the ideal franchise.

Some of these protections include mandatory disclosure of information by franchisors, waiting periods before and cooling-off periods after signing franchise agreements, and dispute resolution procedures.

The Disclosure Document contains key information about the franchise offer, the franchisor and the network to help the franchisee make a reasonably -7-

Business FranchiSe Guide

informed decision. A Disclosure Document template in the Code identifies the type of information to be provided, irrespective of the size or age of the franchise system.

The Franchise Agreement is the contract that binds the franchisee and franchisor together in a business relationship. Agreements span an initial term which is five years on average in Australia but can be shorter or longer depending on the system, and may be extended for an optional term usually of the same length.

A franchise agreement is a very broad contract that includes provision for almost everything that might occur during the life of the franchise, as well as a number of provisions that will continue to exist after the franchise has ended (eg confidentiality). It can be likened to the ultimate pre-nuptial contract – an agreement that shapes the commercial marriage between franchisor and franchisee which follows. It is vital that franchisees read these agreements (and get professional advice) before signing so that they are fully aware of the terms and conditions up front.

Finally, the Franchise Operations Manual determines how the franchisee must operate their business. It outlines the systems and procedures and ‘how to’ information for a franchisee to run their business. It is inevitably linked to the franchise agreement, so that a failure to comply with the procedures in the operations manual may result in a contravention of the franchise agreement and possible termination of the franchise.

These three documents combined determine the structure of the unique relationship between franchisor and franchisee. This relationship is a business partnership, but not an equal partnership because the franchisor must always retain control of the brand for the good of the network as a whole.

Franchising is an interdependent relationship The relationship between franchisee and franchisor is unique. On the one hand, the franchisor provides the brand, business know-how, guidance and support to the franchisee. On the other hand, the franchisee provides the front line customer service and implementation that makes the brand real to its customers. This makes franchising interdependent – the franchisee needs the franchisor and in turn the franchisor needs the franchisee.

Franchisors often choose franchising as a method of growth because their own experience operating corporate outlets indicates that customer service levels, and therefore customer satisfaction and repeat patronage, are higher in outlets which are operated by a local owner. Franchisees choose to join franchise networks to align themselves to the brand, marketing, buying power and -8-

What is franchising?

support provided by the franchisor. The relationship is mutually dependent – both parties need each other in order to survive and flourish.

But for all things that franchising is, there are a number of things that franchising is not.

Franchising is not just fast food Franchising encompasses most categories of businesses in the retail and service sectors. It exists also in wholesaling and manufacturing sectors, and permeates almost all aspects of economic activity. Commonly however, franchising is perceived as concentrated on just fast food.

This perception might arise from the prevalence of fast food brands in the economic landscape, their high-profile locations and broad market appeal, as well as their massive marketing budgets. In reality however, fast food accounts for less than 18 per cent of franchise systems, and no more than 13 per cent of franchise outlets according to the 2012 Franchising Australia Survey.

The overwhelming majority of franchise brands and outlets however, are in the services sector, ranging from lawn-mowing to telecommunications and beyond. These brands provide a variety of business models and capital entry points which in most instances are considerably lower than the cost of investing in a fast food franchise.

Franchising is not a licence to print money A misconception that has developed around franchising over the years is that it is somehow a licence to print money for either the franchisor or franchisee. No such businesses exist, or if they do, they don’t happen overnight. Franchisees and franchisors can both enjoy good profits, but first must be prepared to put in the hard work and effort required to build the business to the point that it can be profitable.

Some potential franchisees think that a franchise is a sure-fire iron-clad guarantee of success, and that all they need to do is to open the doors and be flooded by the avalanche of money coming in. Nothing could be further from the truth. While the franchisee’s investment in the brand and the franchisor’s knowledge and experience substantially increases their chances of market recognition and uptake, the operation of the business right down to the delivery of customer service is the responsibility of the franchisee. Any single or compound failings by the franchisee to properly execute the business model provided by the franchisor could substantially delay profitability, or worse still, sink the business altogether.

Aspiring potential franchisors are also mistaken if they think that franchising -9-

Business FranchiSe Guide

is a licence to print money, and that to be extremely profitable all one must do is sell franchises. The reality is that the time, effort and cost of preparing a business to be franchised is considerable, and often outweighs the financial rewards of franchising for the first few years. As a result, potential franchisors must have deep pockets to commence with, or be prepared to maintain company-owned operations to generate the income necessary to pay for their franchise preparations.

Franchising is not suited to everyone or every business Not everyone is suited to be a franchisee, and not every business is suited to franchising. Successful franchisees will generally be self-motivated, highlydisciplined individuals who conducted extensive due diligence prior to joining the franchise and who understand how to work most effectively within the parameters of the franchise system. Franchising is not suited to potential franchisees who do not work well with others, who are unable to work within guidelines, who are not disciplined or motivated, and who come to franchising with unrealistic expectations about support or profitability.

Similarly, potential franchisors with unprofitable and unsustainable businesses are not suited to franchising. In some instances, even profitable and sustainable businesses may not be suited to franchising if the organisational culture and leadership are not geared towards long-term growth and a continual process of improvement.

Franchising is not suited to the unprepared The principle of preparation applies equally to both franchisors and franchisees.

Businesses that mistakenly believe that franchising is simple greatly underestimate the work involved in preparing a business for franchising.

For example, documenting the business procedures into an operations manual is a considerable undertaking that forces each process to be reviewed, and draws heavily from the personal knowledge and experience of the business owners or its key personnel. This requires an investment of time that alone can take many weeks or months to complete. Shortcuts taken by a franchisor at this stage will place a greater burden on the system later if the operations manuals or training systems are incomplete, causing franchisees to place greater demands on support resources after commencement.

Likewise for franchisees, preparation is everything. Potential franchisees are recommended to spend at least one hour in research and due diligence for every $1,000 to be invested in a franchise. This time should be spent reviewing the franchise documentation provided by the franchisor, using professional advisors, undertaking professional development, contacting current and former - 10 -

What is franchising?

franchisees, and spending time working in and familiarising themselves with the franchise business.

Summary Franchising means many things to many people. Franchising surrounds us in our daily lives and exists at all levels in the provision of goods and services.

It is a strong economic force in the Australian business environment and continues to grow.

It can provide the well-prepared with opportunities to grow their businesses, and opportunities for potential franchisees to go into business for themselves with the support of a strong brand and more experienced business partner.

Franchising can provide small businesses with the same competitive advantages to compete equally with big businesses, but deliver improved performance at outlet level due to the profit incentive and ownership of the local operator.

It is a unique business relationship where the franchisor and franchisee come to depend on each other. The relationship is documented in the form of a highlydetailed legal contract (the franchise agreement) and shaped by the national regulations that govern the franchise sector in Australia (the Franchising Code of Conduct). Information about the franchise offer is contained in the disclosure document and the knowledge of how to operate the business is provided by the franchisor through training and ongoing support, as well as through its operations manuals.

Franchising is not suited to everyone; and both potential franchisors and potential franchisees must do considerable homework before committing themselves to franchising. The more preparation done beforehand, including extensive reading and research, professional development, and the use of qualified and experienced advisors will bolster their chances of long-term success.

Jason Gehrke Director Franchise Advisory Centre (AUS) 07 3716 0400 jason@franchiseadvice.com.au www.franchiseadvice.com.au

- 11 -

Business FranchiSe Guide

- 12 -

SapientNitro FSNO 726

JOIN THE

DREAM TEAM

Vendor finance now available* *Available to approved applicants

We are looking for dynamic people who love dealing with others and are passionate about retailing.

The Snooze brand has a strong history of over 30 years in retailing and has built a very solid franchise system.

We provide franchise partners with a stable platform to start their business and offer support across the entire business including: Marketing and Promotional Support Product Development and Buying Power Proven operating system that includes comprehensive product and sales training For more details Business Management support from our on the ground visit snooze.com.au field team or call Alistair Browne, Assistance in site selection and property negotiations our Franchise Network Business finance available to approved applicants Development Manager

on 0427 401 169

It’s amazing what a little snooze can do. snooze.com.au

SUCCESS? Domino's is not just Australia and New Zealand's leading pizza brand – it's also one of the world's most advanced digital retailers. So if you're looking for a franchise that delivers on your goals, you can't go past Domino's.

Undisputed leaders in online ordering.

Australia and NZ's first and most advanced mobile ordering apps.

State of the art digital store management tools in the hands of every franchisee.

Australia and NZ's only pizza creation app and only real-time pizza tracker.

Ongoing training and support for franchisees and their teams.

Innovative digital marketing with millions of customers assessable via email and social media.

A proven and trusted brand that's passionate about pizza and people.

Call 1300 131 888 or visit: dominos.com.au/franchising

Chapter 2

What Franchisors Look For In Franchisees

By Robert Graham Managing Director CEO Consulting

About the Author Robert is the Managing Director of CEO Consulting and has worked with most of Australia’s large franchises and many of the smaller and newer franchises in various capacities as a Banker, Lawyer and private Consultant over a 15 year period, making him one of Australia’s leading franchising experts.

Robert specialises in developing, marketing and growing new and mature franchise systems in Australia and International markets. He also assists franchisor clients with the recruitment of franchisees.

Robert also works with aspiring franchisees assessing business opportunities and franchise terms and documents as part of their purchase decision.

As the Australian Head of Franchising for both ANZ Bank and Westpac Bank, Robert was responsible for developing the franchise assessment approach used by most of the Banks today for conducting due diligence on franchise systems. He was the most senior banker in charge of Franchising at ANZ and Westpac for a combined nine year period and then became the CEO of RAMS Home Loans (100 franchised stores). Prior to this Robert practiced as a Commercial Lawyer with Freehills and now runs his own franchise advisory firm, CEO Consulting.

- 13 -

Business FranchiSe Guide

Do you pass the 8 point test applied by most Franchisors?

F

ranchising is a way of doing business that spans nearly every industry.

As such, franchisors from different industries have developed franchisee recruitment criteria that best applies to their industry and their particular business.

However, when you boil it down there are eight key areas a franchisor will normally consider when assessing the suitability of a franchisee candidate.

The first four things they assess relate to your personality and mindset.

The next two relate to your skills and business background.

The final two relate to your personal and financial situation.

But when you pull these together, in essence franchisors are looking for strong brand ambassadors with the right attitude and background and who are likely to make the most of the business opportunity and franchised territory or site.

Let’s examine the eight key criteria.

YOUR PERSONALITY AND MINDSET: 1. MOTIVATION Franchisors will want to know your motivation for buying a franchise and specifically, why their franchise? Here, they are examining whether you are a self-motivated, genuine buyer and lover of their brand or whether you are just shopping around, chasing a business based purely on financial returns or lifestyle choice or whether you are looking for a replacement job.

Franchisors like decisive and well organised people that have researched the market, know about their brand and business and have given some thought to how they may grow this particular business. If you turn up and just want to look at financials, talk about changing things etc then they are not likely to go any further with you. Instead, talk about why you are interested in this business, what you know about it and what goals and objectives you have set for yourself in buying a business and growing a business.

Franchisors know that candidates are usually also talking to other franchise groups at the same time to it is okay to mention this. It demonstrates you are serious, undertaking research and can also reinforce that you have a genuine interest in their sector rather than just taking a scattergun approach.

2. ATTITUDE Every franchise group has its’ own personality and culture. Franchisors will be looking to see if you fit that culture and group chemistry. The culture - 14 -

What Franchisors Look For In Franchisees

underpins the brand so it is important you believe in the brand, are excited about being part of the group and demonstrate you are energised and ready to build a business.

Here there are three things a franchisor will examine: • Are you a self-motivated person or a ‘do it for me person’?

• Are you a team player?

• Are you trainable?

Consider the type of business you are looking at. Is it a sales or service based business? If it is a sales based business and you turn up and ask “so how many customers do you give me” or “why don’t you give me leads” then this is a clear indication you are likely to be someone who just wants to be fed business rather than someone who will hit the road and generate business. Equally if you are considering a service based business you need to demonstrate an attitude and personality that aligns with enjoying talking to people and helping people. Franchisors will reject the ‘do it for me’ candidates and always favour those who show they are self-motivated.

Franchising is also a bit of a ‘team sport’. You may own your own business but you are part of a branded group with a clear set of policies and procedures.

You need to be a team player insofar as you respect the group culture and way of doing business and you share best practices and work well with other franchisees and head office staff. If you want full control and don’t like rules, then franchising may not be the right option for you.

Sir Richard Branson (of Virgin fame) has a saying, ”Recruit for attitude, train for skill”. This is what most franchisors do. If you demonstrate you have the right attitude, franchisors will invest in you and train you. No amount of training will fix a person with the wrong attitude, so even if you do not have the readymade skills or background for the business you are looking at, the more important thing is do you have the right attitude and motivation.

3. PRESENTATION First impressions are important – you need to look the part so the franchisor can picture you ‘behind the counter’ or in front of their clients.

I have mentioned branding several times already, franchisors will examine the way you dress, your personal hygiene, the way you speak and the way you conduct yourself during any discussions or interviews – part of this is to see if you fit their brand image.

Also do things on time – demonstrate you are organised and interested. Any - 15 -

Business FranchiSe Guide

emails or documents you send or provide should be well presented. This shows pride and good attitude.

Body language during meetings is also important and come to interviews with an agenda or list of questions or discussion points – you are buying a business, so act business like.

4. LOVE OF THE CUSTOMER Businesses are only successful if they provide a great customer experience – particularly service and food based businesses, which are plentiful in the franchise sector.

Think about the type of customers you will be interacting with if you buy this franchise. Think about what they want and what will keep them coming back to you. If the answers excite you, talk about this to the franchisor. Show you are thinking about customers and customer experience. Franchisors also get excited about this and they get excited about franchisees who think and act this way.

If you have owned businesses before or even in a previous job, if you have testimonials or stories about how you have helped customers, how you have developed relationships with customers, this is a powerful way of demonstrating you care about customers and understand this is the most important thing in the business.

YOUR SKILLS AND BACKGROUND 5. SKILLS I mentioned previously that most franchisors recruit for attitude and train for skill. This is true, but if you have both the right attitude and the right skills, then you will present as a very strong candidate for the franchise.

If you are looking at a sales based franchise, then having a background in sales will be critical. Franchisors know it is hard to train someone to be a sales person or business developer – it is either in your DNA or it isn’t. So if you have this experience and skills then highlight previous roles and successes. Talk about your results. Talk about how you planned and delivered against sales targets. Demonstrate your ‘hunger’ to grow a business.

Also talk about your sales style and techniques – everyone has their own style when it comes to selling so tell them about yours and explore how it fits with the style of their most successful existing franchisees. You may be good at sales in your current role but you may also need to adjust your approach for another business or industry.

- 16 -

What Franchisors Look For In Franchisees

For people looking to buy service based businesses (coffee shops, gyms etc) any existing qualifications or in-house training certificates will be helpful.

Most franchises do not require you to come with readymade qualifications (although some like the fitness industry and professional services do have pre-requisite tertiary or institute qualifications required). For the majority of franchises that do not require pre-qualifications, the franchisor will have a structured in-house training program to get you to a level of competency necessary to run your business. You should ask for details of the training program, check what it costs (some training fees are built into the purchase price and others are in addition) and even ask to talk to some franchisees that have been through the program to see how good it was.

Franchisors look favourably on candidates that are interested in training. This shows you are engaged in the process and thinking about self improvement and learning the business. It also reinforces that you are likely to be a trainable person, someone who will take on the guidance and learnings of the franchise system.

6. BUSINESS BACKGROUND Franchisors are always keen to know if you have run a business before as the mindset and training needs of someone who has run a business before versus someone who has not, are often quite different.

Running a business carries with it various risks and changes to lifestyle so if you have operated your own business before you can demonstrate your awareness of the things like hours of work, behind the scenes administration work, hiring and managing staff etc. If you fall in this category you will also need to be prepared to talk about what happened in your previous business. Was it successful or did it fail? Why did you get out of it? Why are you looking to take on a fresh business now? It is important to honestly talk about your successes and failures. If your business did fail and you can explain the reasons why then a franchisor can consider whether the business model, training and support structure that they offer will help you make this next business successful. If you are evasive or slippery about answers in this area most franchisors will pick up on this and become suspicious, which will work against you. Best to be upfront.

Many franchise candidates that have owned businesses (including franchised businesses) have great stories to tell about how they built one or more stores or units and then sold and made a capital gain and are now looking for the next opportunity. If you have a track record of success in business, this will stand you in a very good position with franchisors.

If you have not run your own business before you may have managed a - 17 -

Business FranchiSe Guide

business, led a team or performed a customer service role that also has similarities to the franchise you are now considering. Many people who have worked in large franchise chains like McDonalds, Bakers Delight etc understand the culture and benefits of a franchise business and reach a point where they want to take the next step and own their own franchise.

Those coming out of related service or skill based roles as employees also have some aspects of the business background required and so can also be attractive to franchisors.

YOUR PERSONAL AND FINANCIAL POSITION 7. PERSONAL POSITION So you may have ticked all the boxes relating to motivation, attitude, skills and business background but a franchisor will still want to know about your personal position as this can have a large impact on your success in the franchise.

Typically a franchisor will look for a stable and supportive family and home environment. This will include factors such as: • Spouse / partner supports your decision to buy a franchise.

• You do not have distractions such as renovating a house, going through a divorce etc.

• You are not involved in other businesses or activities that will impact the hours you can put in to your new business.

• You do not have to travel too far to get to your new work environment… or you propose to relocate to be close to the business.

If your new business is a work from home style business, they will also stipulate certain rules about your home work environment and what can and can’t be done with customers or clients from your home office. In these situations a franchisor will often require a meeting at your home (or arrange a surprise visit) to check it out. They will look for a work area that is secure and separate from your family area – somewhere quiet and well organised not just a desk and laptop in the corner of your TV room or bedroom. They will also observe the general condition of your house as that is often a strong indicator of your personality type and work style (eg well organised and clean versus messy and lacking pride).

A franchisor will also make some assessment of your energy and health levels. If you are taking on a business under a 5 – 10 year franchise agreement then you need to have the energy and health levels to run the business for that period. If you have experienced health problems you - 18 -

What Franchisors Look For In Franchisees

should disclose this and talk about your recovery program or the fact that you are now in good health and ready to go. This is important for you as well as the franchisor because if health issues recur problems could arise in who replaces you while you are not in the business. If this is a risk you should anticipate this question and speak about who your back up manager will be because that person may also need training.

8. FINANCIAL POSITION Often the best franchisees are those who cannot afford to buy the business without a loan or terms. These people are often hungry for success and looking to make money. People who have strong asset bases have the advantage of financial stability but a franchisor will look harder at them to determine if they have the true motivation to do what is needed over the 5 – 10 year franchise period.

If you can afford to buy the franchise business outright then focus on highlighting your experience, attitude and motivation. Map out your objectives and talk about where you see yourself in 3 – 5 years. Do you plan to keep working in the business or pass responsibilities to a manager or family members?

If you need a loan to buy the franchise, be clear about how much you need and ask the franchisor about working capital (cashflow) needs as not all businesses are profitable straight away. In many cases you will need an overdraft or backup funding to live off during the start-up period.

Franchisors like to ensure all franchisees are sufficiently capitalised (have enough backup money) to ensure they can properly promote and run the business whilst also supporting their personal financial needs.

Franchisors will also usually ask about alternate sources of income – this is part of assessing if you have a fallback or second income position. Often this may be your spouse has a job outside of the business and that can support you while you get the new business up and running.

The financial planning side of buying a business is very important to both the franchisor and franchisee so the best advice is to make sure you get the franchisor to declare all of the expenses involved in buying and setting up the business (not just the part paid to them) and also look carefully at the cashflow position during the startup phase to understand when you are likely to start making profits and therefore what interim backup funding you will need until then. Your accountant or franchise advisor may need to help you with this but in making these enquiries you are not only fulfilling an important part of your own due diligence but you are demonstrating to the

- 19 -

Business FranchiSe Guide

franchisor that you are switched on, you have business acumen and you are likely to plan and run your business well.

So remember, franchisors are typically looking for franchisees that can be great brand ambassadors and who will run a good business, follow their systems and add value to the team. Not every franchisee comes ready-made or as a perfect fit for every franchise so you do not always have to meet the eight criteria set out above – what is important is that you are genuine about being a part of that business and brand and you are open to training and support from the franchisor. Demonstrate this and you will receive a good response from the franchisor.

Robert Graham Managing Director CEO Consulting (AUS) 1300 764 484 robert@ceoconsulting.com.au www.ceoconsulting.com.au

- 20 -

Chapter 3

What makes a successful franchisee?

Kate Groom Co-Founder Smart Franchise and The Franchise Accountants Network

About the Author Kate Groom is co-founder of Smart Franchise and The Franchise Accountants Network. Kate and her business partner, Chartered Accountant - Peter Knight, run practical workshops and online seminars, and provide resources to help franchisees, franchisors and franchise accountants.

An expert in financial communication, Kate helps people learn the business and financial skills that are a foundation of good business management.

With an extensive career in franchise leadership, Kate has developed and implemented highly successful financial management, benchmarking and financial education initiatives.

As General Manager of a franchise network, Kate handled all aspects of franchising including strategic planning, recruitment and operations. She also established and worked with Franchise Advisory and Marketing Committees.

Together, Kate and Peter develop innovative solutions to the challenges of running the business and financial side of a franchise. Through the Franchise Accountants Network they enable people to obtain advice and support from accountants who understand the special needs of franchisees.

- 21 -

Business FranchiSe Guide

W

hat does it take to run successful franchise business? Most people who start a franchise are keen to know what they need to do to succeed. It’s an important question because just being in a franchise isn’t a guarantee of success.

In any franchise there is a range of performance. Some people do well and are content with their decision; others don’t get the rewards they hoped for. So as you’re starting off in business, it’s helpful to consider what you could do that will help you do well.

As soon as we start talking about success, there’s a challenge because success looks and feels different to each of us. For some people money and possessions are the most important things, others take a different view of success in business and life.

Profit is fundamental to success Whatever your personal motivation, profit is fundamental to a successful business. Researcher and author Tom Peters examined what some of the world’s most successful companies did that helped them thrive when others floundered. He found that while profit wasn’t the thing that made these companies successful over many decades, it was fundamental. If there’s no profit, there’s no business.

The same applies in a franchise. A franchise needs profit to provide a return to you, repay loans and to stay in business. How much profit is a personal matter, but it needs to be there if the business is to survive. This is why our focus is on helping franchises establish the business practices that support profitable operations.

Over the years, we’ve worked with many business and franchise owners. This has given us great insights into what they do. From this, we’ve identified some of the behaviours that support a business owner to achieve their goals and build a profitable business.

We believe that implementing these practices in your own business can help you achieve your goals too. Business management is a skill you can learn.

You won’t become an expert overnight, but with persistence and commitment, you can follow in the footsteps of those who have succeeded before you.

In this chapter you’ll find details of some practices we recommend to help you succeed in business.

Set defined goals Over the years we’ve observed that the ability to set and work towards goals helps people get a sense of accomplishment. If you have played a competitive - 22 -

What makes a successful franchisee?

sport, or raised money for charity, or completed any large project you’ve probably experienced that feeling.

Goals are vital when you run your own business because you are the person who sets the direction. You’re the boss! Without well-defined goals you can end up like a leaf in the wind, aimlessly busy, with your direction set by others.

Clear goals will help you identify your priorities and decide what to focus on.

With goals in place you can track your progress towards them. This makes it more likely you’ll achieve the results that you desire.

For instance, we’ve worked with several franchisees who decided they wanted to reach $1m in annual sales. With the goal set, it was broken down into monthly targets over a number of years. Then they identified how to achieve it and worked progressively towards the goal. In each case the franchisee achieved $1m in profitable sales!

Financial goals are important, but it’s not just about the money. There are other aspects of business that matter too. You might want to create a business to pass on to your family, win an award, serve on a franchise committee or gain a new qualification.

Years ago, a new franchisee wrote in his business plan that he wanted to be the best business of his type in his town. He worked out what that specifically meant for customer service, sales and business operations – then set out to achieve it.

That idea stayed in the franchisee’s mind through various ups and downs.

He was successful in building up sales, became acknowledged in his local community and the franchise network, and sold the business for a healthy amount.

People who set goals are very likely to achieve them. Then, when they look back on their business life they have something to be proud of and feel a sense of success. It’s a very good idea to write down your goals when you’re starting a business and place them somewhere you can refer to them regularly.

Plan for profit Profit isn’t everything, but a successful business is one that has made money for the owner. This won’t happen automatically just because you’re in a franchise. In any franchise group there will be a range of financial results.

Some businesses make a healthy profit and others struggle.

One of the main differences between those who are satisfied with the financial results in their business and those who aren’t is how they think about profit.

- 23 -

Business FranchiSe Guide

For some people, profit is ‘what’s left over’ after the bills are paid. They get to the end of the year and see what the bottom line is. Some then feel disappointed. They think the profit should be more – even if they didn’t really have an idea what number to expect.

Other people know exactly what wages and profit they need to make. They set realistic targets for sales and expenses each month, and work steadily towards them. They also accept that sometimes the financial results don’t turn out as well as they plan. Rather than just accepting this, they make adjustments to help get back on track. People who do this tend to feel better about the business and their accomplishments.

That’s why it’s so important to clearly identify your profit goal before you start off in business. You’ll need to build up the business so it can cover the business costs, pay you a wage, make loan repayments, pay tax and leave a profit for you. With the number clearly in your mind, you can work towards it rather than just hoping for the best.

Learn to manage cashflow Managing cashflow is one of the greatest challenges for a business owner. It’s also extremely important if you want to have a business that runs smoothly.

Successful business management means managing cash so it’s there when you need it.

The best business owners don’t simply manage their cash day-to-day, instead they learn look ahead and anticipate the peaks and troughs. They often learn how to do this after experiencing a cashflow crisis, but there are ways to reduce the risk this will happen to you!

The first step is to understand that strong sales may mean you may have more money than ever before in your bank account. The temptation is then to spend the cash which leaves you short if sales slow down or expenses increase.

Alternatively business can be slower than you hope. You may see your savings dwindling, wondering when the bank account will be replenished. The anxiety about cash can then lead to an owner making cuts in areas that affect service and reduce sales.

The best way to avoid these challenges is to prepare and use a cashflow forecast.

With monthly income and expenses mapped out you can take action ahead of time to ensure cash is available when you need it.

Develop a sales mindset No business can succeed without sales. Successful business owners we have met tend to see themselves as the chief sales person. They may not be the - 24 -

What makes a successful franchisee?

only sales person, or the main one, but they consider themselves ultimately responsible for the revenue of the business. These business people know that if they aren’t actively building the business, customers may spend their money elsewhere – and they respond accordingly.

By contrast, some people expect healthy sales to come simply because they own a franchise. Certainly some business will ‘just happen’, but if you want to build a successful business you’ve got to drive sales. A customer might walk into your store, but somebody has to persuade them to buy, encourage them to spend a bit extra, and entice them to return.

The most successful business owners we know have a clear picture in their mind of their sales targets and devote a lot of time to developing and implementing plans to achieve them.

For instance if their business must make $20,000 a week to pay the bills, and the average sales value is $10, then the owner knows they need 2,000 customers per week. The question then becomes what to do to meet that target.

As a result, the owners are always thinking of ways to improve their selling skills and those of their staff.

Monitor progress Over the years, we’ve seen that successful business people regularly monitor progress towards their goals. This is vital because there are many things that can lead to a business getting off track. A poor performing business can be transformed into a strong performer when regular business meetings are put in place.

The reason these meetings are so helpful is that people who check on the progress of their business notice when the results aren’t as expected and can make adjustments. They can also make the most of what has worked well.

People who are simply hoping for the best, or too busy to stop for long enough to check how they are going, are likely to end up disappointed.

We have found that the best way for the business owner to monitor progress against their business goals is with a monthly meeting. If you leave it longer it’s hard to remember what happened since the last time you looked! Also, the monthly pattern means small problems are likely to be addressed before they become big ones. The monthly meetings should include financial, operations and sales sections, and follow a standard agenda.

An annual business review and planning meeting are also a good idea. This is a chance to look at the big picture of business and set direction for the year ahead.

- 25 -

Business FranchiSe Guide

Consult appropriate advisers The best business people we know have developed a network of trusted professional advisers. They don’t just rely on the franchisor team but also seek out appropriate advice from experts when needed.

A good adviser will help you deal with challenges and suggest areas you can improve. Their insights will help you gain a deeper understanding of your business, address problems or work towards your personal goals.

In your own business it can be tempting to try to do everything yourself but there are some areas where specialist skills are needed. The financial side of business is one of these.

For instance, good advice from an accountant is vital to help plan for tax payments. Successful business people we’ve met tend to have a business accountant (rather than just someone who does their personal tax), and also a bookkeeper. This approach means the business owner can concentrate on understanding the numbers and running the business.

Seek continual improvement People who succeed in achieving their goals are usually the ones who invest time and energy in improving themselves and their business. They are always on the look out for ways to use their time and resources more effectively. They also learn from mistakes and when things go wrong.

Some years ago, I worked with a franchise owner who wasn’t achieving the goals they had set. When we looked at their business, there were several areas where improvements could be made. The owner immediately made a list of changes to make, and implemented them. Whenever she visited another franchisee – or a different business – she looked for new ideas that could help her. She also attended workshops, conferences and business events, learning all the time.

This mindset of continuous improvement helped that franchise to grow in sales and profit. The energy that was created also helped attract and retain staff, and kept the owner interested and energised.

Maintain a healthy lifestyle It’s not easy to lead a healthy lifestyle when you’re running your own business but it really helps if you can. Many successful people have learned to spot the warning signs that something is out of balance – and to do something about it so they have the best chance to be in good mental and physical health.

- 26 -

What makes a successful franchisee?

One difficulty is that when times are busy we may make poor food choices, or get less exercise. Holidays may be more difficult to arrange if money is tight while you’re building a business. Yet we know we feel better and are more productive when we make healthier lifestyle choices and have the occasional day off.

Many business owners have less family and personal time than when they worked for someone else, at least when they start in business. Investing in the business might mean a little less cash for extras and treats. This means changes and adjustments are needed. So, for the new business owner, it’s a good idea to think through how you’ll cope with this in a way that’s positive and helpful to you, your family and your business.

Develop perseverance We all know people who have done the best they can in their business yet encounter difficulties. The reality is that life doesn’t always go to plan.

Unexpected things happen that can throw us off course. Sometimes a task is harder than we expect or a goal takes longer to achieve than we expected.

Difficulties happen in business – even in a franchise but some people are able to press on towards their goal even in tough times. They have remarkable perseverance. This is the ability to persist in doing something despite difficulties or slow progress. These persistent people keep going rather than giving up when they encounter a problem.

This characteristic is so important because a successful business isn’t built without encountering and overcoming difficulties. People who have done well have certainly faced challenges and frustrations. But each time they learn from the experience, recover and keep moving.

The business practices we identified in this article will create a structure that helps you keep going, even when the going is tough. Whether you’re new to business, or already established, these practices will help you succeed in business, and enjoy the journey.

Kate Groom Co-founder Smart Franchise and The Franchise Accountants Network www.smartfranchise.com.au www.franchiseaccountantsnetwork.com

- 27 -

Business FranchiSe Guide

- 28 -

Chapter 4

DUE DILIGENCE

By The Asia-Pacific Centre for Franchising Excellence Griffith University

About the Asia-Pacific Centre for Franchising Excellence The Asia-Pacific Centre for Franchising Excellence was created to help people like you find independent information and research on franchise best practice.

Several years back it became apparent that there was not a lot of information available on franchising, and most relevant information on the internet was mostly PR material issued by franchises to help recruit franchisees.

It didn’t really provide much assistance to people wanting to gain a better understanding of franchising - whether to buy a franchise or to franchise their business.

At the same time Griffith University had been researching franchising for more than a decade, yet most of the research findings were mainly published in academic journals, which are mostly read by other academics and university students, rather than by the people that can use the information the most - franchisors, franchisees, head office and support industry professionals.

So, Griffith University decided to launch the Asia-Pacific Centre for Franchising Excellence in 2008, to make this wealth of independent information and knowledge more widely available.

- 29 -

Business FranchiSe Guide

Due Diligence: What to look for when you’re considering buying a franchise

T

his chapter will introduce you to some of the key aspects that potential franchisees will need to understand/consider when conducting due diligence on a prospective business purchase. The ‘About Franchises – A Guide to What is a Franchise’ eBook, available from the Asia-Pacific Centre for Franchising Excellence (www.franchise.edu.au), can provide you with a more comprehensive guide on the important topics below.

Franchising Code of Conduct If you are considering buying a franchise, it’s important to have an understanding of the regulation which governs the sector. This regulation is known as the Franchising Code of Conduct, and it’s important to understand the Code and what it means to you as a potential franchisees.

The Code applies to all franchise agreements from July 1, 1998.

The purpose as stated in the Code is ‘to regulate the conduct of participants in franchising towards other participants in franchising’.

It is a mandatory industry Code and sits under the Competition and Consumer Act, the main body of law which regulates commercial conduct in Australia.

The Code is enforced by a national government agency known as the Australian Competition and Consumer Commission (or ACCC) which has offices around the country.

There are three key elements to the Franchising Code of Conduct:

• One is disclosure, and the upfront information that must be provided by a franchisor to potential franchisees;

• The second is the franchise agreement itself, and specific provisions within those agreements; • And finally dispute resolution procedures and a prescribed method for resolving disputes when they may occur in franchise relationships.

Disclosure is information provided by the franchisor about themselves, their system and their business offer to help a franchisee make a reasonably informed decision.

It is provided upfront to a potential new franchisee, or to an existing franchisee contemplating renewal of their franchise agreement.

- 30 -

DUE DILIGENCE

The Disclosure Document must be provided at least 14 days before entering into a franchise agreement. During this 14 day period, potential franchisees have time to obtain independent legal, accounting and business advice about the proposed business, and time to consider the pros and cons of the offer without being pressured into a hasty decision.

The Franchise Disclosure Document must be updated within four months of the end of the financial year (ie. by October 31 for most franchise systems).

The document contains an extensive range of information about the franchisor and their business – approximately 270 items of information, which must be provided in a pro-forma manner irrespective of how long the business has been franchising, or how many franchisees are in the system. The same disclosure is required of a brand new start-up franchise system as is required for a longstanding system with a large number of franchisees.

So a disclosure document must include things like:

• A summary of the franchisor’s business experience, and litigation history;

• A list of current franchisees (or for very large systems, a list of franchisees in the relevant state or region); • A list of outlets sold, bought back, not renewed or terminated in the last three financial years, as well as a list of the contact details for the former franchisees of those outlets (unless the franchisees themselves have opted not to have their details made available).

Contacting both current and former franchisees provided in these lists to enquire about their experience with the franchise is a critical form of due diligence that all potential franchisees should undertake in conducting their research before making a business investment decision.

Financial details of the franchisor, or a solvency statement, should also be provided.

This information, among others, is all relevant to a potential franchisee in helping make an informed decision about the proposed business investment.

They should, as much as possible, examine this information and satisfy themselves as to its accuracy and detail.

Firstly, under the Code, a 7-day cooling-off period after the signing of the franchise agreement must be undertaken. This is intended to create an opportunity for a franchisee to reflect on the commitment they are undertaking in the cold light of day, and if need be, to reconsider that decision.

If a franchisee does change their mind within the 7-day period, the Code also - 31 -

Business FranchiSe Guide

provides for them to get a full refund of their investment less any reasonable expenses incurred by the franchisor (such as say travel or accommodation for the franchisee to commence training, etc).

This refund must then be paid back to the franchisee within the following 14 days.

Role of the Australian Competition and Consumer Commission (ACCC) The ACCC is the regulatory body for the Australian franchise sector. The ACCC is responsible for promoting compliance with both the Franchising Code of Conduct and the Competition and Consumer Act, and is responsible for enforcing those laws.

Due diligence steps recommended by the ACCC for potential franchisees include: • First of all, read the ACCC’s background information and publications, such as the Franchisee Manual, or the Franchisee Start-Up Checklist.

• Secondly, call the ACCC Infocentre on 1300 302 502.

• Another option could be to take note of any discussions you have with your franchisor. Ask them to confirm any representations or any claims that they make, in writing to you.

• Next, discuss with the franchisor what your relationship is and what your rights are in relation to important issues, such as leases and intellectual property.

• Find out what happens if the franchisor were to become insolvent.

• Talk to as many past and present franchisees as you possibly can. Ask them about their own experiences with the franchise system and whether they would recommend you enter into it as well.

• Develop a risk management plan and also have a contingency so you’ve got a back-up in case things don’t work out.

• Finally, but perhaps most importantly, read the Franchise Agreement. Read the Disclosure Document. Make sure you thoroughly understand these documents and if something doesn’t make sense to you ask your own advisor what it is and what its implications are for you.

Warning signs a prospective franchisee should also keep an eye out for:

• Claims that seem to be too good to be true. For example, get rich quick schemes or claims that will offer you vast riches in a very surprisingly short amount of time.

- 32 -

DUE DILIGENCE

• Be aware of a franchise offering that is reluctant to provide critical information, such as details of other franchisees, or is unwilling to back-up its claims or its promises in writing.

• Make sure that you have all the information provided to you, and be wary if any of the franchise information or other data seems inconsistent or contrary to what you’ve been told.

Understanding franchise disclosure The Disclosure Document is an extremely important document and should be read thoroughly. It must be accompanied by the Franchise Agreement and a copy of the Franchising Code of Conduct.

The requirement to provide disclosure information to potential franchisees before signing a franchise agreement is one of the key elements of the Franchising Code of Conduct.

Certain information about the franchisor and the business offer must be provided by all franchisors seeking to grant franchises in Australia in a Disclosure Document, which must be provided to a potential franchisee at least 14 days before a franchise agreement can be signed or any non-refundable money taken.

The Disclosure Document must also be accompanied by the Franchise Agreement (in the form in which it is to be executed) and a copy of the Franchising Code of Conduct itself. These three items together form the minimum disclosure information every potential franchisee must receive from a franchisor.

It’s also worth noting that the franchise disclosure information will generally be made available to a potential franchisee at an advanced stage in negotiations, after both the franchisor and potential franchisee have had an opportunity to get to know each other a little.

Perhaps the most critical information in the entire Disclosure Document are the lists of contact details of current and former franchisees.

These lists are required to be included so that a potential franchisee is given every opportunity to speak with existing and former franchisees as part of their assessment of the business. The list of current franchisees should be for the whole nation or, if there are more than 50 franchisees, at least the state or region relevant to the franchise being offered.

Current franchisees can provide valuable insights into the nature of the franchise offer, the type of work and hours involved, and any issues or challenges they faced in settling into the franchise.

- 33 -

Business FranchiSe Guide

The Code requires that a list of former franchisees be included for the past three financial years (unless the former franchisees themselves choose not to be listed), and identify whether each franchise in that time was transferred or otherwise ended by termination or ceasing to operate. In this regard, former franchisees can provide critical insights into the business, based not just on their experience of getting into and working in the business, but also based on their experience of how and why they exited the business.

Contacting this list of current and former franchisees and asking about their experience with the franchise can help a potential franchisee develop a much better understanding of the investment they are proposing to undertake.

Failing to undertake this basic research could lead to an ill-considered business decision.

Please note that we highly recommend that all franchisees who are considering entering into an agreement with a Master Franchisor obtain a copy of – or at least the key points from – the Master Franchise Agreement.

The Franchise Agreement The underlying basis of any franchise relationship is contained in the Franchise Agreement. This is the legally-binding contract that joins the franchisee and franchisor together in a business relationship.

Franchise Agreements by their very nature are long-winded documents that can be sometimes difficult to read. Potential franchisees should always get advice from a lawyer with franchising experience, but should also attempt to read the Franchise Agreement for themselves in order to better understand this advice.

This means taking a measured approach to reading the agreement over time, rather than trying to get through it all in one attempt. Make notes as you go, so you can ask questions of the franchisor and of your legal and business advisors.

Bear in mind however that one of the great attractions of franchising is the standardisation of the business system, which also includes the standardisation of the franchise agreement.

There is often little if any room for negotiation about the terms and conditions within the franchise agreement itself, but there can occasionally be some room for discussion in that part of the agreement known as the schedule, which usually contains the particulars of the franchise to be granted.

Almost all franchise systems will have a Franchise Agreement customised specifically for their business and which applies to current or new franchisees.

- 34 -

DUE DILIGENCE

It is likely therefore that no two franchise systems will have exactly the same agreement, but rather have agreements which contain similar requirements.

Franchise fees and royalties In addition to the initial franchise fee you may also be required to pay ongoing royalties. Depending on the franchise royalties may be paid as a percentage of profit, or at a set monthly fee.

No two franchise systems are likely to have the same type of structure for their upfront or ongoing fees, so it is important you have an understanding about these types of fees in assessing different franchise offers.

For most new franchisees, buying a franchise will usually involve an upfront payment to the franchisor before commencing the business, plus some kind of ongoing royalty payment.

The upfront payment can range from tens to hundreds of thousands of dollars depending on the type of business.

This upfront payment may generally consist of the following components: • The franchise fee

• Fit-out and Equipment costs • The training fee • Inventory

• Marketing and promotions for opening of the business.

Other upfront costs may include legal costs; insurance costs; licences or permit costs; rental guarantees; and working capital.

By comparison, there are also a number of ongoing fess that may be charged during the term of a franchise. These include: • Royalties

• Marketing fees

• Local area marketing costs.

Please note: Not all franchisors charge royalties or marketing fees. Some may charge one but not both. Some may charge neither and instead receive their income entirely from goods or services they supply to franchisees.

Franchise Operations Manual The Operations Manual for a franchise is generally a document or series of documents which contain the essential information on how to run the franchise business.

- 35 -

Business FranchiSe Guide

In essence, it contains the know-how of the franchise system, providing a franchisee with a ready reference to running all aspects of the business.

An operations manual may go by different names, including handbook, guide, guidelines, system manual and so forth. The name is less important than the breadth and depth of information it provides to assist a franchisee in the operation of their business.

Franchise marketing fund Marketing is a critical element in the success of any business.

One of the key advantages of joining a franchise is the strength of the franchisor’s brand, and the power of the marketing that supports the brand.

According to the Franchising Australia survey, about 70 per cent of franchise systems will charge a separate marketing fee in addition to the royalties a franchisee will be required to pay.

This is often referred to as the central or national marketing fee, and may range from 1 per cent to 15 per cent of turnover (with an average of 3 per cent) in those systems where royalties are calculated as a percentage of total turnover.

This fee is paid into a central marketing fund which then pays for marketing and advertising activities to promote the brand and its goods and services for the benefit of the network as a whole.

It is not generally expected that costs associated with advertising and marketing to recruit franchisees are paid from this fund.

Conclusion Now that you have seen some of the most important aspects of franchising, it is highly recommended that you educate yourself about assessing individual franchises and conducting thorough due diligence. You also need to seek professional advice before signing a Franchise Agreement.

The website for the Asia-Pacific Centre for Franchising Excellence – www.franchise.edu.au – offers a range of resources to assist you with your due diligence including a free online franchise pre-entry program. As part of your due diligence process make sure you speak to existing and former franchisees as these can provide the greatest insights into what it is like to be a franchisee in a particular system.

Asia-Pacific Centre for Franchising Excellence, Griffith University www.franchise.edu.au - 36 -

Chapter 5

FINANCING YOUR FRANCHISE

By Sharen Verrenkamp Senior Business Development Manager - Franchising QLD & NT Westpac Banking Corporation

About the Author Sharen Verrenkamp is the State Business Development Manager for Franchising QLD & NT at Westpac. With over 25 years’ experience in Banking & Finance in Retail and Commercial Banking, Sharen holds a Bachelor of Business and has over 10 years’ experience working in industry specialisation and the franchising sector.

Westpac Franchising works with over 80 national franchise brands and their state based franchise specialists drive local strategy as well as manage the training and development of their specialist local bankers.

Sharen is also responsible for monitoring the Bank’s franchise banking portfolio and the ongoing approval and reviews of accreditation requests.

Westpac is well regarded in the franchise sector and has built a solid reputation through its support and commitment to franchise brands over many years.

Supported by the National Industry Head Of Franchising, spread across their network nationally is a team of Specialist Franchise Relationship Managers who take up the responsibility of the day to day management and support of their franchise partners.

- 37 -

Business FranchiSe Guide

WHAT YOU SHOULD PREPARE BEFORE YOU ASK FOR A LOAN Going to a bank and making a loan application for finance to purchase or set up a business can be very daunting. Some say this is one of the most stressful things you will do in your life. This doesn’t need to be the case as this stress can be reduced by some pre-meeting preparation and research.

Research your bank Choose a bank which has expertise in your industry and will provide the range of financial products and services you will require. Do they have specialists in your business segment, such as franchise finance? Do they have a banker you can meet face to face or will you be directed to a call centre?

Your application and the quality of advice you receive will be improved by some preparation. They say in real estate, ‘Location, Location, Location’. In business, this mantra can be replaced by, ‘Prepare, Prepare, Prepare’.

This view is true irrespective of the amount of money you are looking to invest in the business purchase. Mobile businesses, for example, while at the lower end of the cost spectrum, still have the potential of losing a lot of money if the purchaser gets it wrong.

Potentially you can lose not only your initial investment but you will also be liable for any losses you may accumulate. Before making that all important appointment to see your banker spend some time to prepare.

Understand your financial capacity Your banker will need to assess your financial capacity. Write down a list of all your assets (what you own) and your liabilities (what you owe). Don’t forget balances in your superannuation funds and limits on your credit cards.

Also include a list of your income and fixed outgoings (loan repayments, credit card payments, private school fees).

You should include dividends from shares, rent from investment properties and external income from part-time work.

Bring a copy of your personal tax returns for the past three years and bank statements for your bank accounts.

The banker will look towards securing your loans against your house or other property and in some cases the business itself.

This may require a re-finance of loans if they are with another lender.

- 38 -

financing your Franchise

Prepare a business plan One of the main reasons many businesses (including franchises) fail is because they either do not undertake enough planning before they start or they do not maintain a solid planning review process as their business grows and matures.

It is vital for the survival of your franchise to take the time to develop your business plan. This should outline your goals, your strategies, your prospects and also the method by which you will achieve these.

Each business should have its own unique plan. While it’s good (and often much easier) to work from a template, start out the right way by making sure that you delete any headings which do not specifically apply to your individual business. Don’t consider this as homework but instead as a serious analysis of how your franchise business will work. Your plan will not only help you test your ideas, but decide on strategies to reach your goals.

It’s all about quality. Your business plan doesn’t need to be as long as War and Peace. In fact, the more concise but straight to the point it is the better it is likely to be. A five page document can be sufficient if it’s five pages of solid content and strategy. You do need to make sure that you cover all areas of your business and that your plan is manageable and contains enough flexibility to be revised as conditions in and around your business change.

Your plan should reflect your business life cycle – whether you are starting up, supporting a business loan application or providing ongoing management. A business plan prepared to accompany a bank loan application should show the loan requirements, describe how the borrowed money will be used, list what collateral will be provided and propose the repayment plan.

Your business plan is your roadmap to success. It needs to be fluid and flexible and it needs to be reviewed and revised at regular intervals throughout the business year. If at any time you are forced to diverge from your strategy, your business plan will help you find your way back to more familiar ground.

SUGGESTED STRUCTURE FOR YOUR BUSINESS PLAN The Executive Summary:

This should be a summary of the highlights and main points of your plan.

Write this last.

About the Business:

This section should include detail about the location you will be operating from, the history of the franchise systems, facilities and equipment you will be using; as well as the legal structure, set-up costs, funding and insurances you will choose. This section paints a picture of your business and describes the - 39 -

Business FranchiSe Guide

legal entity and ownership structure, as well as giving an overview of start-up costs and initial funding.

Industry and Market Analysis:

Here you want to describe the products or services you offer. Make sure you emphasise why buyers will purchase those things, and what benefits they will receive by doing so. Show how much it costs to deliver what you’re selling.

You should also review current trends in the wider industry or sector, and assess your competition.

Strategies:

Here you need to document your overall mission strategy, objectives and milestones. You can also include your marketing strategy, outlining any plans for advertising and promotions as well as a sales forecast and the cost of sales.

It’s a good idea to also detail your distribution method/s and plans for growth.

You should also describe the target market and segment you will be focusing on, including market demographics, market growth, trends and forecast. Finally, describe the nature of your industry and sector as well as your competition, and refine your milestones with dates, budgets and specific responsibilities.

Management Structure:

Outline staff positions, costs, facilities, and also include an organisation chart. You should identify and describe the key members of your team, list management-team gaps (if any) and show how they will be addressed.

Financials:

Here you must include a financial plan and needs summary. Other components of this section should include sales forecasts, assumptions, annual income expenditure, a profit-and-loss statement (P&L), a cash flow statement and a balance sheet.

Information Systems and Controls:

This is a summary outlining the operational aspects of your business. Here you should define the systems, processes and controls which have (or will be) put in place. Also, identify any gaps and plans for the future.

SWOT analysis:

This helps you define your strengths (for example reputation, latest technology, good location), your weaknesses (lack of experience; difficulty finding staff, high overheads), any opportunities (local market growing fast, an unfilled niche in market, the possibility of a joint venture) and threats (a competitor opening up, over-reliant on one supplier, raw-material costs rising).

- 40 -

financing your Franchise

Exit Strategy:

Knowing how and when to exit your business is as important as knowing how to start it. Many owners build their business to sell when the time is right. If this is your strategy, make sure that you understand how to do this. There are many books available which explain the details; alternatively you can speak with your accountant, solicitor or bank.

Get advice Speak to your business advisors, business accountant and lawyer. These advisors are able to recommend business structures, tax planning, GST obligations and book keeping. They can also assess leases and agreements, etc.

Time and money spent at this stage will ensure the proper processes are put in place and legal obligations are understood.

Most state governments provide a free or low cost service to assist people get into business. There may be some training programs available.

Look at any weaknesses you may have and put a plan in place to develop yourself. Few people will have all of the required skills up front. Learning is a continuous process for all business owners.

When speaking to family and friends, ensure you are getting a balanced view.

Like with all things in life others will have their own opinions and bias when giving their views.

Prepare cash flow projections Of all the reasons as to why businesses fail, insufficient cash flow is one of the most common. Often this is not due to the lack of actual business or the amount of sales being made but the mismanagement of the funds available.

Every business has its differences, but the core principles are the same. Cash is the lifeblood of your business. Without proper cash flow management and planning your business will die.

The difference between profit and cash It is important to understand that profit and cash flow are two different things.

Many operators will tell you that it is possible for a business to generate strong profits but collapse because they have run out of cash. The easiest way to explain this is to imagine a business whose profit and loss statement showed that last year they made a profit of $50,000. What the profit and loss statement doesn’t show is that for the first eleven months of the year this business was strapped for cash and nearly went under as they only made enough sales to - 41 -

Business FranchiSe Guide

cover their costs. In the last month of the year they made a couple of large sales and this is what resulted in the annual profit of $50,000. Profit is the result of trade over a given period; cash flow is required to keep the business in operation by covering day to day expenses. This is why it is important to manage and understand how cash flows through your business.

What is a cash flow budget?

A cash flow budget simply records the amount of money that you expect to flow in and out of your business over a given time frame. It is a financial tool that will help predict the availability of cash in a business at any given time.

Income and expenses are calculated monthly to help plan for any future short falls in cash.

How to construct a cash flow budget A cash flow budget is based around a series of assumptions about the expected performance of the business in the future. These assumptions need to be realistic and supported by the most accurate data you have available. If you have access to previous trading results then the best place to start is last year’s sales and expense records. Allocate these results into similar months that they occurred last year unless you know they will change in the future. You may want to increase sales to account for more growth or you may know that you made an unexpected sale/expense in a particular month last year that was a one off. You could be looking at introducing a new product line or service, looking to buy a new piece of equipment or employ another person. These will all have an impact on the cash flow budget and are the type of things you should account for so that you can forecast as accurate a picture as possible.

If you plan to use the information on your profit and loss statement understand that these have been prepared for tax purposes and will account for non-cash payments such as depreciation. This shouldn’t be included in a cash flow budget as you don’t physically make a payment for these things.

If the business is new, then you will need to base your assumptions on research, market expectations, contracts held, known expenses such as rent, or compare with other similar business results. The more information you can build into the picture the stronger the tool will be.

Some will say it is a good idea to have three cash flow budgets that account for the best, most likely and worst case scenario. Computer spreadsheets allow you to quickly adjust scenarios and as you receive your actual figures for each month it is important that you fill these in so that you have an up to date position of the business. This will allow you to react as quickly as possible to - 42 -

financing your Franchise

any changes that may be required. Based on this, the cash flow forecast should be a living document and not filed away and forgotten about. Used properly it is one of the most important business indicators and planning tools you can have.

Many people in business will have their accountant prepare their cash flow budget for them. There is nothing wrong with doing this as long as you, the business owner, understand the information that your accountant has prepared.

If you don’t understand the assumptions that your accountant has put into the cash flow budget, then you won’t be able to use it as an effective tool. Why would you pay to have it done if you are not going use it and just file it away?

Research the opportunity As outlined in this article, research will assist you to understand the business you are looking at purchasing. Spend time with the vendor, and in the case of a franchise, speak to as many other franchisees as possible, including some who have left the system.

This process will provide a well-rounded and realistic view of the business.

There is no such thing as a perfect business.

Involve the franchisor at an early stage. Franchising is like a marriage and all parties need to build a sound professional relationship.

Look at the industry and how it is being impacted. Many industries have been impacted by such things as changes in consumer behaviour and legislation.

These issues may be different from state to state and region to region.

We have all seen the rise and fall of the video rental industry and the environmental impact on the car detailing industry.

Look at what the competition is doing. Ask questions such as: • Will there be a price war?

• What is your business’ point of difference in the market?

• How easy is it for others to enter the market?

• What are the barriers to others entering the market, including cost, expertise, access to product, location, etc?

If buying an existing business, find out about your customers: • Who are your customers?

• Will they stay with you as the new owner?

• How hard would they be to replace if they went elsewhere?

- 43 -

Business FranchiSe Guide

Consider what you need What are you looking for from your bank? Business loan, overdraft facility, transaction accounts, internet banking, equipment finance, landlord guarantee, business credit cards, merchant facilities, personal and business insurances, etc.

The list is extensive so your banker will help you through this. However, some thought on your part will ensure all your business and personal financial needs are covered.

Provide a breakdown of the finance you will need. Include purchase price (or detailed set up costs if new), working capital, legal and accounting costs, stamp duties etc. Detail your cash contribution and financial reserves.

Support of family Family support is critical to the success of any business. Buying a business can be an added strain, at least initially, so it’s important that you consider how this will impact on you and your family.

Who will work in the business and on what basis? How will they be paid?

Will employment outside of the business continue? Communication channels need to remain open to ensure any hiccups don’t get blown out of proportion.

Buying a business is an exciting time. Time spent before meeting with your bank will be worthwhile as it will reduce the stress for you and the time taken by the bank to come to a decision on your loan and other services your bank may be able to provide.

Sharen Verrenkamp Senior Business Development Manager - Franchising QLD & NT Westpac Banking Corporation (AUS) 0438 426 319 sverrenkamp@westpac.com.au www.westpac.com.au/business-banking/franchising/

- 44 -

Chapter 6

UNDERSTANDING THE LEGAL DOCUMENTS

By Robert Toth Partner Wisewould Mahony Lawyers

About the Author Robert Toth is an Accredited Business Law Specialist with over 30 years’ expertise in the areas of: • Franchising – acting for both franchisors and franchisees.

• Master Franchise and International Franchising.

• Franchise dispute resolution acting for both franchisors and franchisees.

• Advice to Franchise Advisory Committees.

Robert heads the Wisewould Mahony, Retail Franchise Licence and Distribution group and advises corporate clients in a number of highly regulated industries such as Pharmacy, New Energy and Gaming and Liquor Licensing. His previous experience was in the retail photographic business with his brother Ted in the well recognised Ted’s Camera Stores.

Robert holds memberships of the Franchise Council of Australia (FCA), International Franchise Lawyers Association (IFLA), Franchise Association of New Zealand (FANZ), Australian Institute of Company Directors (MAICD), and the US Commercial Service and Asian Lawyers Network.

He is a Board member and Company Secretary in charge of corporate compliance of the Elwood Community Bank, established under franchise of the Bendigo and Adelaide Bank Limited.

Robert has written and published numerous articles in the Financial Review and Franchise Industry Journals and online with titles such as “Why can’t I sue my Franchisor – Exit Strategies” – “This Contract makes no sense” – “Let’s pretend we are a Franchisor” – “International Franchising in Australia” – “When is it time to sell your Franchise,” and “What happens if my Franchisor goes bust?”

- 45 -

Business FranchiSe Guide

T

he process of selecting the right franchise is daunting. Hopefully you will have compared the selected franchise system with other similar systems in the market and spoken to other franchisees. With some trepidation you sign an application form to be approved by the franchisor and the franchisor congratulates you and confirms you are approved!

Ideally by this point you will have engaged your accountant and franchise lawyer. Your accountant will assist you to objectively assess the financial viability of the franchise and assist you with your corporate structure and tax advice.

Your franchise lawyer will be able to review the documentation and work with you and your accountant as a team to limit any risk to you.

The franchisor then provides you a mountain of documents with a covering letter giving you 14 days in which to review the documents and seek legal and financial advice.

Key documents The documents supplied are: • A copy of the Franchising Code of Conduct; • A Disclosure Document with attachments including trade mark certificates, copy lease/licences and financial statements; • The proposed Franchise Agreement; • Possibly a lease, sub-lease or licence to occupy the premises; and • Section 11 legal accounting and financial advice certificates.

The documents are overwhelming. An organised franchisee will have the benefit of their specialist franchise lawyer to review the agreement and highlight any issues that may be of concern.

There is no substitute for you as a franchisee reading and becoming familiar with the documents. A Franchise Agreement is your contract setting out the rights, roles and responsibilities of the parties. It is one thing entering into a franchise relationship and not something you can walk away from readily.

Franchise agreements are typically 50 to 100 or more pages and can be difficult to understand. They may appear to be a standard form, however in reality there is no such thing and the devil will always be in the detail. There may be greater room to negotiate if the franchise is a new system and the franchisor is keen to roll out its system.

There are numerous tricks and traps, not only in relation to the basic financial obligations but in relation to termination and exit rights, the right to assign and - 46 -

understanding the legal documents

restraint provisions to name a few, all of which need to be clearly understood.

Seeking legal advice from a franchise law specialist will assist the process as they will focus on the important commercial issues and suggest areas of particular concern where there may be room for negotiation, rather than recommending wholesale changes to an agreement which are unlikely to be accepted.

Disclosure Document Under the Franchise Code franchisors are required to provide a Disclosure Document to the franchisee prior to entering into a Franchise Agreement and annually throughout the term.

The Disclosure Document must be in the form prescribed by the Code and set out required material information to assist the franchisee to make an informed decision.

The Disclosure Document sets out information such as: a) The background and business experience of the franchisor, its directors and associates. This is important to note whether the franchisor has the necessary skills and business experience. b) Any legal action taken against the franchisor or its directors. If this shows a number of legal actions it can be a warning sign. c) Details of past and existing franchisees. This will assist to see the turnover of franchisees and help to identify if it’s a stable system. d) Disclosure of its intellectual property and trade marks used in the system. e) The territory and sites selection policies. Are you taking on an A grade or C grade site? f) Use of marketing funds. An area often contentious and the cause of much dispute. g) Upfront establishment and capital costs and ongoing costs chargeable by the franchisor to the franchisee. These should be carefully analysed. h) A summary of the obligations of the franchisor and franchisee set out in the Franchise Agreement. i) The financial position of the franchisor company. This requires that the franchisor provide financial reports for each of the last two completed financial years together with a statement signed by at least one director stating in the directors opinion, there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due, in other words that it is solvent.

- 47 -

Business FranchiSe Guide

j) Where the franchisor is part of a consolidated entity, they are required to provide audited financial reports under the Corporations Act 2001 for each of the last two completed financial years.

Note: The requirement under the Code is for a franchisor to provide the last two years financial reports, where the franchisor can not otherwise provide a solvency declaration supported by an independent audit by a registered company auditor (or foreign equivalent) within 12 months after the end of the financial year

Tip: As well as being a formal compliance document, the Disclosure Document can also be used as the means to market and promote the franchise system.

It is important however to ensure that the information disclosed is accurate, gives realistic estimates where specific costs cannot be fixed and that the franchisor does not make any misleading statements or representations.

For the franchisee, the Disclosure Document is intended to be a summary of the key terms and conditions and assist them to make an informed decision before committing to the franchise.

The Disclosure Document will also provide information of other franchisees to enable you to contact them and obtain feedback, which is vital before committing to the franchise.

Clause 22 of the Code requires that a copy of the franchise agreement (in the form which it is to be executed) must be attached to the Disclosure Document together with a copy of the Code.

In addition clause 22.3 provides that any other information that the franchisor wishes to disclose, and which does not contradict the information required, can be set out in the disclosure document.

It is therefore important that any representations, promises or statements made by the franchisor or their agent in the course of the negotiations, are in the Disclosure Document co-signed by the franchisor as evidence of a franchisee’s reliance on those representations.

The franchisor may in some cases provide a representations certificate as part of the package of franchise documentation.

14 day disclosure On receipt of the documents, the franchisee is required to sign to acknowledge its receipt of the documents. This commences the 14 day disclosure period.

Neither party can contract out of the 14 day disclosure period which provides - 48 -

understanding the legal documents

time to seek independent legal and financial advice and negotiate any amendments to the agreements.

Initial payments It may be a requirement to pay a document fee, usually $3,000 or thereabouts to the franchisor’s solicitor, the franchisor directly or their agent. This is usually a sign of good faith and will enable the franchisor to instruct its solicitor to prepare the suite of franchise documents.

Cooling off Under the Franchise Code any money paid by a franchisee within the 14 day disclosure period is fully refundable. Beyond the 14 days that sum is nonrefundable. The 14 days disclosure period should not be confused with the 7 day cooling off period, which commences from the date the franchisee enters into the agreement or makes a payment under the Franchise Agreement (whichever event first occurred). The cooling off period only applies in relation to a new agreement, not a renewal, extension or transfer of an existing agreement.

The 7 day cooling off period enables a franchisee to terminate the Franchise Agreement within the cooling off period. In that case the franchisor is required to refund all payments made by the franchisee, less any non-refundable payments. These are the franchisor’s reasonable expenses which may include the initial franchise document fee and any part of the training fee. Any payments that are non-refundable must be reasonable and disclosed prior to entry into the franchise agreement.

Standards, policies and procedures and the Operations Manual The vast majority of Franchise Agreements include provisions requiring franchisees to comply with the franchisor’s Operations Manual.

These policies and procedures may change throughout the course of your franchise relationship and the franchisee will be required to adopt changes at their cost. Franchisees should request to see and review the Operations Manual before entering into the Franchise Agreement. As the Operations Manual is a confidential document of the franchisor, they may not agree to provide a copy of their Operations Manual until the franchisee commits by signing the Franchise Agreement. If that is the case, franchisees should ask to review the Operations Manual within the cooling off period.

The Franchise Agreement This is your contract setting out your rights and obligations. They are generally weighted in favour of the franchisor.

- 49 -

Business FranchiSe Guide

The franchisee must comply with the obligations and the failure to comply may give right to a breach triggering rights to the franchisor.

On the other hand it is often assumed by franchisees that the franchisor’s obligations are positive obligations, however most agreements will state the franchise ‘may’ not or ‘must’ do certain things.

A breach by the franchisor does not give the franchisee similar rights. However it should be borne in mind that a franchisee has some measure of protection under the Franchise Code under the good faith obligations and also under the Australian Consumer Laws where the franchisor acts unconscionably or has engaged in misleading and deceptive conduct.

Further the franchisee can instigate the dispute resolution process and seek mediation, if there are issues in dispute that can not be resolved directly with the franchisor.

Fees payable to the franchisor Initial fees Franchisees are required to pay fees upon signing the Franchise Agreement – this is often called the ‘Franchise Fee’, ‘Initial Fee’ or an ‘Establishment Fee’. There may also be other fees payable before the franchisee commences operation for specific services, such as a ‘Training Fee’ or ‘Technology Fee’.

These fees will be set out in the Franchise Agreement and in the Disclosure Document.

Royalty Under most franchise agreements, the franchisee pays an ongoing fee during the term of the agreement, usually described as the ‘Franchise Fee’ or ‘Royalty’. The fee is typically paid monthly or weekly, either as a percentage of the franchisee’s gross sales or a specific dollar amount (which may or may not be adjusted by CPI).

Note: Even if the business is not running at a profit for the franchisee, the franchisee is still required to pay the royalty (and marketing fund contributions) to the franchisor usually based on the gross revenue.

It is therefore critical that a franchisee prepares cash flow projections and a financial analysis with an accountant to ensure that after paying royalties the franchisee can, at the very least, take a reasonable salary from the business, let alone provide a return on their investment.

- 50 -

understanding the legal documents

Tip: If relying on the franchisor’s financial information, ensure their financials make provision for a salary before showing a profit.

Other fees Franchise Agreements can impose other fees for additional training or contributions to the cost of franchisee conferences – these would be detailed in the Franchise Agreement and the Disclosure Document.

Other costs In addition to the initial fees discussed above, a franchisee needs to bear in mind the other establishment costs of commencing a franchised business. The franchisor must provide an estimate of establishment costs in the Disclosure Document, however these estimates are often a very broad range, and actual costs may be greater.

Tip: We often find that the working capital requirements are understated.

Franchisees should prepare their cash flow projection and allow a sensible amount of working capital for the first 12 months of operation.

Prospective franchisees should also allow for additional costs which may not be included in the Disclosure Document, such as salary and wages of employees, insurance, utility bills and other outgoings.

Term and renewal Franchise agreements generally run for a fixed term such as five or ten years.

Some franchise agreements provide an option to renew the agreement for a further term, provided that the franchisee is not currently in default of its obligations under the agreement. There may be other conditions, such as the franchisee undertaking to refurbish the premises or to undergo retraining.

The franchisee will often be required to pay a renewal fee. Usually, the new franchise agreement would be the franchisor’s standard agreement at that time, which may have different terms to the original agreement.

Sites and territories Mobile franchises (such as those providing gardening or cleaning services) will generally be granted for a specific territory – this territory might be listed as a number of postcodes, or it might be marked on a map attached to the agreement (with for example a 5km radius). Sometimes the territory will be exclusive, so that neither the franchisor nor other franchisees can operate in the territory, giving the franchisee some protection from competition.

- 51 -

Business FranchiSe Guide

Retail franchises (such as cafes or gyms) will generally be granted for the specific site from which the retail outlet operates and no territory.

Usually, any exclusivity will be conditional on the franchisee complying with their obligations under the franchise agreement and meeting minimum performance critieria. Franchisees should ensure they understand the rights associated with their territory, whether it is exclusive and if the franchisor has the right to alter the territory throughout the term.

It should be noted that many distribution dealership and licence agreements do not give exclusive rights at all and even where there are exclusive rights, there may be rights for a franchisor to compete against the franchisee.

Marketing Most franchise systems have a marketing fund established by the franchisor for the marketing of the business on behalf of the franchisees. Franchisees usually contribute to the fund monthly or weekly.

The Disclosure Document should set out information about the marketing fund (if any). Usually, a marketing fund will be for the marketing of the franchise system as a whole – the franchisor will not be required to spend any part of the fund marketing on an individual franchisee’s business.

In addition to contributions to the marketing fund, many Franchise Agreements require franchisees to market their business locally. The franchisee will be required to follow the standards and procedures set out in the operations manual, including obtaining the franchisor’s approval for those activities.

Sale of the franchise business Most Franchise Agreements set out provisions which regulate a franchisee’s ability to sell their business.

If the franchisee wishes to sell, the franchisor will usually have a first right of refusal to purchase the business. If that option is not taken up, the franchisor will have a right of approval over the proposed replacement franchisee.

Under the Code, a franchisor must not unreasonably withhold its consent to a transfer of a franchise. Reasonable circumstances for refusal might include the proposed transferee being unlikely to meet the financial obligations or failing to meet the training requirements.

The franchisor may impose a transfer fee. This is an exit cost that should be kept in mind when entering into the agreement.

- 52 -

understanding the legal documents

Obligations at the end of the Franchise Agreement Upon expiry or termination of the Franchise Agreement, the franchisee will usually be required to take action such as: • Ceasing to use the trade marks; • Altering the premises of the business so that it will not be confused as a franchise; • Returning all documents relating to the system to the franchisor; and • Transferring phone numbers to the franchisor.

The franchisor will often have the right under the agreement to acquire the assets of the business, including a transfer of the lease of the premises (if any).

Most Franchise Agreements also include a non compete or restraint of trade provision which provides that for a certain period after the expiration, termination or transfer of the agreement (usually 6 to 24 months), the franchisee must not be involved in any business which competes with the franchisor. The restraint might apply to the territory (if any) and/or within a certain distance of the premises (for example, within a five kilometre radius). This restriction not only prohibits the establishment of a competing business, but also being involved as an employee/consultant of a competitor. Although this might be considered anti-competitive, Courts have recognised the right of a franchisor to enforce a reasonable restraint.

Even if the franchisee is not subject to a restraint of trade, any ‘goodwill’ in their business will usually be expressly stated to remain with the franchisor upon termination or expiration – a franchisee is rarely entitled to any payment from the franchisor in respect of goodwill, unless expressly negotiated and written into the agreement.

The impact of what occurs at the end of the term needs to be carefully considered before entering into the agreement.

Existing franchises The Disclosure Document will set out contact details for the existing franchisees of the system – a prospective franchisee should use their 14 day waiting period to contact the existing franchisees to gather more information about how the franchise system operates and the benefits and disadvantages of joining the group. Feedback from a number of franchisees is recommended to give a balanced view.

The franchisor is also required to provide details of the number of franchisees - 53 -

Business FranchiSe Guide

that have ceased operating in the past three years. Contact details for these former franchisees should be provided, unless the former franchisee requests that their details be withheld.

A prospective franchisee should try to contact former franchisees to gain an alternative perspective of the franchisor and the franchise system, particularly to find out why they exited the system – was their time in the franchise system a success? If so, why? And if not, why not?

Negotiating changes to the Franchise Agreement Although the franchisor will usually offer the same terms of franchise agreement to all franchisees, some franchisors will accept reasonable requests for amendments or concessions.

Consideration should be given to seeking reduced establishment fees, royaltyfree periods, reduced minimum performance criteria, further renewal terms or the removal of restraint of trade provisions, particularly where the franchise system is new and yet to establish itself in the market.

If the franchisor agrees to a concession or a variation to the agreement, ensure that this is in writing and signed by both parties to ensure it is enforceable.

Summary Deciding whether or not to enter into a franchise agreement is a serious decision. Franchisees should ensure that they seek specialist legal, accounting and business advice before committing. The advice should be independent – do not simply rely on the franchisor’s advisors.

Keep in mind that just because the franchisor has provided the Franchise Agreement and Disclosure Document, there is no obligation to sign it – even if a deposit has been paid.

Also remember after signing the Franchise Agreement, there is a seven day cooling off period in which a franchisee can terminate the agreement.

It may be wise to forfeit a relatively small amount of money in the short term than risk losing significantly greater sums by proceeding with a franchise that is not right for you.

In most cases, franchisees do not have any rights to terminate a Franchise Agreement throughout the term and franchisees can not object if the franchisor sells the system or assigns its rights. Franchisees therefore need to be prepared to operate the business for at least the initial term.

So if you find a franchise system that you believe is right for you, make sure - 54 -

understanding the legal documents

you get specialist advice to limit the risk and so you can make an informed decision.

Robert Toth Partner Wisewould Mahony Lawyers (AUS) 03 9612 7297 robert.toth@wisemah.com.au www.wisewouldmahony.com.au

- 55 -

Business FranchiSe Guide

- 56 -

Chapter 7

Ongoing Franchisee Legal Obligations

By Esther Gutnick Senior Associate MST Lawyers

About the Author Esther Gutnick is a Senior Associate in the Corporate Advisory and Franchising Team of Melbourne-based law firm MST Lawyers and has been practicing in the franchising space for 10 years.

Esther has authored numerous franchise articles and handles a wide variety of franchising and commercial matters, acting for both franchisees and franchisors, including local, national and international franchise systems. Her practice focusses on:

• Acquisition and disposal of franchise networks and independent businesses

• Establishment of franchise systems, including structuring advice and drafting key franchise documentation • International and master franchising, assisting Australian franchise systems to expand offshore and overseas franchise systems to enter into the Australian market • Advising both franchisors and franchisees on compliance matters, including compliance with the Franchising Code of Conduct and Australian Consumer Law • Advising both franchisors and franchisees in relation to franchise dispute resolution

• Advising franchisees and master franchisees in relation to sales and acquisitions of franchised businesses and reviewing franchise documentation

- 57 -

Business FranchiSe Guide

S

o, after months of research, due diligence, completing applications, attending meetings and wrestling with big decisions, you have finally settled on the franchise that you believe is right for you and you’ve signed on the dotted line.

Congratulations - you have become a franchisee! And you thought that now you could finally relax and settle into simply running the business. After all, you obtained legal advice about the franchise documents before signing, you attended the franchisor’s training and you have read the operations manual cover-to-cover. You’ve done everything right. Surely, the hardest part is over and you now know everything you need to know to continue conducting the business into the future.

Wrong! In fact, your journey is just beginning. Although franchising can be an exciting and fruitful venture, it is important to remember that, as a franchisee, you are both part of a franchise network and an independent small business owner. Thus, you are responsible for keeping abreast of, and complying with, not only the franchise agreement obligations and rules which govern the franchise network, but also all the various other laws and obligations that apply to you and your new business. And, because laws and their application evolve and change over time, this task should be an ongoing focus for as long as you remain in business.

A franchise relationship is intricate, complex and highly regulated. This chapter examines some of the many different areas and sources of law which govern and affect the franchise relationship on a continuing basis.

LEGISLATIVE OBLIGATIONS The main pieces of legislation relevant to the franchise industry in Australia are: • the Franchising Code of Conduct (the Code);

• the Competition and Consumer Act 2010 (Cth) (the CCA) (formerly called the Trade Practices Act 1974 (the TPA)) under which the Code was enacted; and • the Australian Consumer Law (the ACL),which is part of the CCA. a) The Franchising Code of Conduct1

The Code is a federal, franchise-specific piece of legislation, whose stated intention is to regulate the conduct of franchising participants towards each other.

Both franchisors and franchisees must comply with the Code, which applies to all franchise agreements entered into in Australia on or after 1 October 1998.

- 58 -

Ongoing Franchisee Legal Obligations

Although the Code mostly imposes obligations upon franchisors and dictates the contents of the franchisor’s disclosure document, it is critical for franchisees to read, understand and regularly refer to the Code. This will enable franchisees to ensure their franchisor is complying with its obligations under the Code, and to understand how the Code’s provisions affect the manner in which the franchisee can conduct their franchised business.

Some of the Code’s key obligations that are relevant to franchisees are outlined below: i) Disclosure Document

The Code requires all franchisors to create a disclosure document in the prescribed form and to update the disclosure document annually within four months of the end of each financial year.

The disclosure document contains many prescribed items of information about the franchisor and its directors and related entities, the franchise system and the existing and former franchisees.

It is intended to give information to help a franchisee or prospective franchisee make a reasonably informed decision about the franchise and to give franchisees current information that is material to the operation of the franchised business.

The Code entitles franchisees to request, in writing, a copy of the franchisor’s current disclosure document once in any 12 month period. If a franchisee makes such request, the franchisor must send its current disclosure document within 14 days after receiving the written request.

ii) Cooling Off

The Code gives franchisees a right to terminate and exit a franchise agreement within seven days after the franchisee entering into the franchise agreement or making any payment under it (whichever is earlier). If the franchisee exercises its right to cool off, the franchisor must refund any monies paid by the franchisee, less a pre-disclosed amount to cover the franchisor’s reasonable expenses.

The cooling off right does not apply to a renewal, extension, extension of the scope, or transfer of an existing franchise.

iii) Association of Franchisees

The Code gives franchisees the freedom to form an association, or to associate with other franchisees or prospective franchisees for a lawful purpose, by stipulating that franchisors must not seek to induce a franchisee not to do such things.

- 59 -

Business FranchiSe Guide

iv) Prohibited Releases and Waivers

The Code expressly prohibits a franchise agreement from containing, or requiring a franchisee to sign, either: • •

a general release of the franchisor from liability towards the franchisee; or a waiver of any verbal or written representations made by the franchisor.

The purpose of these prohibitions is to prevent franchisees from being forced to give up legitimate legal rights that may have accrued in the past. If faced with a request by the franchisor to sign such a general release or waiver, franchisees are entitled to rely on this section of the Code to refuse to do so, and/or to require that any such provisions be removed from the franchise agreement.

v) Marketing and Co-operative Funds

If a franchisor operates a marketing, advertising or other co-operative fund to which its franchisees are required to contribute, the Code obliges the franchisor to prepare annual financial statements in respect of the fund’s receipts and expenses and requires the franchisor to have the statements audited by a registered company auditor.

Both the financial statement and the auditor’s report must be completed within four months of the end of each financial year, and the franchisor is obliged to provide a copy of each document to its franchisees within 30 days of preparation.

This can be quite an onerous and costly process. The Code provides scope for the contributing franchisees to vote not to have the fund audited if they so choose.

The underlying purpose of these provisions is to ensure that franchisees know how contributions to the relevant fund are being spent so franchisees can have confidence that the fund is not being used improperly.

vi) Transfer or Sale of a Franchised Business

The Code sets out rules to apply if a franchisee wants to sell its franchised business. Franchisees must make a request, in writing, for the franchisor’s consent to the proposed sale. After the request is made, the franchisor has 42 days within which to give the franchisee written notice that the consent is withheld and the reasons why, otherwise the franchisor is deemed to have agreed to the sale.

- 60 -

Ongoing Franchisee Legal Obligations

Franchisors must not unreasonably withhold consent to a franchisee’s proposed transfer. This fundamental rule is an important protection for franchisees.

The Code sets out a number of circumstances under which it would be considered reasonable for the franchisor to refuse consent. This list of circumstances is not exhaustive and the franchisor may rely on other reasonable grounds for refusing consent and may even include such grounds in the franchise agreement.

vii) Termination

The Code sets out particular circumstances under which, and the manner in which, a franchise agreement may be terminated by the franchisor. There are three broad categories, including: •

where the franchisee has breached the franchise agreement;

•

where the franchisee has not breached the franchise agreement but the franchisor wants to terminate the franchise agreement in accordance with the terms of the franchise agreement and without the franchisee’s consent; and

•

special circumstances which allow for immediate termination.

If the franchisor wishes to end a franchise agreement due to franchisee breach, the Code requires the franchisor to give the franchisee written notice of the breach and a reasonable opportunity to remedy the breach, including specific instructions as to how to remedy the breach.

viii) Dispute Resolution Importantly, the Code provides that any franchise agreement entered into on or after 1 October 1998 must provide for a complaint handling procedure that complies with the Code’s dispute resolution procedure.

If there is no such provision, a party to a franchise agreement is still entitled to invoke the dispute resolution process outlined in the Code.

That process governs how mediation is to be commenced and conducted and how the parties must conduct themselves during the mediation process. b) The Competition and Consumer Act 2010 and Australian Consumer Law The CCA and ACL commenced on 1 January 2011 with the main aim of creating a single law to consolidate the consumer protection provisions of the TPA and the various State and Territory fair trading legislations.

- 61 -

Business FranchiSe Guide

They cover general standards of business conduct, prohibit unfair trading practices, regulate some types of business to consumer transactions and provide basic consumer guarantees for goods and services. That means that consumers can expect the same type of protection and businesses have the same types of obligations irrespective of where they are located within Australia.

The CCA is federal law, and is administered and policed by the Australian Competition & Consumer Commission (ACCC), an independent Commonwealth statutory authority created to act as a consumer rights watchdog and protection organisation. The ACCC has wide powers to investigate and penalise companies and individuals for breaches of the ACL and CCA. The CCA is a complex piece of legislation and is home to an abundance of laws on many issues relating to business.

The parts of the CCA which are most relevant to franchisees are those which prohibit misleading and deceptive conduct, unconscionable conduct, and those relating to anti-competitive conduct. Since the introduction of the ACL, there are also new consumer guarantees that all businesses must be aware of. In particular, franchisees should bear the following CCA obligations in mind in conducting business: i) Third Line Forcing

Third Line Forcing is prohibited as anti-competitive conduct by the CCA and occurs where one party offers to supply a buyer or offers some incentive to the buyer on the condition that the buyer agrees to acquire goods or services from a third party.

There are some exemptions to this principle, including where the first supplier and the third party are related bodies corporate. There are also provisions in the CCA that enable a person seeking to engage in Third Line Forcing to effectively obtain the permission of the ACCC to do so, by obtaining what is known as a ‘notification’ or ‘authorisation’.

A public benefit to the conduct must be demonstrated before such permission will be granted.

ii) Price fixing

Price fixing is serious anti-competitive conduct which is not tolerated by the ACCC or the Courts. Competitors are forbidden to agree to fix, control or maintain prices, discounts, allowances, rebates or credits in relation to goods or services.

- 62 -

Ongoing Franchisee Legal Obligations

If two or more competing franchisees in the same system get together and agree to sell their goods and services at the same price, this would contravene the price fixing provisions of the CCA.

iii) Unconscionable conduct and misleading or deceptive conduct

The CCA prohibits corporations from engaging in conduct that is unconscionable.

The CCA also provides that corporations must not engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Although separate concepts, unconscionable conduct and misleading or deceptive conduct are often pleaded together in franchise litigation.

Franchisees may be accused by the franchisor, or their suppliers or customers of breaching one or both of these sections if they make false representations as part of their marketing and sales process or if they are unscrupulous in their dealings.

iv) Consumer guarantees under ACL

Consumer guarantees under the ACL are based on the same core principles as the implied warranties and conditions that previously existed under various State and Territory fair trading legislation and the TPA.

While no significantly different implied rights or obligations were created by the ACL, the implied warranty for goods to be of merchantable quality has been replaced with an implied warranty for goods to be of acceptable quality. Arguably this is a higher standard and may require additional vigilance on behalf of manufacturers and suppliers.

Because the Code is mandated by the CCA, a breach of the Code is tantamount to a breach of the CCA, thereby giving the victim access to a wide range of remedies available under the CCA. If the CCA is contravened, there can be many civil and criminal consequences. The range of applicable sanctions include pecuniary penalties, in the form of fines, orders for payment of money (damages), restraining orders, non-punitive orders (such as community service orders, probation orders, corrective advertising orders), orders varying contracts or refusing to enforce all or any contractual provisions.

In addition, common law remedies may also apply, some of which may even render void or illegal any agreement or contract that contains provisions which breach certain sections of the CCA. - 63 -

Business FranchiSe Guide

c) Other Relevant Legislation Although the Code and the CCA are the primary sources of law which relate specifically to franchising, there are many other legislative instruments that may apply to franchisees, including the following: i) The Corporations Act 2001

This legislation governs the operation of all Australian companies and sets out the rights and obligations of the company itself and its directors and shareholders. Any franchisee that is an incorporated entity must be aware of, and comply with, the complex and comprehensive provisions of the Corporations Act.

ii) Personal Property Securities Act 2009 (PPSA)

The PPSA came into effect on 30 January 2012 and creates a new national system for the registration of security interests in personal property (other than land) and governs the creation, priority and enforcement of security interests in personal property.

Under the PPSA, a security interest is any interest or right relating to personal property that secures payment or performance of an obligation. To be enforceable and obtain priority, the interest must be registered on the national Personal Property Securities Register (‘PPSR’).

Franchisees should be aware that, during the course of a franchise, security interests may be registered against it (or its directors if the franchisee is a company), by: •

its bank or other financier - to secure repayments owed under any loan or finance arrangement;

•

the franchisor - to secure payments owed to it by the franchisee under the franchise agreement or to register the franchisor’s interest in any equipment leased or loaned to the franchisee;

•

suppliers - to secure payments owed in respect of the supply of any goods to the franchisee.

If a franchisee intends to sell the franchised business or any of its assets, it may be required to first satisfy and/or arrange for the removal of some or all of the security interests from the PPSR as a pre-condition of the sale.

Franchisees should also be aware of any security interests they may have against other parties with whom they are dealing in the course of conducting the business, and should consider registering such interests - 64 -

Ongoing Franchisee Legal Obligations

on the PPSR (if relevant) to secure monies or obligations which may be owed to the franchisee. iii) Retail Tenancy Laws

If the franchised business operates from retail or commercial premises, a lease or other occupancy agreement will be required and the terms of that agreement, together with the relationship of the parties (including the landlord, tenant and any subtenant or licensee) will be governed by the applicable retail lease legislation that exists in the relevant State or Territory.

There is also a different body responsible for administering such retail legislation in each State and different authorities will have jurisdiction to mediate or arbitrate over retail tenancy disputes.

Franchisees with a business that involves premises must be aware of, and comply with, the applicable obligations imposed by these laws.

iv) Privacy Act 1988

This legislation was amended with effect from 12 March 2014. The Privacy Act may apply to franchisees if they fit the criteria set out in the Act itself, or the franchise agreement may oblige franchisees to comply with the Act even if it would not otherwise apply. If franchisees are required to comply with the Privacy Act, it will govern how franchisees must collect, store, use or disclose any personal or sensitive information (for instance customer data). Franchisees may also be required under the Privacy Act to develop a compliant privacy policy, provide compliant privacy collection notices, appoint a privacy officer and train its staff appropriately. The penalties for non-compliance with the Privacy Act can be significant.

v) Employment Laws and OH&S Laws

Most franchisees employ staff. The laws governing the employment relationship are complex and ever-changing and must be fully understood by franchisees that are employers.

Likewise, franchisees need to be fully acquainted with applicable superannuation and occupational health and safety laws, given there are serious penalties for non-compliance.

vi) Taxation and Revenue Laws

All franchisees must comply with relevant taxation laws, including those relating to income tax, GST, stamp duty, fringe benefits tax, capital gains tax and a myriad of others. Australia’s taxation laws are - 65 -

Business FranchiSe Guide

very complex and it is important that all business owners are properly advised as to their tax obligations, usually by engaging a competent accountant.

In addition to the above, franchisees may be bound to comply with various other legislation, depending on the franchisee’s structure, personal circumstances and the State and/or industry in which they operate. Some examples may include fair trading laws, consumer credit laws, building and construction laws, and product safety laws. Franchisees should seek specific advice as to what legislation applies to their particular business.

CONTRACTUAL OBLIGATIONS In addition to legislation, franchisees will be bound to comply with any ongoing obligations imposed upon them under any contract or agreement they enter into in respect of the franchised business. a) Franchise Agreement The primary contract that imposes ongoing obligations on a franchisee is the franchise agreement, which sets out the comprehensive terms and conditions upon which the franchisor will allow the franchisee to use the franchisor’s business format, systems, brands, logos and other intellectual property.

The ongoing obligations set out in the franchise agreement are likely to be many and varied, and often include the following: i) Financial Obligations

By the time the franchise has commenced, the franchisee has most likely already paid a purchase price and/or upfront franchisee fee and paid for any required fit-out, equipment and/or motor vehicles.

However, in addition to such initial expenditure, the franchise agreement usually imposes further ongoing payment obligations on the franchisee. These may include: • • • • •

Royalties (either a fixed sum or based upon a percentage of revenue);

Advertising contributions (either a fixed sum or based upon a percentage of revenue); Product purchases (where the franchisor sells product to franchisees); Occupancy Costs (e.g. rental, outgoings and other sums payable under property leases); Technology Fees (for the use of software and/or hardware required - 66 -

Ongoing Franchisee Legal Obligations

• • • • •

for the franchised business);

Security deposits (to secure the franchisee’s performance of its financial obligations); Assignment or Transfer fees (payable if the franchisee sells the business during the term of the franchise agreement);

Renewal fees (payable if the franchise agreement is renewed or extended for any further term); Interest on late payments; and

The franchisor’s legal fees incurred as a result of a breach of the franchise agreement.

Some of these fees can be significant and franchisees should ensure these costs are factored into any budget or forecast at the outset.

If, during the course of the franchise agreement, franchisees experience cash flow problems or are unable to pay any ongoing fees on time, financial or accounting advice should be sought and the franchisee should approach the franchisor immediately with a view to making arrangements. Otherwise, failure to meet payment obligations could result in serious consequences, including the suspension or even termination of the franchise agreement.

ii) Training

Franchise agreements usually contain obligations for the franchisee to satisfactorily complete not only an initial training program, but also any ongoing or refresher training as required by the franchisor.

Such additional training may be required at the time of renewal of the franchise, or at any time during the course of the franchise. There may also be obligations for the franchisee to suitably train its key staff as necessary. Franchisees should be aware that they may be required to foot the cost of such additional training (including possible travel, accommodation and associated expenses if relevant), as well as perhaps having to take time away from the business to complete the training requirements.

iii) Minimum Performance Criteria

Many franchise agreements set out minimum benchmarks or performance criteria which the franchisee must achieve. Failure to meet the criteria may lead to further training or assistance (at the franchisee’s cost), loss of exclusivity or territory, a forced sale of the franchised business or even termination of the franchise. Franchisees should ensure that they are aware of any performance criteria set, and - 67 -

Business FranchiSe Guide

that the benchmarks are reasonable and achievable. If franchisees have any concerns regarding the criteria to be imposed, they should seek to have these modified, in consultation with the franchisor, at the earliest opportunity. iv) Marketing

In addition to contributing to any marketing fund conducted by the franchisor, franchisees may have further obligations to conduct their own local area marketing, advertising or other promotional campaigns. Sometimes, franchisees are required to spend a particular dollar amount or percentage of their revenue on such marketing initiatives and must provide evidence to the franchisor of having done so. Franchisees should also bear in mind that any marketing materials or initiatives are likely to require the franchisor’s prior approval and they may be precluded from undertaking certain types of marketing at all (e.g. social media or online marketing).

v) Other Obligations

The franchise agreement is likely to contain many more ongoing obligations with which franchisees must comply. These generally cover matters such as: •

the franchisee’s general compliance with the franchisor’s system;

•

the products and services to be purchased, used and offered by the franchisee in the business;

•

•

• • • • • •

the franchisee’s use of the franchisor’s confidential information and intellectual property;

the fitting-out and equipping of any business premises and/or vehicle in accordance with the franchisor’s requirements and any ongoing maintenance and refurbishment requirements; obligations relating to customer service and development of the business; obligations and restrictions relating to the franchisee’s territory (if one is granted);

staffing requirements and other obligations relating to the franchisee’s employees;

the devotion of the franchisee’s full time and attention to the franchised business and restraint of trade obligations; record-keeping and reporting obligations; and

obligations that apply at the end of the franchise agreement.

- 68 -

Ongoing Franchisee Legal Obligations

The above is merely a sample of the types of ongoing obligations commonly found in franchise agreements, but there may be any number of other obligations imposed, many of which may be onerous. Franchisees must carefully read the franchise agreement and ensure they understand and are familiar with all such duties, as failure to satisfy any obligation under the franchise agreement may constitute a breach entitling the franchisor to pursue remedies, including ultimately the termination of the franchise agreement. b) Lease/Occupancy Agreement If the franchisee has entered into a lease, sublease, licence or other occupancy agreement in respect of any premises, that agreement will also impose ongoing obligations upon the franchisee, which may include: •

obligations to pay rent, outgoings, licence fees and other occupancy costs;

•

obligations to pay a bond or security deposit or provide a bank guarantee and to increase or top this up over time;

•

obligations regarding the hours during which the premises must be open for business; and

•

other general obligations regarding the use and maintenance of the premises.

c) Other Contracts Franchisees are likely to enter into various other contracts and agreements in relation to the conduct of the franchised business, such as agreements for the supply of goods or services, equipment lease agreements, cleaning contracts, security contracts or employment agreements. All such agreements will impose ongoing obligations both upon the franchisee and upon the other parties to each agreement. Franchisees should ensure that each agreement is thoroughly reviewed before it is signed and that they are aware of all their obligations under such agreements.

COMMON LAW AND EQUITABLE OBLIGATIONS There are many obligations imposed on the parties to an agreement under common law, such as the duty of good faith, and under the principles of equity.

These obligations are developed and determined by judges in hearing cases.

Although too numerous to mention here, franchisees should remember that these types of laws may also be relevant in imposing obligations in the context of the franchise.

- 69 -

Business FranchiSe Guide

CONCLUSION There are many and varied laws which may apply to franchisees, creating an elaborate network of rules and obligations which franchisees must be aware of and understand.

It is not the intention of this chapter to mention all relevant laws, because different laws apply to different types of business.

In order to be informed and protected, franchisees should seek comprehensive advice from a competent lawyer both prior to entering into the franchise, and at key stages during the course of conducting the franchised business.

The information in this chapter relates to the current version of the Franchising Code of Conduct dated 1 July 2010. However, the Code is currently in the process of being re-drafted by the Government with the amended Code scheduled to take effect from 1 January 2015. At the time of writing this chapter, the final version of the new Code has not yet been released by the Government, but it is expected to include significant changes, some of which will override and/or alter the information set out in this chapter.

1

Esther Gutnick Senior Associate MST Lawyers (AUS) 03 8540 0267 esther.gutnick@mst.com.au www.mst.com.au

- 70 -

Chapter 8

INVESTING IN AN INTERNATIONAL FRANCHISE

By Rod Young Chairman DC Strategy Group

About the Author Rod has over 30 years’ experience in franchising, licensing and business development in Australia, Europe, China, South East Asia, India and the United States and is considered one of the world’s leading franchise consultants.

He has been a key advisor to some of Australasia’s leading franchise groups. His business interests have also included roles as both a franchisee and franchisor. As well as his role of Chairman of the DC Strategy Group, he currently is the Executive Chairman and Global CEO of Cartridge World and serves on the Board of several national and international companies as well as on the Board of Governors of the ASEAN Franchise Association and the Indian Franchise Association.

DC Strategy, the firm Rod founded, is the region’s premier end-to-end franchise consulting, legal, franchise recruitment and brand and marketing firm, providing strategic advice and services to the franchise community. The specialist teams at DCS have been involved in developing many of the region’s most successful franchise networks

- 71 -

Business FranchiSe Guide

H

ow do you become the next market leader in Australia? By leveraging the know-how, systems, branding and marketing, buying power and intellectual property of a proven business in another country, you may just get the boost you need to become a major player here in Australia.

Australia has only 1.2 per cent of the global economy but has 2.1 million businesses operating in a population of just 23 million people. Only about 80,000 of these businesses are franchised.

There are almost 10,000 franchised brands across the globe and franchising is growing across almost every market. With over 1,200 franchise systems in Australia there is always room for one more, either by creating a new category (think juice bars or frozen yogurt), or taking market share from established categories as Subway and Domino’s have done.

International franchising is big business Some of the world’s most valuable brands have used franchising to grow into international giants.

What do Ford, Coca Cola, General Motors, Pepsi, Shell, McDonald’s BP and KFC all have in common? A franchised business model to create global scale.

While Australia is a small market, it punches well above its weight in terms of profit per unit and has proven attractive to all the above names plus many more. Among many others they include US-based Burger King, Hooters, Subway, Ben & Jerry’s, Jani King, It’s Just Lunch, Tiawan-based EasyWay, French-based Franck Provost and more recently a raft of frozen yogurt brands led by Yogurtland.

Many other international franchises are about to establish themselves here via master franchising such as SkyZone (trampoline parks) and the dynamic Carl’s Jr. burger chain with its risqué advertising and a focus on ‘young, hungry guys’. While other jurisdictions will lag in franchise growth until certainty of IP rights and franchise contracts and other matters of a commercial nature can be backed by transparent and enforceable legal rights, Australia is well positioned to attract even more international franchises.

The world is awash with capital and there are many groups or individuals with substantial net worth, who are searching for the next big idea in their country or region. Many franchise systems have pioneered internationalisation of their brand and demonstrated that master franchising can help a company grow on a global scale. International franchising will become a bigger part of the revenue - 72 -

investing in an international franchise

stream of more successful franchise systems.

Governments and financial institutions have recognised that franchising creates economic activity, opportunity, jobs and profits. Delegations of government and semi-government officials from emerging economies are actively encouraging overseas franchise systems to establish franchise networks in their jurisdictions. Countries such as the US, France, Singapore and Malaysia have proactively supported franchise development for many years and today, politicians in most countries understand the link between franchising, SME’s and economic prosperity.

The emerging retail, food, service and online businesses of the future are focussed on the needs of a changing consumer attitude shaped by eCommerce and social media. The alignment of the physical offer with an eCommerce and social media strategy designed to capture more walk-in and log-in sales must be a feature of the international franchise of the future.

However, local representation will always be a critical part of any business model (even Google has offices in most large cities to sell its services) and international franchising will flourish as a result.

These new-age businesses are reaping the benefit of this changing consumer and economic momentum and franchising is surfing this wave as the need for motivated owner-operators continues to grow.

The investment Investing in an international franchise offers the potential to either expand an Australian franchise business offshore or import a foreign-based franchise into Australasia. Many Australian companies are doing so now and more Australians are part of that migration of a local brand to an international market by securing Master Franchise rights in foreign countries.

The investment usually involves the payment of an initial upfront fee for a defined territory which may or may not include the right to sub-franchise.

Further investment will be required to open at least one and sometimes several company owned outlets to prove the franchise model in the market before a franchise can be granted in the territory. An investment in localising the operations manual, sourcing suppliers and developing a localised marketing and advertising campaign will also be needed. Good franchisors will also require you and your management team to attend training in the home market at your cost before the first location is established in your territory.

Ongoing commitments to the franchisor typically involve a share of the local - 73 -

Business FranchiSe Guide

revenue from both initial local franchise fees and continuing product or service sales by way of a monthly or quarterly royalty payment.

Experienced franchisors look for active investors who will be hands on and operate the business on a day to day basis and have some prior experience in business, people management and real estate if it is a bricks and mortar based business. Good franchisors are selective about who they will grant their rights to, so expect to prove you are financially and operationally capable.

How do you choose the right international franchise?

In developing national and international franchise systems, the DC Strategy team found that the features of many businesses which stood out for their growth trajectory and market share had common elements that were not confined to industry groups or country of origin. These features were present across businesses as diverse as food, retail, service and online networks that built substantial enterprise value for their proprietors and shareholders and offer similar potential to an active investor looking to secure an international franchise.

It goes without saying that the product or service offering must have consumer demand in the market but if you are seeking to invest in an international franchise it should also rank highly in the following: 1. Consistent execution of the fundamentals

At the heart of any business is the value proposition. While this may seem so basic that you may say that every business has one, the best-practice franchisors have a focus on the customer proposition which develops loyalty and keeps them coming back.

There is an understanding that each customer is more than just one transaction and they understand that the ‘lifetime value’ of their customers is many multiples of the first transaction with a new customer. This lifetime value is being calculated and benchmarked across the network.

The point of sale experience either in store or online is a key focus to capture new customers and is supported by recognition and acknowledgement that is backed by email and text communication as well as direct mail to build true customer loyalty to the brand.

Included in th0e fundamentals are the staff / store / uniform / vehicle / website and online presentation that create and reinforce good impressions and a commitment to keeping the customer’s experience fresh.

- 74 -

investing in an international franchise

2. Well defined KPI’s, benchmarking and financial reporting

Alfred P. Sloan, the Head of General Motors in the 1950’s, said “the purpose of an enterprise is to make a profit”. We are always fascinated to hear the excuses used as to why a franchise organisation does not require, collect and analyse the monthly profit and loss statements of all franchised outlets.

How can any senior executive build, run and maximise the performance of an enterprise if he or she does not have access to the key metrics and especially the net profit of the franchise outlets?

Franchise systems that flourish have highly developed point-of-sale systems and dashboards linked to management reporting processes that measure and benchmark KPI’s across the network. The better franchisors publish entire networks’ store by store profit and loss and educate their franchisees on how to analyse this data and their performance relative to others in the group.

3. Comprehensive compliance management

A complaint of many better franchisees in some networks is that the franchisor is soft on compliance and is letting other franchisees operate a poor standard of business which reflects badly on their franchise and ultimately its value. These better franchisees soon sell up and migrate to networks with more professional compliance standards. The great franchise systems understand that the customer promise conveyed by advertising and marketing and via the website must be faithfully reflected at the customers’ end of the business. They define what the standard of the network is during the recruitment, screening and selection of franchisees with a view to weeding out people who do not value standards or are unwilling or unable to comply. Induction and training programs highlight what the standards are and how they are measured, managed and achieved.

Field staff provide a fresh set of eyes to prevent ‘store blindness’.

Compliance in reporting is also ingrained into the culture of great franchise systems to measure compliance to defined standards.

4. Field staff as coaches, not auditors and policemen

The best franchise systems are focused on developing their franchisees to become better business people by education rather than policing. We all know that every light globe should be working but if field staff spend too much time on trivia, or develop a culture of blame, they miss the opportunity to earn the confidence of a franchisee and become a mentor.

This confidence is critical before coaching commences and quality field - 75 -

Business FranchiSe Guide

staff can develop far better franchisees and businesses when they have invested the time to listen and understand the goals and motivation of a franchise owner and his or her family.

5. A focus on the value of intellectual property (IP)

Real champions are brand champions. They understand that the brand is one of the few ways to add a premium price to an otherwise commoditised product or service. We see the best franchisors don’t just focus on the trademark and colour scheme which is of course vital to the brand, but understand their IP also embraces their systems, processes and documentation and culture.

In a world where any tangible item can be easily copied, the true value of IP is often enshrined in the way things are done in the organisation. A respect for these processes and an understanding of how they create value for the business has become part of the culture and is trained into new recruits in the leading franchise systems. Intellectual Capital, which is the collective knowledge in the heads and hearts of the franchisors network of staff and franchisees, also falls under the IP category of an enterprise.

6. Real marketing and advertising muscle

Nothing builds a business like a commitment to advertising. We use the word commitment advisedly because a feature of all leading franchise systems is a focus on advertising and marketing from the very beginning of establishing the network.

While many competitors decide to wait until they are bigger before spending big on advertising and as a result fail to grow, the best franchisors typically allocate a more substantial percentage of turnover to advertising than their competitors and then supplement these funds with additional investment in advertising to help establish new markets.

Another feature we see is highly developed local area marketing activities by franchisees. This does not just happen. The market leaders understand that marketing can drive community engagement and look for, train and expect franchisees to go beyond the store front or vehicle into their local community. The advertising and marketing is integrated and multi-faceted with traditional leaflet and direct mail, local newspapers, radio, TV, billboards, public relations and a growing online commitment to internet advertising, You Tube, Facebook and other social media.

Innovative cross-promotional activities with non-competing business serving the same consumer pool are often evident. These innovations are - 76 -

investing in an international franchise

almost always developed first by the better emerging franchisors who are looking for cost effective ways to create a larger than life image.

7. Continual innovation

Innovation is where the best franchises keep ahead of the pack. They realise that competitors will eventually copy the market leaders and understand that differentiation is important. This differentiation is not just in product but in every aspect of the business.

The best players have an ongoing innovation program in almost every area of the business. The example of McDonald’s push into coffee via the McCafe concept is a good example. It may be seen by the customers and competitors in new products, services or advertising but the invisible innovation that defends and extends market share is often related to staff training, direct customer communication via email, text, social media, direct mail and online and web communication with new technology to track the nature of the business and customer trends.

This leads to more correct decisions being made earlier that edge better franchisors even further ahead of competitors and re-engage customers who may become jaded without change.

8. Supply chain management

When franchisors start to treat their suppliers as strategic partners they begin to approach best practice not only in franchising but in business generally.

By harnessing the know-how and experience of their suppliers, good franchisors find a willing partner in new product research and development because suppliers understand that assisting customers to grow will result in increasing sales volumes for those suppliers.

There are also substantial benefits being created or costs saved by working with suppliers who understand the strategic plans of their franchisor customers. Many of the better franchisors are deriving substantial income by actively managing the supply chain relationships for the benefit of their franchisees as well as for themselves. The key to supply chain management is firstly ensuring that standards are specified for quality, service and delivery and are not compromised, and secondly, the prices paid by franchised owner/operators across the full range of approved products result in a higher gross profit than if that franchise owner purchased independently.

Many good franchisors have a strong representation of franchisees in supply chain issues with some international brands having the franchisee - 77 -

Business FranchiSe Guide

body control the buying process with the benefits being shared between franchisor and franchisee and/or applied to the advertising fund to boost brand exposure.

9. Sound two-way communication

Many franchisors do not appreciate that franchising is more of a human resource strategy than a capital raising strategy. As networks grow, so does the experience of the franchisee body. The very best franchise systems appreciate that ignoring or isolating the franchisees leads not only to a stifling of innovation but the loss of quality franchisees to other more open networks.

The franchisor/franchisee relationship is the cornerstone of a successful franchise network and the higher the degree of franchisee satisfaction the better execution of growth strategies. Growth often entails change. Strong communication between franchisee and franchisor including consultation to gain both ideas and support for change builds the trust needed to make difficult change management programs successful across the network.

The communication process starts with an open mind by the franchisor and especially the field support team and a willingness to listen and respond to franchisee concerns. The process of monitoring and responding to these concerns is where great franchise networks excel. Franchise Advisory Councils, franchisee product development input, regional advertising committees and annual conferences are all hallmarks of the better franchisors.

10. Induction and ongoing training

When a franchisee applies for a franchise it is obvious he or she is doing so because they do not have the expertise to operate a business similar to that of the franchisor. If the recruitment screening and selection process is professionally developed and executed, the franchisee will understand the standards expected by the franchisor and the process by which the franchisee will be trained in every aspect of the franchisor business.

Good franchisors understand that the initial induction and training prior to a franchisee taking over his or her business is merely an orientation process. The real training starts once the first few months of trading are under the franchisee’s belt and the franchisee starts to settle into a rhythm which will allow them to absorb the subtleties for what makes the franchise really tick.

For the best franchise systems, training is an ongoing activity which is - 78 -

investing in an international franchise

directed not just at the franchisee but his or her staff to ensure that execution of the customer service strategies and the customer experience is being applied faithfully.

Training programs at each level of the business are evident, from the most junior new recruit that may be trained by the franchisee via ‘train the trainer’ programs, to franchisee and manager training supported by suppliers as well as the franchisor both off site and in conjunction with regular field support coaching and guidance at the franchisees location.

Online learning via intranet and webinar is also emerging as a feature of more progressive and committed franchisors as the best of the best understand that training is a commitment that pays dividends by building franchisee and staff satisfaction, sales and profits and the cost for this training are incorporated into the annual budgeting and planning process.

Trends Over the next five years, the international franchise sector will grow at an annualised rate well exceeding inflation.

Substantial growth will occur in the Asian, Indian and Middle East markets.

There will be an increase in the number of franchised owner operators, many of them being multi-unit owners, regional or master franchisees or area developers. They will emerge as a powerful lobby group enjoying higher profitability levels than their independent counterparts, and will require sophisticated management by franchisors. eCommerce and social media will need to be a core part of brand and sales development to keep up with the demands of the new consumer. As desktop and laptop computers give way to mobile phones and tablets, websites must be enabled to these devices.

Many governments have introduced franchising legislation that will lead to better conduct in the franchising sector and there are only a few countries without a national franchise association. Access to information via the web is creating better decision making. There are more accountants and lawyers who understand domestic and international franchising and are better able to advise prospective franchisees. This franchising education is diluting risk.

In summary, it is clear that the very best international franchise investments also have the very best franchise and business practices. They are constantly monitoring the outcomes that result from the ongoing application of the ten key features of best practice franchisors.

- 79 -

Business FranchiSe Guide

For any franchise to develop into an international brand, your organisation’s position in the competitive pack will be determined by how well these features are developed and executed in the local market. The value prize is market leadership and the rewards it brings is the Enterprise Value each stakeholder in the business - be they brand owner, franchise owner, master franchisee or area developer will achieve upon exit.

If you want to invest in an international franchise the first step is determining if the franchised business has these features of success and you have the capital, commitment and experience to modify and apply them.

Rod Young Chairman DC Strategy Group (AUS) 02 8220 8711 rod.young@dcstrategy.com www.dcstrategy.com

- 80 -

Chapter 9

FRANCHISING IN NEW ZEALAND

By Graham Billings Executive Director Franchise Association of New Zealand

About the Author Graham Billings’ early career led to extensive experience at a senior level in the UK, New Zealand and Australian newspaper and magazine publishing industries and he served on industry bodies in each of these countries.

Moving out of the media industry, he was appointed Managing Director of the Australian arm of a UK multi-national company, where one of his businesses was a product licensee of the Sydney Olympic Games Committee (SOCOG).

Returning to New Zealand in 2001, Graham spent seven years in the health and disability Not-For-Profit sector. In 2008 he was appointed Executive Director of the Franchise Association of New Zealand, the peak body for the franchising sector. Since 2011, he has also fulfilled the function of General Secretariat of the World Franchise Council, the association of 43 National Franchise Associations, whose purpose is to encourage international understanding and cooperation in the protection and promotion of franchising worldwide.

- 81 -

Business FranchiSe Guide

T

he franchise sector of the New Zealand economy is substantially larger than most people realise. The number of units operating with business format franchise systems has increased considerably since 2003 when a major survey was conducted. The Franchising New Zealand 2010 survey conducted

by Massey University, Auckland and Griffith University, Queensland found 423 active franchise systems in New Zealand compared with an estimated 350 in 2003. The survey also estimated a total 23,600 franchisee units, which was a 92 per cent increase over the seven years.

The most recent survey, Franchising New Zealand 2012, however, found that system growth had slowed in the previous two years and that there were now approximately 446 active business format franchise systems. Whilst the number of franchise units had fallen slightly to 22,400, the level of employment in the franchising sector had grown by more than 25 per cent to over 100,000 people.

The franchise model is operated across all sectors of business. In New Zealand, franchising has comparatively fewer businesses in the retail sector compared with many other countries, but is comparatively stronger in home and business-to-business services. Indicative of the entrepreneurial spirit of New Zealanders, approximately 88 per cent of franchises operating here are home-grown and despite the economic situation, there are some franchise systems that are still experiencing growth.

Franchising in New Zealand continues to play an important role in the economy with an estimated contribution of between $19.4 billion and $21.0 billion in turnover.

The Franchise Association of New Zealand If you are looking for a business opportunity or needing advice on franchising, our recommendation is that you don’t sign anything until you have asked the question: “Are you a member of the Franchise Association of New Zealand?”

Members of the Franchise Association are the franchise professionals, committed to uphold ‘Best Practice in Franchising’, and the Association works hard to promote the benefits of dealing with members, both for those looking to purchase a franchise and also those who need to gain professional advice.

The benefit of membership for franchisees was recognised in the New Zealand Prospective Franchisees Survey. *The survey found that 75.7 per cent of prospective franchisees considered membership of The Franchise Association of New Zealand (FANZ) important or very important, when considering a franchise to buy into.

- 82 -

franchising in new zealand

As the peak body for the franchise community in New Zealand, the Association makes representations to Government on issues of concern to franchisors and franchisees including such issues as proposed legislation; new business support programmes and business taxation. The Association often conducts email surveys of members on key issues to gain valuable feedback prior to making a submission.

Unlike a number of other countries in the world, including Australia, franchising in New Zealand is governed by the same commercial laws as any other business.

In 2008 the Ministry of Economic Development called for submissions on the possibility of introducing franchise specific regulations following a high profile fraud case. In 2009, however, the Minister of Commerce concluded that there was no need at that time for the introduction of franchise-specific regulations and went on to say that that there was little evidence of widespread problems in the sector. He drew attention to the Franchise Association of New Zealand’s Code of Conduct as an area where self regulation was working.

Despite the substantial difference in the regulatory environments between New Zealand and Australia, the two 2012 Surveys show remarkably similar levels of franchising disputes.

Buying your New Zealand franchise Buying the right franchise can have many benefits over the stand-alone business, not least of which is that you can potentially purchase into a franchise system that has a proven track record and one where you will receive all the help you need to become successful.

As a prospective franchisee, an important part of your due diligence should be to establish whether or not the franchise you are considering is a member of FANZ. Don’t be misled by a statement such as, “we are not members but we abide by their Codes.” There have been several reports of this in recent times where something has subsequently gone wrong in the relationship but we have been unable to assist the franchisee, as we have no powers to intervene unless the franchise is actually a member.

Of course, there are franchise systems such as McDonalds who are currently not in membership but who operate ethically and provide valuable business opportunities for the prospective franchisee. In all cases, however, you should ask the franchisor to explain to you why they are not members.

For a franchisor to gain membership of the Association requires that they submit their documentation for scrutiny to ensure that their Franchise Agreements contain all the elements required under the Association’s Codes and Rules.

Some of the key elements that are required are: - 83 -

Business FranchiSe Guide

• Full and proper disclosure of matters important for a prospective franchisee to know and understand • A seven-day cooling off period before a prospective franchisee is finally committed to the purchase • A requirement that the prospective franchisee produces a certificate from their solicitor to the effect that they have had the agreement explained to them – or a signed statement that they have declined to take independent legal advice • If things go wrong, compulsory mediation by a FANZ appointed experienced franchise mediator as a first step in dealing with the issue.

The Association’s independent Scrutineer carries out compliance checks on a biennial basis to ensure that documentation maintains the standards that are required.

Carrying out your due diligence on every aspect of your intended franchise system is vitally important. The New Zealand Prospective Franchisees* survey found that over 70 per cent of prospective franchisees met with three or more franchisors before making up their minds and nearly 75 per cent talked to three or more franchisees of their intended franchise system as part of their decision making process.

To assist prospective franchisees make informed decisions, FANZ has developed, in conjunction with Massey University, a five segment free online training course that is available through the FANZ web site www.franchiseassociation. org.nz. It also has an online directory of franchise opportunities and franchise advisors www.buyafranchise.co.nz where members of FANZ are clearly marked by the display of the member logo on their entry.

If your franchise system is in membership, you have the ability to make a formal complaint to the Complaints Panel if you believe that your franchisor is in breach of the Association’s Codes or Rules. The Complaints Panel is fully independent of the Board of FANZ and its members are experienced in franchising both from a legal and practical standpoint. If your complaint is upheld, the franchisor can be required to rectify the situation or face a range of penalties that are contained within the Association’s Code of Practice.

If the franchise you are going to purchase is from a member of FANZ, you too will be required to sign up to the Association’s Code of Conduct and Code of Ethics to ensure that as a franchisee you undertake to maintain ‘Best Practice’.

In addition to standards and compliance, franchisors, franchisees and service - 84 -

franchising in new zealand

provider members gain much from membership to the Association. Apart from the significant marketing advantage of being able to use the Association’s logo as a sign of credibility, membership also opens up a whole range of opportunities to advance their knowledge and learn from the experience of others. This is a unique advantage not available to non-member franchise systems and is clearly demonstrated at Annual Conferences where first time attendees regularly comment that they are amazed by the amount of advice and information that was freely exchanged by members.

As a Member or the franchisee of a Member you have the opportunity to enter the prestigious annual awards, which culminate in a gala awards dinner in November each year. These awards are based on an internationally recognised business excellence system and not only provide you with the opportunity to showcase your business, but also gain valuable insight into the opportunities to improve your business from the feedback reports provided by the evaluators.

There are entry categories for both franchise systems and franchisees and winners regularly use their success in marketing campaigns.

Exporting your franchise to New Zealand For an Australian franchisor coming into New Zealand it is a relatively straight forward process from a legal point of view. Most systems that come into New Zealand from Australia set up a local company both to protect intellectual property in New Zealand as well as to ensure a ‘foothold’ in New Zealand.

It is important to get trademarks registered in New Zealand as early as possible.

It is not an expensive process but should be considered well before actually arriving in New Zealand.

If the Australian franchisor is operating directly in New Zealand then the franchise agreement should be reviewed by a New Zealand lawyer and made subject to New Zealand law and to New Zealand jurisdiction for ease of franchise rights enforcement. Reputable Australian systems that come here ensure that they have a disclosure document that is relevant to New Zealand circumstances as well as a cooling off period etc. A number of Australian systems have made, as a key feature of setting up in New Zealand, an early application to join the FANZ especially as the FANZ requirements for disclosure differ in some ways from those required under the Australian regulations.

Proper disclosure documents, cooling off period and mandatory mediation as a dispute resolution process are all part of the voluntary Code of Practice to which all FANZ members are required to adhere. It certainly enhances the reputation of the system operating in New Zealand. Obviously, if a Master Franchisee is appointed in New Zealand then having that franchisee become a - 85 -

Business FranchiSe Guide

member of the FANZ is likely to be perceived as a system which respects the maintenance of high standards.

In spite of a minority of lawyers and accountants seeing franchising as something akin to the Wild West, the vast majority of lawyers, accountants and business brokers throughout New Zealand have a reasonable understanding of franchising and the benefits it can bring to franchisees. There are a growing number of lawyers, accountants and business brokers who specialise in franchising.

There is still a good deal of education to be undertaken for the public about avoiding doubtful franchise systems, but the trend is for specialised business brokers to promote healthy systems and to steer people away from the moonlight operators.

The majority of the banks in New Zealand now have a strong presence in the franchise industry and bear in mind that all the major banks in New Zealand are Australian owned. There are reputable franchise consultants in New Zealand with well-established track records and for anyone who attends the annual FANZ conference it is manifest to observe that there is a strong and proactive congeniality within the franchise industry in New Zealand.

There are a small number of dedicated and respected franchise consultants in New Zealand who can be invaluable in modifying systems coming into this country. Involving their use can considerably diminish the likelihood of a legal claim being brought against a franchisor coming across from Australia.

Be aware that employment laws in New Zealand are similar to Australia and dismissing staff is not an easy process. Also New Zealand has an Act called the Resource Management Act which, coupled with the Building Act, means that obtaining building consents for shop fit outs can be slow and expensive. It is vital to stress the need to do plenty of homework.

Obtaining sound taxation advice is essential before coming into New Zealand.

There is a withholding tax system for payment of royalties and other fees from New Zealand to Australia but there is plenty of advice available from accountants who understand the taxation laws between the two countries.

It is important to remember that GST applies to everything in New Zealand (even food items) and the tax structure here is somewhat different from Australia. For a start there is no such thing as stamp duty. The government Kiwi Saver superannuation scheme requires contributions from employers to be made when employees opt in to the scheme.

It is also important to know that we have the Personal Properties Securities Act - 86 -

franchising in new zealand

which is a system of an online registration of all charges (e.g. what used to be debentures for companies) against both individuals and companies as security for moneys lent and where goods and services are supplied on credit.

New Zealand has recently been named as the 6th highest ranking country based on the United Nations Development Programme which has regard to the standard of living of its people, its population’s access to knowledge and its population’s chances of living a long and healthy life.

There are many success stories for Australian systems entering into New Zealand. A point to remember, however, is that the disposable income of New Zealanders is not quite the same as that of Australians. Having said that, the lifestyle differences between Australia and New Zealand are not significant and so long as the homework and planning are done carefully then there are good prospects for Australian systems to enter into New Zealand and becoming successful.

For more information or to find out more about the work of the Association and the Codes of Practice, visit www.franchiseassociation.org.nz *New Zealand Prospective Franchisees – Franchize Consultants Ltd and franchisebusiness.co.nz - April 2011 Additional legal commentary provided by Rory MacDonald – MacDonald Bailey Law

Graham Billings Executive Director Franchise Association of New Zealand (NZ) 09 274 2901 contact@franchise.org.nz www.franchiseassociation.org.nz

- 87 -

Business FranchiSe Guide

- 88 -

Chapter 10

How to structure your franchise

By Richard Brodie Partner Deloitte Private

About the Author Richard’s speciality lies in advising private business owners and helping family groups manage their business affairs. Richard is an integral member of the Deloitte Private team that has positively embraced digital and have become leaders in the adoption of cloud technologies.

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

About Deloitte Australia In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms. Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited © 2014 Deloitte Touche Tohmatsu

- 89 -

Business FranchiSe Guide

INTRODUCTION This chapter is intended to provide a franchisee with the necessary information when setting up the accounting and finance aspects of their business.

Firstly we will briefly consider the legal structure from which the business should be conducted. This is driven mainly by tax and asset protection considerations. We will then move onto the accounting systems, or what we call the business architecture. This is the area where there has been the most significant change over the past 12 months. We will provide insights into what is the latest and greatest with regard to how you as a franchisee can set up your business and provide you with a distinct competitive advantage. Finally, we will discuss in some detail the framework that the franchisee should consider to help drive the financial and non-financial aspects of the business. This will be based on a simple philosophy, that is, if it is important, it should be measured and reported upon regularly. This in turn drives the decision making of the business.

In my years involved in franchising, one of the most common frustrations exhibited by the franchisor is the lack of financial acumen demonstrated by some franchisees. This we believe is a result of the franchisee being passionate about the business concept, but not fully understanding or spending enough time analysing the financial aspects of the business. Having an understanding of this chapter can assist you take your first steps towards running a successful franchise business.

TAX AND LEGAL STRUCTURE We will keep this section of the chapter brief, as you should seek specific advice that matches your individual circumstances. This section is intended to provide an overview of the options and key considerations when selecting the right structure for you.

The entity structures include: • Sole trader;

• Partnerships

• Trusts (including discretionary trusts, unit trusts and hybrid trusts) • Joint ventures • Companies

• Superannuation fund.

The final structure for your family group may include one or more of these. As a result of changes to tax legislation over recent times, companies are becoming - 90 -

How to structure your franchise

increasingly popular as the structure of choice for operating businesses. More often than not the shares are held by a family trust.

The factors that need to be considered in establishing the structure include, but are not limited to: • Tax rates, including tax paid in growing and establishing the business and tax paid on exit of the business.

• Extraction of wealth structure through which the business operation is conducted.

• Level of estimated profits, potential recipients of these profits and their respective income levels. This is important as average tax rates may be lower in a company structure as compared to a trust structure depending upon the answers to these questions.

• Flexibility of adding new equity outside of the family (this may be external equity investors or key staff).

• Availability of losses to be applied against income earned.

• Access to various concessions, ie R&D concessions can only be accessed by a company.

It is important to consider all of these factors up front. Once value is created in your business, it can be difficult to change the structure without potential tax implications. There are many concessions that do allow changes in structure which also may not involve incurring additional tax, but you will need to seek specialist advice and there is a cost attached to this.

BUSINESS ARCHITECTURE Your underlying accounting system, point of sale system, time management system, inventory system or payroll system, when combined, is what we call your business architecture.

Whilst tax and legal structures have changed very little over the years, underlying business systems are driven by technology advancements. In particular, over the past 12-18 months there have been significant changes to the options available for franchisees to set up their business. Ignoring these changes may well be putting you at a competitive disadvantage.

Private businesses in Australia are in danger of missing out on an accounting revolution by failing to respond to the changes caused by digital disruption.

There has already been much written about the impact of digital disruption, highlighting that the pace of change is accelerating and affecting businesses big and small across Australia.

- 91 -

Business FranchiSe Guide

The next 12 months will be a watershed for private businesses; whether they adapt to digital disruption or not. Recent research on cloud computing conducted by the Australian Communications and Media Authority highlighted that 66 per cent of Australian businesses are still not using cloud technology.

Two thirds of business owners are therefore failing to capitalise on a key potential source of competitive advantage.

This reluctance among business owners may be due to the fact that many business owners are simply not aware of how far such technologies have come over the past few years and are thereby unaware of the positive impact cloud technologies can have on their business.

Every business owner can relate to the desire to spend less time on day-to-day transactions, paying staff and suppliers and scrambling to balance the books at month end.

Most business owners want to spend more time on the bigger picture; the things that helped their business succeed in the first place – working on the business, not in the business. Done right, adopting cloud technologies can now help make this a reality by providing business owners access to real-time accounting and live information at their fingertips.

Doing it right, however, requires more than just picking from the 1000s of available business apps. It means managing and integrating all of the separate logins, subscriptions, security and connectivity protocols and placing the emphasis on extracting actionable insights rather than just getting data into systems.

Many business owners only receive their financial statements well after the conclusion of a financial year, which makes it hard for them to have an accurate understanding of their financial performance and position throughout the year‌ and hard for them to take timely actions based on that information.

Cloud technologies are changing all of this, giving savvy business owners the ability to access their live and up-to-the-moment financial information from anywhere at any time and on any device. This ability to provide business owners with a real-time view of their financial performance has the potential to change the way they think about their business and, in particular, the timeliness with which they act to optimise the performance of their business.

What does all this mean for accountants and their clients across the country?

The accountant and franchisee will need to positively embrace digital and in particular the adoption of cloud technologies and to create a cloud accounting offering that redefines the way clients experience accounting services.

- 92 -

How to structure your franchise

The cutting edge is a cloud-based offering that combines shared ledger accounting with automated bookkeeping and benchmarking and an online portal and dashboard as well as many other digital technologies.

It will be a unique ecosystem built around a family of integrated business apps.

If you’re thinking about how to migrate to or set up your business in the cloud, here are five things to consider: 1. A system with an open architecture will help you to work with other apps, which is important as your business changes and grows.

2. Is there a way to see everything in a snapshot across your business? Do the apps you choose work together to give you the insights you need via a simple, intuitive dashboard or the like?

3. Do your research and pick a reputable software provider. Look at demos and online tools. Pick the individual apps that are right for your business but think about how you will balance this with the proliferation of subscriptions, logins and management effort that comes from selecting ‘point’ applications.

4. Make sure you have a clear understanding of where your data is held; who owns it and how it is available for back up.

5. Doing nothing is not the answer. Move now so you don’t miss out on the opportunities to gain a key source competitive advantage.

Core to any cloud offering will be: • Automated bookkeeping. Invoices digitally scanned and authorised for online payment while business owners digitally sign tax returns, approve BAS statements and year end accounts, raise queries and store documents securely online.

• A system which enables business owners to access live financial reports and business analytics, including profitability, cash flow, growth and trend analysis. Key performance indicators can be customised, live ‘whatif’ analysis performed and alerts set up to keep on top of the metrics that matter.

Cloud technologies are setting a new benchmark for what entrepreneurs and family businesses should expect from their Accountant. No longer should a business owner expect to wait until after year end to know how their business performed during the year that’s past and where their business stood at the end of the year that’s past. Real-time, online accounting makes everything faster and simpler.

- 93 -

Business FranchiSe Guide

DATA ANALYTICS As highlighted in the previous section, a crucial part of your business architecture is the Data Analytics component. In this section we will highlight and discuss the contents of what makes up a good data analytics package.

Your reporting framework should be built around a simple philosophy, ‘what is measured is managed’. Think of it in these terms. If your business architecture is your car, then your data analytics is the ‘Dashboard’. You want to know if the engine is about to overheat, run out of petrol, what your revs per minute are, after all you don’t want the engine to blow! All of this can be measured and managed without ever looking under the bonnet.

Such a ‘Dashboard’ can be implemented for your business by utilising a fully integrated accounting and reporting system. A key element of which is the provision of a timely KPI snapshot reporting pack that enables a franchisee to easily access timely and critical information necessary to run your business.

However, you still need to ensure that the information you are gathering and reporting on is meaningful to your business.

Driving the Dashboard should be a tool that is able to integrate with a cloud accounting solution thereby facilitating timely reporting on profitability, activity, efficiency, liquidity, gearing, cash flow, growth and customers. In the past, I have been an advocate of selecting two to three key KPI’s to drive your business. This constrained approach was mainly due to short comings in the systems and available information. With the advent of real time data smaller businesses can implement a data analytics package at the touch of a button, to drive all aspects of their business.

Within each of the chosen KPI categories as listed below, you should view them compared to a target, a trend and as part of an overall benchmark. This benchmark may be against prior year performance, against other franchisees in the network or it may be against industry best practice.

The following is a snap shot of a standard KPI report: Profitability • Total revenue • Gross profit margin • Profitability ratio • Expense-to-revenue ratio • Breakeven margin of safety Activity • Accounts receivable days • Accounts payable days - 94 -

How to structure your franchise

Efficiency • Return on assets • Return on capital employed • Revenue per employee Liquidity • Current ratio • Quick Ratio Gearing • Debt to total assets • Equity to assets Cash Flow • Cash flow margin • Operating cash flow to net income • Cash flow adequacy ratio • Net variable cash flow Growth • Revenue growth • Gross profit growth • EBIT growth • Equity change Customers • Customer satisfaction • New customers • Lost customers Marketing • Average sales per customer • Average sales per transaction Staff • Percentage of staff who receive regular performance reviews • Number of employees

These metrics should be monitored as frequently as the business needs demand.

This will highlight the areas in which the business is achieving targets and the areas requiring further investigation. The platform allows you to drill down to further explain and investigate areas of under-performance. If the business is - 95 -

Business FranchiSe Guide

part of a benchmark group, for example a franchise network, then the median and percentile rank will appear for each metric.

The key elements that should form part of the business analytics include: • Analysis of the profitability of the business and calculation of the breakeven position. This will help the business understand its profit position at different sales volumes and cost structures • Cash flow is fundamental to each and every business. Based upon live data, the business cash flow should be reported in an easy to use report. The report should split the cash flow into three sections. The operating, investing and financing parts of the business. o The operating cash flow is simply the cash generated by the operating activities of the business. Operating activities include the production, sales and delivery of the company’s product and/or services as well as collecting payment from its customers and making payment to suppliers. o Free cash flow is the cash generated by the business, after paying its expenses and investing for future growth. It is the cash left after subtracting capital expenditure from operating cash flow. The term ‘free cash flow’ is used because this cash is free to be paid back to the suppliers of capital. o Net cash flow is the cash remaining once the business has met its financial requirements from its free cash flow. Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends paid. These are fundamental concepts every business owner should understand and monitor.

• Trends. Once the business has been operating for some time, trends across various metrics should be dynamically assessed. These may be as simple as tracking the seasonality of your business, or may indicate more fundamental shifts and trends.

• Sensitivity analysis. This can be on any number of metrics or KPI’s. Quite simply you set a goal, for example 13 per cent profit and then adjust the levers you can pull in your business to achieve this outcome. For example this may be a 1 per cent price rise, a 4 per cent reduction in fixed costs, a 2 per cent reduction in variable costs and so on. As you adjust each of the levers, the dynamic tool tells you how close you are getting to your goal.

• Comparisons and rankings against not only other franchisees within the network, but also where the information is available, industry comparison and rankings. Ideally this would cover all of the KPI’s mentioned above and can be viewed on a monthly, quarterly or yearly basis. Gathering this information will assist you in gaining powerful insights into the strengths - 96 -

How to structure your franchise

and weaknesses of your business. It will allow you to focus your attention to the areas that matter most and provide the largest reward. • Finally, the system should also produces the necessary monthly, quarterly and yearly management reports to be produced at a click of a button.

We believe that this is currently the new standard in financial reporting and management. Anything less and you may be at a distinct competitive disadvantage to your peers.

CONCLUSION Once you have decided upon the franchise system for you there are a number of key decisions you will need to make. The first is which legal structure best suits your personal circumstances and business objectives. The next is choosing the underlying business software or as I have called it the business architecture. Please do not to ignore cloud based solutions. With the correct implementation and support, now more than ever this platform can provide a distinct competitive advantage. One of the most significant improvements that cloud based accounting has provided small business is the potential level of sophistication around data analytics. With some initial investment of time, you can have at your disposal a powerful business tool which provides up to date and accurate information all at the push of a button.

Richard Brodie Partner Deloitte Private (AUS) 03 9671 7474 rbrodie@deloitte.com.au www.deloitte.com.au

- 97 -

Business FranchiSe Guide

- 98 -

Chapter 11

Where should I locate my new store?

By Peter Buckingham CMC, FFCA, FIMC. Managing Director Spectrum Analysis Australia Pty Ltd

About the Author Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, the leading Geodemographic, Strategic Network Planning and Retail Sales Modelling Company in Australia.

Spectrum assists many retailers and franchisors in better understanding the retail market from a site and area selection view.

Peter spent 20 years with Caltex Australia Ltd in a previous life, including roles in most states of Australia, one year overseas and has spent around four years in property development.

Education is something Peter cares about, and he runs a series of workshops in conjunction with Franchise Advisory Centre, titled ‘Franchise Site Selection and Territory Planning’. He also lectured for the Diploma of Franchising, as sponsored by the FCA. Peter is a Fellow of the Franchise Council of Australia (FCA), Fellow and a Federal Director of the Institute of Management Consultants and a Certified Management Consultant (CMC).

Peter is a regular speaker at the National Franchise Convention, FCA State Conferences, and has spoken internationally at conferences including in New Zealand (FANZ) and in Singapore (FLA) in recent years.

- 99 -

Business FranchiSe Guide

M

any franchise systems require the franchisee to commit to a premise to run the business from. It becomes one of the largest investment decisions of your life (probably on par with buying your house), as you can be committing for 5 – 10 years, rents are guaranteed by your personal security, and if it doesn’t work, you could lose everything.

Whilst your franchisor should assist you, there will be a degree of responsibility you will have to shoulder, and this probably means thinking as a retailer.

You have all heard the adage that the most important thing in real estate is ‘location, location, location’, and I guess retail site selection is definitely a subset of real estate.

The Billy Baxter appeals court decision has shown that a franchisor does have some degree of responsibility for site selection, and it also shows that the decisions must be based on facts and data; not the ‘wet finger in the air’ approach.

In a court case some years back, a Judge described a franchisor’s site selection process as the SWAG approach to site selection – ‘Scientific Wild Arsed Guess’ and that is definitely not what you want to gamble your life savings on.

You can have the greatest products, best fit out, fantastic look and still fail miserably, if you have not given site selection some really hard consideration.

It continually amazes me how much effort some clients put into selecting a new store without addressing the biggest issue – WHAT $’s (OR REVENUE) DO I THINK THIS SITE WILL SELL?

What should I expect from my franchisor?

Franchisors will normally not tell you their sales forecasts for a store (mainly for legal reasons). They should offer you information about the area – maybe demographics, maps of where the competition is, and information about the shopping centres etc. However, they will tell you that it is your responsibility to make the call on your future sales estimates.

Most franchise systems will offer to give you the names/contact points of other franchisees, so we can only recommend you take them up on that, and try and make contact.

The simplest method of sales prediction is what we call the ANALOGUE model. This means find like stores, see what they are selling, and then make your judgment from that.

If I am planning to open a kiosk for a particular brand in Southland (Super Regional Shopping Centre in Melbourne), then the analogues I would be looking for is what sales other kiosks are selling in the likes of Chadstone, - 100 -

Where should I locate my new store?

Fountaingate, Knox City, Highpoint, Chatswood, Warringah Mall and other Super Regional sized shopping centres around Australia. What are NOT relevant would be the sales in shopping strips or the CBD or small shopping centres.

Maybe you can also take into account which shopping centres (above) are most like Southland in size, demographics, position you are being offered etc., and this will help to decide which of the comparative sites are most relevant.

Once we have some comparisons, you should be able to at least have a feel for a range of sales the store should achieve.

The forecast profit and loss Before signing a lease for any store – you must have done some forecast Profit and Loss? This can be broken down into six lines: Sales (Gross Revenue) Less

• Cost of Goods Sold • Rent

• Labour • Other

= Profit <or Loss> If we ask ourselves how accurate we can be with the various factors, it should look something like: Sales – NEED HELP TO HAVE A CLEAR UNDERSTANDING OF WHAT $’s THIS LOCATION WILL SELL. Naturally, the real estate agent or the shopping centre leasing executive will have put a positive spin on how good it will be, but they are not the ones putting in their money!

Cost of Goods Sold – easier – should be a percentage of sales (or a range) Rent – we know that from the Lease in front of us Labour – we should have a good idea of staffing requirements Other – we should have a fair idea – petty cash, telephone, uniforms etc., etc.

The point that is the biggest source of error that will make or break this profit projection, will be that line called SALES or Gross Revenue.

This chapter is partly what to think about, as far as the site is concerned, to make the SALES as high as possible.

- 101 -

Business FranchiSe Guide

Available information for good decision making The 2011 Census of Population and Housing was released in June 2012, so when you read this book, you know the data you can use is fairly fresh.

The Census is available on the Australian Bureau of Statistics website, and I suggest you may want to try the following to experiment with what information is readily available for free: Go to www.abs.gov.au Go to Census Data (left hand side) Go down to the green box called Quickstats Put in on the right hand side the area you want â&#x20AC;&#x201C; suburb, postcode etc.

You can now see much of the relevant information for that area, and you can scroll down, comparing it to the State and National averages.

Business data on how many businesses are in an area is not that simple, but at the time of writing, we have this data as per the numbers, type and size of businesses at 30th June 2013.

For most business decisions, these are the most relevant data sources to describe the area you are looking in to.

Should I be looking in Shopping Centres or Strips?

Many businesses have a preference to go into big shopping centres (or malls) whilst others believe shopping strips are the way to go.

Shopping centres definitely have higher attraction power for the customers as the volume of traffic is normally higher (and therefore the rent). In Australia we can gather the basic statistics on shopping centres from the Property Council of Australia, who produce books giving a page of details for nearly every shopping centre in Australia, unless the owner is not a member of the Property Council of Australia, and does not wish to be included.

The Property Council data tells us the owner, manager and their contact details.

It then tells us the GLAR â&#x20AC;&#x201C; gross leasable area retail and MAT â&#x20AC;&#x201C; moving annual turnover of the centre. It also gives details on the major tenants and their area, number of car parks, who many of the specialty stores are, estimated pedestrian traffic and details on major refurbishments of the centre.

Different owners may collect data in different ways, so we are at the mercy of the details supplied to the Property Council.

In the case of strips, there is no formal collection procedure or body that acts - 102 -

Where should I locate my new store?

like the Property Council. We use a product called Strip Locator which is a method of comparing one strip to another as an indication of the strength of the strip.

The comparisons as we see it are: Shopping Centre

Strip Shopping

Pedestrian traffic

Normally higher in a SC and measurable

Lower and unpredictable

Motor vehicle traffic

Not relevant

Relevant especially for a QSR or something where you want to be seen by passing motor traffic

Product mix (competitors)

Some governance in a Mall depending on the owners as they can limit the competition if they wish

No protection from your competition acting any way they wish

Rents

Normally much higher with little long term protection

Higher chance of a lower rental

Long term renewals

Currently most SCs will give only a 5 year lease with no options, so you are at their mercy at time of re leasing

More likely to be able to negotiate longer tenure, including options for lease renewals

My tips on what is important: For a free standing store – FSDT – or Free Standing Drive Thru The FSDT store is the very high investment that McDonalds, KFC, Hungry Jacks or one of the supermarket chains or oil companies make. If food is the main sale, then it is often known as a Quick Serve Restaurant or QSR. The first ‘Driver’ they must be looking for is traffic, and how many vehicles per day pass the store. Traffic measurement can be done in many ways, State Roads Department, Councils or standing outside with a counter! We also suggest looking at www.zenithtraffic.com.au, a new website set up to - 103 -

Business FranchiSe Guide

give consistent measurement or estimates in all five major capital cities. The normal measurement you are looking for is 24 hour, both directional, weekday traffic counts.

The second ‘Driver’ is visibility, because you can have a great store and great traffic, but it needs to be seen, preferably from far enough away so the drivers can make a conscious decision to turn in. Visibility of signage and the building both contribute to a highly visible FSDT. Site suitability is the next on my ‘Drivers’ list, and this is the physical items the site can offer. Many years ago when working with KFC, we used to see huge variation from the little, original stores that had 20 seats to the more modern 100 seat restaurant. If leasing an existing store, these areas must be considered: ie. number of tables, counter length, outside seating, drive-thru windows and queuing, access, parking and many more physical attributes.

My next item is the demographics. It is no good having a store selling one product range when either there are few people in the area, or they are not likely to be your customer. Whilst companies like ours can provide detailed demographic information, you can always look up any area in Australia yourself on the ABS website, www.abs.gov.au and then look for Census Data, and then Quikstats. You can put in a postcode or suburb, and find out from the Census 2011 about that area.

Think in terms of what you are selling, and the pricing point and who you are selling to. If your average meal price point is very high, then selling into low socio economic areas is probably less attractive than high socio economic areas. If you are selling kids meals and ice cream, then young kids and their parents should be the best target audience. A Target Market Index is one way of putting together two or three demographic variables to see which areas are best for what you are selling.

My final point is competition. In food QSR’s we have seen the advent of what we call a ‘cluster’. A cluster is a group of three or four QSR’s that may share common access and parking, and partially they are successful as they offer variety for a family to shop at. As well, the average rental may be slightly lower than a pure stand alone, as the site efficiency is better with shared parking and multiple access points.

Our view is that it is a ‘friend and foe’ situation, where the others in the cluster actually work for each other to bring in a greater amount of business than the sum of the individuals would bring in. On the other hand being a single store, say one kilometre away from a strong cluster is detrimental, as a single store does not have the attraction of a cluster. In $ terms, we use to estimate each - 104 -

Where should I locate my new store?

additional store in the cluster added around $800 per week of sales to the client we were working with.

In summary, my top five things for consideration for a FSDT are Traffic, Visibility, Physical site issues, Demographics and Clustering.

For an Inline store My definition of an Inline site is normally in a shopping strip, or amongst other sites facing on to a road and/or footpath. A shopping mall, such as Pitt St Mall or Rundle Mall (with no cars allowed), are also Inline sites.

The first thing I feel is important is the power of the shopping strip you are planning to enter. We call this the Generator rating, and what is it that is around you that will attract business to your immediate area.

We run a methodology called ‘StripLocator’, which is a methodical way of measuring the number of stores in the strip, and the proportions or mix of stores, and look to how they suit the business proposed. As I said earlier, you can look for the daytime generators in the form of supermarkets, banks, chemist shops, post office and newsagents. If you are a night time product or a café or restaurant, you probably are best clustering in the vicinity of other similar businesses. For example, why do you find many restaurants and coffee shops near picture theatres? The answer is because they draw a continuous flow of people before and after the films.

StripLocator allows you to compare shopping strips in each capital city in the same way, and create a ranking or priority order for how you will lay out your future network.

Secondly, before selecting a site, you need to think in terms of how my product rates in terms of Impulse vs. Destination. If we think of it in terms of a line, where do we sit on that line?

High Impulse Low Destination

Low Impulse High Destination

BMW Showroom

QSR

High impulse items are usually low cost, spontaneous purchases such as buying a carton of milk, a packet of cigarettes for a smoker or a newspaper.

You may make some decision where you go, but convenience normally drives this purchase.

- 105 -

Business FranchiSe Guide

When we look at the most high impulse business we can imagine, think of a Busker. In this case, they are very mobile, and are able to move to the best traffic flow at no cost, other than moving their instrument and case and walking to the other side of the pavement or location.

The rental you pay for a property is probably defined by the owner’s view on whether the premise is on high traffic flow and high visibility. What you need to do is pay the appropriate rental for the appropriate store, and if you have a high destination type product, then you do not want to be paying top rental for the peak corner on the strip. If you are a high impulse product, then you do need high passing trade, or you will not sell your goods. There is no point being down the side street paying cheap rental if you have a high impulse product, such as phone cards, sandwiches or other food items.

Store suitability in a strip is pretty much a function of size, window frontage, whether you are on a corner or not, and to an extent being at ground level with easy access. Store suitability is having the right size and shape of store for what you are selling (and rent you are paying). If you need 80 square metres, it is no good having 120 square metres. If you need to display your goods in the window, it is no good having a 3 metre frontage, with the door taking up the first 1.5 metre!

The fourth area is the demographics. Here, the same principles apply as outlined in the previous section on Free Standing Store’s.

My final point is competition. Whilst you may not want to be beside your main competitor, being in a group of like-minded businesses tends to draw the public to the area, and gives you a higher turnover than being out on your own.

I speak with many FSDT and QSR operators, and I hear comments like – “we just go near a McDonalds, or in a strip, let’s just go near the Grill’d”. This is probably quite a compliment to their site selection procedures; however they do draw business to the immediate area. Why do we see high concentrations of QSR’s in the likes of Glenferrie Rd, Malvern or Northbridge in Perth?

Basically, it’s because they work well together.

In summary, my top five things for consideration for an Inline are: 1. Generators 2. Pedestrian traffic 3. Store Suitability 4. Demographics 5. Competition/Clustering.

- 106 -

Where should I locate my new store?

The reality of selecting a commercial site The first thing you learn is all real estate agents are born optimists. The reality is they will advise you that the site you are seeking will be hard to find, and that they have the perfect opportunity, (normally if you sign up quickly)!

Reality is that out of approximately 20 stores you will see, probably only one or two will truly meet your requirements.

I normally recommend you write a ‘Property Guideline’ that you can show agents and others what you are seeking.

At Caltex, we would be offered about three or four ‘opportunities’ a week. The oil industry works to some reasonably clear parameters, and it was just a matter of filtering real opportunities from time wasting ones.

My property guidelines to address the following types of issues are: • Size – we were looking for mid blocks of around 80m long X 40m wide approx. If a corner block, then around 60m X 60m.

• Physical characteristics – our preference was a flat block, or if possible slightly above the road rather than below. We would prefer to be on a flat section or slightly uphill section of the road, definitely not a steep decline.

• Side of road – we would prefer to be on the ‘going home’ side of the road, or the ‘neutral’ direction. Inbound was not so good.

• Competition – we obviously did not want to be on the same traffic flow as any of our other sites. Even better if few or no other competitors were servicing the area.

• Road type – traffic flow was important, and the more, the better in general.

You can now go to www.zenithtraffic.com.au to buy data relating to traffic estimates for any capital city area.

• Visibility – we would want good visibility for our signage. The best was on the outside of a right hand curve in a road, so our signage was directly ahead of the traffic.

• Access – you had to be able to come in and out easily. No much good if you could not come in off the main road.

• Demographics – in Australia probably the highest fuel users are medium income people, living in outer suburbs of the capital cities.

• Suburbs or areas – we would nominate suburbs or specific areas we were actively seeking new sites in, and not be afraid to mention areas we were not looking at, either because we were well serviced in the area, or we knew the land cost would be prohibitive.

- 107 -

Business FranchiSe Guide

Once this was all formed in the property guideline, it was willingly sent to all agents, developers and other interested parties we knew.

Summary There is no magic formula to selecting a commercial site, rather a process you need to follow and a line of thinking to make sure the site you finally select meets all the criteria that YOU feel is essential for your new business venture.

I cannot tell you to look at the left hand side compared to the right hand side of the road, or look for the busiest, most expensive store in a shopping centre compared to the $2 discount store at the back.

What I can tell you is think on what your business is about and try and match, as best you can, the commercial sites being offered to yours and your customer’s needs. There will always be the attraction of a better/bigger site – at more rent, and you have to evaluate that to your real needs, not the sales pressure being placed on you by a leasing agent.

Good Luck Grasshopper!

Appendix – Terms Used GLAR – Gross Leasable Area Retail

Shopping centre term for how large a Centre is based on the total area that is leased to retailers.

MAT – Moving Annual Turnover

12 month figure telling us the total dollars have been sold by all the retailers in a Centre.

Both the figures above are available through the Property Council of Australia in books they print and sell. The input for these comes from the shopping centre owners, who are normally members of the Property Council of Australia.

MAT figures are normally derived from the individual retailer’s figures as they normally have to disclose their sales to their Lessors as part of the lease conditions.

Peter Buckingham CMC, FFCA, FIMC. Managing Director Spectrum Analysis Australia Pty Ltd (AUS) 03 9882 6488 peterb@spectrumanalysis.com.au www.spectrumanalysis.com.au - 108 -

Chapter 12

GROWING the FRANCHISE

By Tania Allen Founder Vision Alliance

About the Author Tania Allen is known as the ultimate catalyst for change and transformation in business and in life. Passionate about helping business owners maximise their potential, Tania Allen is the Founder and Head Consultant | Coach at Vision Alliance, a business growth and franchise consulting company dedicated to helping business owners grow, leverage and franchise, make more money and create a business and life they love.

With more than two decades business experience and formal qualifications in business development, sales and marketing, franchising and transformational leadership coaching, Tania has influenced the growth, development and success of hundreds of businesses and individuals around the world.

Owning and operating her own successful businesses, Tania has celebrated many successes and has also experienced the many challenges that business and life has thrown her way. She truly understands what it takes to be a successful business owner. With a passion and a vision to make a difference to the lives of business owners, worldwide, Tania is commited to passing on her experience, and her knowledge to those who truly want to achieve higher levels of success and create a business and life they love.

- 109 -

Business FranchiSe Guide

T

here was a young entrepreneur and he was eager to learn the secret to success. He knew that if he could do what others before him had done and do it better and faster, then perhaps he had more of a chance at achieving the level of success he desired.

He believed if he knew that secret to success he could achieve everything he wanted to achieve in the shortest time possible. He knew if he could find the golden key to success he would have a head start and be well on his way to achieving the dreams and goals he had set for himself.

The young entrepreneur knew he would benefit from working with a mentor so decided to research business mentors in his chosen industry. After many hours upon hours of research the young entrepreneur found the answers he was looking for to take his business to the next level and build long lasting momentum. So what did he discover and how can you apply those golden principles to your business so that you too can get the answers and solutions you need to grow the business you want?

Successful business people all tend to have one thing in common: they think and act in a certain way. Following just some of these insights will help you make shifts in your business faster and grow your business more easily and effortlessly.

Know what you want Regardless of whether you are in a service based or retail franchise it’s important you know what you want to achieve. If you’re just beginning in your franchise then it’s a good Idea to set some clear goals of where you want to be in 1 year, 3 years and 5 years from now. If your franchise term is 5 years, it’s important you know exactly what you want to achieve in that time. Look beyond just the revenues and profits though. It’s important to have a balanced focus on all key areas of business. Take some time to write down what you want to achieve in both financial and non-financial areas. What do your revenues and profits look like? How many staff do you have? How many leisure days and holidays do you have throughout the year? What about your ideal customer? What do they look like? Who are they? And more importantly how do you reach them and engage with them so you can thrive in business and not just survive?

Know where you are and identify your GAP If you don’t know where you are, how are you ever going to know what actions need to be taken in order to get to where you want to be? Regardless of whether you have been in business for a while or just starting out, it is important to take some time to prepare your own gap analysis.

A gap analysis defines your present and future objectives in both financial and - 110 -

growing the franchise

non-financial terms. The difference between the two is your gap and becomes your starting point for building your business to the next level.

A gap analysis need not just be about money but it’s usually where most people start. Your non-financial considerations could include the number of team members, your product or service offering to the marketplace and the number of satisfied customers. Other areas could also include the number of hours you work, the number of recreation days, family days and the holidays you take. To create your own gap analysis, simply list the goals that are most important to you and your business. List where you are today, with each of those measurables, using a number scale system e.g. on a scale of 1-10, 1 representing little results are being achieved right now and 10 being the ultimate place where you want to be. Write down a number for each goal that represents where you are and then write down a number that represents where you want to be, let’s say in one year’s time. The distance between those two sets of numbers is your gap. Now you can start working on closing the gap.

Once you define the gap that exists in all areas relevant to your business, you can then create a Revenue Plan that will map out the exact process required so you can eliminate that Gap, reach every one of your goals and objectives, and do so within a very specific time frame.

Creating your revenue plan Your revenue plan need not be too complicated. It is an outline of how you intend to close the gap between where you are and where you want to be. Your Revenue Plan actually begins the process of generating leads for your business by defining specifically the product and/or service your business will sell, the number you want to sell... the price you will charge, and when you project these sales will take place.

Once these objectives are clearly and specifically defined, you will have an excellent idea of the number of leads your business needs to generate in order to accomplish every one of those objectives.

Putting together your revenue plan is relatively simple. Start by listing on a piece of paper all the products and services your business provides. Your next step is to then multiply each product or service by the prices you charge and then multiply that by how many units you expect to sell for the specific period (quarter, six month or one year period). Setting your revenue plan out in a simple table is all you need. What’s important is you set your plan in stone, so that you can get to work moving closer to your desired outcome.

If the results on your revenue plan do not match the objectives on your gap analysis then simply make adjustments until they do. This may mean increasing - 111 -

Business FranchiSe Guide

your prices, increasing the number of times a customer buys from you, or it may mean increasing the average amount a customer spends with you at any one time. It’s a simple road map for reaching your targets, so if you haven’t yet drafted an outline of a revenue plan, get started today and see the difference it makes in such a short period of time.

When working with franchisees, it amazes me how many do not follow an actual sales process in order to make things happen. Your sales process includes choosing the most appropriate channels for getting your message directly to your ideal customers, choosing the right marketing strategies and so on. I see this especially in retail, when usually the business owner relies on the most obvious channel - foot traffic. They hope for the best, that the customer chooses them today. It’s like playing a game of chance. You have an equal chance that you won’t win, and an equal chance of not winning the customer.

Put simply, it is essential you understand your sales process. If your franchisor hasn’t a solid sales process in place, create your own. Remember your success is dependent on you, not your franchisor.

So what should your sales process consist of?

Typically your sale process should include these steps: • Identify your ideal customer • Generate leads

• Qualify your prospects

• Present your product or service to your prospect • Convert your prospect into a customer

• Service your customers including following up • Up sell

• If you prospect wasn’t converted into a customer then place them in your lead nurturing program.

Target your ideal clients to produce results No matter what stage of development your business is presently in, all small business owners want more revenue. That is always priority number one, and to be honest, it should always be. Without sales and marketing, you would have no business at all. It would therefore be fair to say, that sales and marketing are both the lifeblood of every business. As Peter Druker once said Business has only two functions, marketing and innovation. The key to dramatically increasing your sales and marketing results is very dependent on your ability to attract not just more clients, but more ideal clients.

Your ideal client is the one who not only buys your product or service, your - 112 -

growing the franchise

ideal client is one who buys your product or service and raves about it again and again. They literally share your passion for what you do. These are the clients who really want what you have to offer, instead of just needing what you offer. They don’t just use your product or service, they love your product or service and they love you.

So how does this affect your business in the long term? Well, it has a huge impact on any future products or services you develop, and any future sales and marketing activities you implement. Because you want to deal with more of your ideal clients, you will find yourself developing more products and services that your ideal clients want. You will develop sales and marketing processes that will attract more of those ideal clients rather than just any client.

In fact this is an important point to review right now. Is your current marketing targeting just anyone with a pulse that may just buy your product and service, or are you truly aiming to reach not only your target market but also the ideal client within that target group?

If you can get this right, you will be setting your sails in the right direction.

In fact, it is this sales and marketing component that I have discovered is the major reason for the tremendously high failure rate of small businesses today.

Businesses are simply targeting the wrong type of clients. They are working harder, not smarter. Here’s the challenge.

Small business owners I come across want to immediately develop their marketing program, so that they can increase sales and profits as soon as possible. When I speak with them, they are already putting together various pieces of marketing collateral such as postcards, brochures, flyers, pay per click ads, social media ads and of course, optimising their website. Unfortunately, when I assess their business and compare their product or service with their ‘ideal client profile’, in the majority of cases, the marketing they are planning to use or are currently using will never reach the clients they are truly trying to reach.

Defining your ideal client is the first step to attracting the kind of people you want to do business with and will greatly increase your revenues.

Knowing your ideal client will:

• Help you define your niche market.

• Make your ideal client easier to find.

• Make it easier to sell your products and services.

• Result in a greater return on your marketing dollar.

• Increase the overall lifetime value.

Your ideal customer is vital to the success of your business. Knowing your - 113 -

Business FranchiSe Guide

ideal customers will have an impact on the products or services you create, the level of service you provide, what type of service you provide, and where and how you market your products and services. The process of identifying your ideal customer is important. Creating your ideal customer profile is therefore the next step you need to take in your business today.

Your ideal customer profile is something your staff, your partners, everyone for that matter who works in your business knows and understands. Not knowing this could result in loss of business and potentially even failure. Wouldn’t you rather know who your ideal customer is, spend money to attract them and sell them what they want and then bring them back time and time again because they are an absolute pleasure to deal with? This is what I call good business sense.

Business should be fun, so why are we putting up with C and D grade customers?

Identify your ideal client and you will be jumping out of bed looking forward to your day at work. Ok so let’s start with a simple question, ask yourself this: “Who is my ideal customer/client?”

Take some time now to write your thoughts down. Let your thoughts flow, don’t stop, just write down exactly what comes to mind. What does your ideal customer look like? Your answer does not have to be long. A couple of short sentences or a handful of bullet points is all you need. Just as long as you take the time to start to clarify and get a good picture about what your ideal client looks like.

Ask yourself these questions: Describe the type of customer you want to do business with. Describe the type of customer who you believe will give you the greatest return on your marketing investment. Looking at your current business, which customers do you believe right now are the easiest to find, easiest to sell to and require the least amount of time spent on them? Describe the type of customer who will stay with you the longest and spend the most with you.

Once you have created your ideal client profile, compare it with the clients you regularly deal with every day. Are they the same, or is there room for improvement. If there is a gap, it’s time to keep the A and B customers and sack the C’s and D’s. You know the ones I’m talking about, the ones who don’t pay you on time, are forever asking for a discount or worse still they want your time or products for free. For these D grade customers, nothing is ever good enough, and you just can’t get rid of them because you feel like your business relies on them and the business they do bring in. Well let me tell you something, you are holding your business back with this level of thinking.

- 114 -

growing the franchise

Sack your C and D clients today. Life’s too short to be dealing with the wrong type of clients.

Most businesses put a significant amount of time and money into attracting more customers. Serving the right customers and not just more of any customer is what’s critical to your success. When you bring more of the right customers to your business, your business will double, triple and quadruple almost overnight as they will become raving fans, advocates and ambassadors of your brand and business.

Knowing who your ideal customers are and what they want, it’s time to explore how to best reach those ideal customers by creating the ideal marketing plan and marketing message for your business.

Know how to effectively communicate with your customer Marketing is all about finding the best way to effectively communicate and engage with your ideal customer. It’s about getting the right message out in the marketplace, which speaks directly to your ideal customer and then finding the right distribution channel to support that message.

Once you’ve decided on your marketing strategy, it’s time to craft a compelling and laser focused message to ensure you reach your prospect with enough impact to lead him or her to take a particular action. That action may be to pick up the phone, walk into the store, or go to the website and start engaging with your business.

The biggest challenge business owners face when it comes to marketing however is: Your prospects are literally being bombarded by marketing messages from the moment we wake up to the moment we go to bed, that they are becoming immune to many marketing messages. It’s what I have termed as Consumer Immunity™. With marketing messages filling up our minds from TV to radio, breakfast cereal boxes, magazines and billboards just to name a few, it’s no wonder most are in a state of overwhelm and are completely blind to the many marketing messages out there. I’m very confident to say this problem is only going to grow into a bigger issue.

This also means your prospects are overwhelmed with those same marketing messages everyone else is throwing into the marketplace, so how do you stand out of the crowd and be seen in what is already an overcrowded marketplace when it comes to marketing messages? The first thing you want to do is market where your customers hang out not just where you think they will be. Once you know where they are you want to be sure your message will speak directly to them, in other words your marketing must speak directly to your prospects challenges, concerns and frustrations. It’s what we call their ‘hot buttons’.

- 115 -

Business FranchiSe Guide

It is essential your marketing copy grabs and engages the readers’ attention. It then must enable the prospect to gain interest and build desire for the product and or service you are promoting. It should also provide enough information and lead the prospect into taking some form of action. That easy low risk next step could be visit a website, fill out a form to get something, walk into a store or phone the business. Whatever it is, you want to lead the prospect easily and effortlessly into taking an active step towards your business.

So when creating your marketing messages I always turn to a great little marketing formula, which will increase the effectiveness of the campaign.

The bottom line is, your marketing should be producing results. If it’s not, tweak it, change it, or get rid of it.

The marketing formula Every marketing piece you use to attract prospects to your business should follow this acronym.

Attention - Does the ad or marketing piece (namely the headline) grab your attention?

Build Interest & Engage - Does the ad or marketing piece generate the readers’ interest?

Inform, Educate & Build Desire - Does the ad or marketing piece build desire for your product or service?

Credibility - If the marketing piece calls for it, have testimonials or some form of proof in the promotional piece.

Action - Does the ad or marketing piece prompt the reader to take action?

WIIFM - This acronym stands for What’s in it for me? Your marketing material should speak to the prospect and communicate the benefits, not tell a big story that’s related to how long you have been in business or how good you are. Put yourself in your prospects shoes and your marketing will produce better results.

By following these key points, you will turn your marketing costs from an expense into an investment.

It’s a simple formula that will definitely support you when you are planning and rolling out your next marketing campaign or promotion.

Know your customers lifetime value I see many business owners both in infant and mature stages of growth making ill-informed marketing decisions. If you don’t want to second-guess things creating a plan is absolutely essential.

- 116 -

growing the franchise

When I ask business owners if they know exactly how much they can afford to invest on their marketing and acquiring a customer, most wouldn’t have a clue.

It’s all well and good to launch a marketing campaign and hope for the best and that’s what most business owners do to be honest. What you need to do is in the planning phase, it’s important to weigh its costs against its estimated benefits. In order to accurately assess those benefits, you need one critical piece of information: your customer’s lifetime value.

It’s all about the profit The purpose of every business is to acquire profitable customers, and retain them. It’s that simple.

You have to admit as a business owner more revenue is great, but honestly it’s more profit we all want more of. After all this is the reason we are in business isn’t it? What’s the point waking up every day working our butts off just to make a bottom line loss? The crazy thing is, so many business owners do just that, and so many accept that it is the way it is. Your aim should be to aim for bottom profits.

When it comes to profit, it’s almost impossible to get more of it on it’s own.

What you can get, is more coming in from your current customers by having them spend more. This will put more money in your pocket especially if they are buying items with larger profit margins. This is what I refer to as wallet share.

If you are looking for more money in your pocket everyday, you have to sell more, it’s that simple. It won’t appear by wishing for it to happen. With this in mind, it’s important to focus on making sales and more importantly profitable sales. Now this doesn’t mean all you need to do is go out and get a handful of new customers to affect your bottom line. More customers are just part of it.

Profit is about getting your customers to buy more from you and buy products or services that have higher profit margins, so you are simply making more per spend. Same effort, more per spend.

Manage your time – increase your effectiveness I’m going to finish off this chapter by speaking briefly about the importance of managing your time. We all have the same 24 hours in the day yet some of us choose to use it very unwisely. How do you spend your time? Is it in procrastination mode, or is it being directed to the highest income and highest impact generative activities?

Just by focusing on your highest income and highest impact activities they will generate 16 times more revenues for you, that’s it. It’s that simple. To build - 117 -

Business FranchiSe Guide

a great business you must have a great team. To build a great team, you must overcome the typical entrepreneurial thinking that you have to do everything yourself. More importantly, you need to stop working in the business and start working on it. Just to clarify it for you, a high income-producing activity would be making a sale or something that leads directly to a sale. A high impact activity would be something like producing a great website or making sure that your ad copy is properly written to make sales for you. These activities donâ&#x20AC;&#x2122;t directly make a sale, but they play an important role in generating revenue.

What activities should you be doing?

For the small business owner, the highest income-producing activity, bar none, is generating revenue. Every day, your primary focus should be on how your company will generate more revenue. If youâ&#x20AC;&#x2122;re not spending a minimum of 60 - 80 per cent of your time on income - generating activities, your business will struggle to grow and increase revenues. But what about financing, HR, operations and all those other activities you just identified as crucial to your business? Hereâ&#x20AC;&#x2122;s the challenge: For a small business, generating revenue must come first and management second. Otherwise, your business will never grow to the point where management becomes as important as sales. The ultimate formula to your success is People, Product or Service Sales and Process and Systems to streamline for growth. If your personal strengths lie in sales and marketing, then you need to spend a minimum of 60 - 80 per cent of your time performing these activities. However, if your personal strengths lie elsewhere, hire an expert to do the sales and marketing for you and focus your time and energy on those high-impact activities that match your personal strengths.

Remember, the secret to growing revenues and building a successful business is to focus only on what you do best, and hire or outsource everything else. Be sure you take consistent daily action towards what it is you want and commit today to continuous improvement and excellence.

Tania Allen Founder Vision Alliance (AUS) 1300 76 49 20 tania@vision-alliance.com www.vision-alliance.com

- 118 -

Chapter 13

Marketing Your Franchise

By Katherine Grace Director Graceful Solutions Marketing

About the Author A former CEO for the Jimâ&#x20AC;&#x2122;s Group, Katherine has over 17 yearsâ&#x20AC;&#x2122; experience in franchising. She has worked with many brands, been a successful ActionCOACH franchisee (#14 in the world) and was runner-up Franchise Woman of the Year in 2010.

Graceful Solutions is a marketing company specialising in nocost, low-cost and local area marketing. Their team of 12 offer services including websites, online advertising, marketing plans and low-cost strategies to engage existing customers and find new ones.

- 119 -

Business FranchiSe Guide

How important is marketing?

Consider this: marketing and sales are the only activities that you will do in your new business that bring money in – everything else takes that same money back out again.

Plan to be spending at least a quarter of your time thinking about how to bring in more sales (of the right type of customers) and keep them coming back.

This will ensure not only that you always have enough to pay the bills and for decent staff, but that you will grow consistently over time and be able to enjoy both a better work/life balance and a better payout when you decide to move on.

No marketing by you means that you have no control. It also means that your franchise is worth less, as it doesn’t have a way of self-generating work (there’s no tap that you as the business owner can turn on and off).

Instead of focusing on the good clientele that you would prefer to see, having no marketing leaves you running ragged, chasing every lead that lands in your lap. The more inquiries you get, the pickier you can be and so your income and the type of work and clients you deal with will automatically improve also.

No marketing will also mean that people (being customers, referring businesses and even possible purchasers) will make judgements about you based on what other people say, not on what you want to put out there.

So why market? Marketing is not just about increasing volume. It can do many things: • Get More work (increase volume) • Get you Better work (a product or service that is higher dollar-per-hour or margin) • Help you become a Specialist (doing a type of work that you love) • Change your core Client or Service (upgrade to a better market) • Get you a Higher Price • Get you Better customers • Get you Better employees • Become Boutique – small number of jobs but good, high paying ones • Become a National/Global company • Control the Word about you (even counteract negative reviews) - 120 -

Marketing Your Franchise

• Control the Tap (tap on, more work, tap off, no work) • Increase Business Value (IP and Database) • Qualify your clients (knock out the riff-raff before they even call).

Getting started with marketing a franchise is a fairly simple (and fun) process that involves creating a wish list of your ideal customers and income amount, and finding budget friendly ways to make it happen that link in with, but don’t rely on, the work your franchisor is doing to promote your brand. Hopefully with the involvement of your team since you are paying them all anyway.

Your marketing fund contribution One of the main reasons that franchises work is the team effort that is brought to marketing the business.

For a small fraction of what it would cost on your own, most franchisees are able to have their brand exposed through mainstream media and by professional advertising agencies, both of which are well out of reach for the standard SME business owner.

Since marketing on behalf of the franchisees is one of the biggest responsibilities your franchisor has, the Franchising Code regulates this by having a set portion of your franchise fees (called the Marketing Fee, Advertising Levy or similar in your franchise agreement) go into an audited Marketing Fund that must only be spent in the promotion of the brand.

You will see any marketing fees as a separate entry on your franchisee fees invoice each month.

However it is important to note that the franchisor is not obliged to spend your marketing contributing in promoting your specific business in your area – only that they need to be promoting the franchise group’s business as a whole.

You will be able to see a statement of the Marketing Fund for the last financial year in your Disclosure Document (which you will receive alongside your franchise agreement). Section 12 of the Disclosure Document will also outline a few key points about the marketing fund, such as whether the franchisor has to contribute if they own a ‘company-store’, what sort of things the fund is used for, and if anyone such as suppliers contributes to the fund.

There will also be an independent Auditor’s Report verifying the fund’s statement has been audited, unless more than 75 per cent of the franchisees that contribute vote to not bother with the audit (this usually indicates trust on behalf of the franchisees as to what their marketing money is spent on, and/ - 121 -

Business FranchiSe Guide

or a desire to see marketing funds only go to advertising and not on auditor’s fees).

You should absolutely note that just because you are paying a marketing fee to your franchisor, this does not mean that all your marketing will just ‘be taken care of’. You have a big responsibility to spend time and money on top of this fee in promoting your business locally if you really want to do well – see the section on Local Area Marketing following for more information.

Corporate marketing – by the franchisor Most franchisors are excellent at two things – brand exposure and promotions.

Combined with some efforts on your behalf at the local level, the end result is an ‘attack from all angles’ where potential customers will know you from branding marketing, trust you from local marketing and then be inspired to buy from you due to a ‘call to action’ or special offer.

The first and biggest responsibility of corporate marketing is to increase awareness (and fondness) for your shared brand.

This is usually (but doesn’t have to be) done via mass media such as television, print advertising such as newspapers or magazines, radio, billboards, online and social media advertising and the group’s website. These mediums are ‘one-to-many’ – that is, one message is seen by many people regardless of whether they fall into your target market or not (though many invariably will, especially if you are in fast food or general retail).

Mass media advertising is a big benefit to you as a franchisee – in normal small business there would be no way you could afford to promote yourself via any of it, so the team factor is a big help in getting your name out there. Generally it is thought that customers need to ‘see’ you at least six times before buying, so this exposure greatly increases your chances of more direct local marketing bringing people in.

The other big advantage of being part of a franchise is what is called best practice – that because there are so many people essentially running the same business, it is easier than normal to figure out the best possibly way of doing everything (think of your business being run in slightly different ways in multiple parallel universes and you get the idea – one will be best at sales, one best at managing their team, etc). In this way everyone benefits from the others.

Franchisors may take best practice and use it to share promotional offers amongst the group, that have been known to work in the past or for other - 122 -

Marketing Your Franchise

franchisees. Again this removes your need to try and try again to get it right – you can simply put a great offer out there and reap the rewards with new business.

Local area marketing – by the franchisee Often, the biggest frustration that franchisors have is that their franchisees aren’t doing much in the way of local area marketing - that is, building up the business name close to home in support of the brand promotion done on a wider scale.

At the end of the day, a franchise is a small business with the added bonus of a brand and support system to give you everything you need to succeed.

However it is still your business (and probably your family’s business) and with so much on the line it is important that you do everything you can to have people lining up at your door.

Local Area Marketing, sometimes called Self Promotion, is simply anything you as the franchisee can do to help bring new customers into your business.

Usually, it involves working at a local level or with the community, as these things are specific to your business site as opposed to the whole franchise group. Where mass media is ‘one-to-many’, local area marketing can be closely targeted to only your ideal clients and is ‘one-to-a-few’.

Some examples of types of low cost local marketing that are usually allowed within a franchise system (see the word on permission below) include: 1. Networking with local businesses and people. (I call well-connected people ‘sneezers’ as you can let them know about your business and they will tell everyone - you become highly contagious!).

2. ‘Giving back’ or sponsoring local schools, kinders, sporting clubs or community groups. (There is an effective and non effective way to sponsor things – to ensure you get ROI try to package in ways to meet the members face to face rather than just getting a sign on a fence).

3. Appearing at fetes, festivals, markets, council events, home shows or trade expos.

4. Joining your local BNI chapter, rotary group, chamber of commerce, etc.

(As the business owner of a well-known brand you need to become a little bit famous in your local area – even if you’re a bit too humble).

5. Leaving business cards for your services in other businesses, on bulletin boards, etc.

6. Advertising your services within key employers in your area (such as - 123 -

Business FranchiSe Guide

council, hospitals, large manufacturers etc).

7. Running promotions or sales specific to your outlet and distributing (franchisor approved) flyers to letterboxes.

8. Thank you letters to customers for using your services or to the top ten referrers in your client base. We use this one very effectively in my medical business – top referrers have increased to generating us over $1000pm each since we introduced thank you’s.

9. Host beneficiaries with other local businesses such as gift vouchers or free trials for their clients.

10. Appearing in local directories, school newsletters or discount booklets (NB: advertising copy must always be approved by the franchisor first).

11. Offering your team (and customers) incentives for referrals.

12. Going to the bank, post office and school pick up wearing your uniform.

Social media – a team effort If done well, social media is a cheap and prolific way to be a part of people’s daily lives. If done poorly however, it can be a remarkable waste of time – yours or your team’s.

According to one study, almost all Australian’s aged under 40 (87 per cent) use social media, with the majority using every day.

Because of the viral nature of it, social media is usually set up and controlled by the franchisors, to keep the brand in good standing for the benefits of all franchisees.

However, social media is a content driven medium, and the engagement of customers and potential customers is only as good as the information you are putting out there. Often with no contributions by the franchisees, the franchisor is left without a great deal to say!

You can support your social media campaign by providing content such as interesting articles (even referencing and crediting something you have read), photos of your team and customers enjoying your services and good news stories and client testimonials.

Common social media used to promote the business to the world are: • Facebook – A newspaper style documenting the daily happenings of friends and businesses • Twitter – to-the-minute updates in 160 characters or less - 124 -

Marketing Your Franchise

• Pinterest – Sharing of pictures with friends and strangers by topic of interest • YouTube – Sharing of videos with anyone by keyword or topic

• LinkedIn – a more professional forum for individuals to connect with one another, often to do/push business or for recruitment • Instagram – Sharing of pictures to document daily life • Google+ - Incorporating your business page and Google Maps (if allowed).

While you usually can’t set up a business facebook or twitter page as a franchisee, often it is fine to set up a profile as a business owner of your franchisor, and connect with other businesses using LinkedIn.

A word on permission Because everyone is sharing the one brand, it is important for franchises to protect how that brand is used and ensure that the business remains well known with a good reputation so that everyone’s business can succeed.

This is why advertising by franchisees is monitoring and controlled - with so many people involved, the consistency of the brand can very quickly become eroded and dilute mass marketing efforts.

As a rule, franchisees are encouraged to do local area marketing and only need to run the final ad past their franchisor for permission. Don’t let this requirement scare you off – almost all franchisors are excited and supportive for franchisees marketing themselves.

For social media and other uses of photographs, it is especially important to get everyone’s permission before using that image in promotions. If unsure, stick to family and friends or professional models. You should also gain your customer’s permission before using their case studies, testimonials or such in your marketing.

Things to consider Belonging to a franchise is a great way to leverage off some expensive brand exposure being done on your behalf, and to partner with a company that has a proven history of marketing themselves.

Remember though that no amount of money or brand exposure can replace local marketing. What we are looking for is a powerful combination of the macro and the micro – mass media and the local engagement working simultaneously to give you the most impact both from brand exposure and on-the-ground word of mouth.

- 125 -

Business FranchiSe Guide

Marketing is all about being in control of your own business and how busy you are. This responsibility is yours – it doesn’t go away just because you belong to a franchise system, and when you think that it does it leaves you at risk. Because really – whether the market is good, bad or otherwise – things can change and it’s so much better to know how to fish than be dependent on fish from others.

Katherine Grace Director Graceful Solutions Marketing (AUS) 0400 865 277 katherine@gracefulsolutions.com.au www.gracefulsolutions.com.au

- 126 -

Chapter 14

Franchising your own business

By James Corne Founder & Managing Director The Franchise Institute

About the Author Jamesâ&#x20AC;&#x2122; passion and expertise is helping SME businesses expand through franchising. He has years of experience in the franchise industry having franchised three of his own businesses throughout Australia, New Zealand and Asia.

In 2000 James started his journey into franchising by taking on the Australian and New Zealand master rights for a marine cleaning product. He diversified and took on the master rights for a number of other businesses. After being awarded the International Master Franchisor for two consecutive years he was then granted the Master rights for Asia. Soon after he sold a franchise in Singapore and then sold the entire Australian and New Zealand Master rights Noticing a gap in the market place for SME business owners wanting to franchise, James recruited a team of experts to write and develop the Franchise For Success Program. He chose some of Australiaâ&#x20AC;&#x2122;s leading franchise lawyers, accountants, marketing and retail consultants and business development executives. Together they spent more than a year writing and testing the program before its launch into the Australian marketplace in 2004.

Since then The Franchise Institute have helped more than 200 Australian businesses grow through franchising using a practical, hands on approach and offering the first franchising fixed fee guarantee.

- 127 -

Business FranchiSe Guide

M

aking the decision whether or not to franchise your business is not easy.

At risk is your investment, the reputation of your business and the time and resources required to make your business franchise ready.

Of course the rewards are there too. Franchising provides your business with the opportunity for expansion at a more cost effective price, on a much larger scale and with a network of motivated owner operators.

To grow or not to grow?

The goal of being in business is to create a valuable asset that is profitable.

Once the initial business is operating successfully, the question becomes should the business stay as it is – i.e. the same scale and scope or should it leverage the success by expanding it to other locations thereby taking the business to a whole new level?

For some, keeping their business as it is, is fine. Their business is manageable, it’s ticking along steadily and the effort and investment required to grow the business is too daunting. To others the desire to create a more valuable asset and a more profitable business is why they took the risk and started a business in the first place.

However increasing the scale and scope of a business requires large amounts of capital. Funds are required to: • sign the lease on new premises or to buy another mobile van • buy start-up equipment • buy start-up stock • find and train new staff • market the business in the new location.

The business owners have to bear the cost of all the above, whilst still managing to successfully devote enough time and attention to ensure his/her existing business does not suffer as a consequence of their focus on opening the new location.

It’s no surprise then that business owners look for alternative approaches for business growth.

Franchising: an alternative model for business growth This is where franchising comes into its own. Franchising provides business owners with an alternative way to increase the scales and the scope of their business.

- 128 -

Franchising your own business

In the franchise model the franchisee funds the start-up costs of the business – including shop fit out, new van or premise lease, start-up stock etc. The franchisee is responsible for staffing the business (most commonly the franchisee works in the business and so becomes the staff).

The franchisor provides the franchisee with their business system which is a detailed blueprint on how to successfully operate the business. They also provide the initial training and marketing support.

Because the majority of the start-up costs are born by the franchisee and not the franchisor, it means that the business owner (franchisor) can expand into a number of locations at a much faster rate and at a lower cost base. With the increased size of the business come other advantages such as group buying power, and group advertising power.

For the franchisor apart from achieving the goal of growing their business in a range of new locations they also benefit from receiving a franchise fee every time a new unit is sold. This franchise fee varies between franchise systems but commonly is in the range of $10,000 - $50,000 dollars per franchised unit opened. In addition the franchisor has the added benefit of receiving weekly or monthly royalty payments from each franchised unit. The royalty payment can be a flat fee, or a percentage of turnover or a combination of both. Some franchise systems also charge an ongoing marketing levy which is used to fund marketing for the franchised business.

Clearly the franchise model has its appeal.

Can all businesses be franchised?

Franchising is a great business model if your business meets the following criteria: • It has a profitable track record • There is market demand for it in a variety of locations • There is long term market potential (i.e. it’s not a fad) • It has business systems that can be easily taught and then followed • The franchisor has leadership skills and a vision for the business • The franchisor reinvests funds to ensure the business is continually improving and innovating.

However franchising can also be an effective method of growth for newer businesses who would not be able to meet all of the above criteria. When franchising a new business or a business start-up, it’s crucial that the business - 129 -

Business FranchiSe Guide

owner has sufficient capital and resources to inject into the new business.

As the business won’t yet have a track record, funding from banks is more difficult and so the business owner will need to ensure they have the resources to support the franchisee while the business grows. One good option here is for the business to open its first unit as a company owned franchise which then they can sell at a later date or keep as the franchised business expands.

While a strong advocate for the franchise model it is important to note that franchising is not a panacea. It won’t save a business that is struggling to make ends meet. If the business is not successful as an independent business then franchising it won’t solve the problem.

What does the process of franchising a business involve?

While franchising a business offers many rewards the process of making a business franchise ready does involve some work.

Broadly it can be classified into the following tasks: 1. Packaging and marketing your franchise offering 2. Reviewing all of your existing business systems and documenting them to ensure they can be replicated by the franchisees 3. Developing a training program to teach franchisees how to implement your business systems 4. Developing Code Compliant franchise legal documents 5. Developing a franchise recruitment strategy and marketing collateral 6. Setting up structures to protect your intellectual property 7. Ensuring you set up the franchise using the correct model.

While the above may sound quite daunting for some business owners – especially those where all of the business know-how is in the business owners head, the process usually occurs over a 6 - 12 month time period. Ensuring there is plenty of time to do each of the above tasks properly. Of course the premise underpinning franchising is replication on a large scale, so the good news is that once developed, the above documentation and training programs etc. can be used over and over again, each time a franchised unit is opened.

Franchising a business is more than a bunch of documents Many business owners think that all that is required to franchise a business is a Franchise Agreement, a Disclosure Document and an Operations Manual. But franchising a business successfully involves so much more than just having these documents.

- 130 -

Franchising your own business

Don’t clone the franchisor As a business owner you need to identify what type of person you are looking for in a franchisee. While franchising a business is all about replication of the business systems, cloning the business owner is NOT part of the recipe for success. In fact looking for a replica of the business owner in the franchisee is potentially disastrous.

In the franchise model the franchisor is the Chief and the franchisee is the Indian. Just as no tribe successfully operates with multiple Chiefs and no Indians, franchise systems need one good leader and the rest to follow the leader’s business systems.

Package an attractive offer The business owner also needs to package their franchising offering so it attracts the right type of person. Having identified the type of characteristics, skill set and experience required in your franchise system, the business owner now needs to determine how they will package that offer to make it appealing to this personality profile.

Franchising is a very successful business model. In Australia there are more than 1100 different franchise systems. In New Zealand there are more than 440 different franchise systems. All of these franchised businesses compete for the pool of potential franchisees who are looking to buy into a franchise system. While people in the pool of franchisees will have different preferences and different budgets, as buyers they have a lot of choice. Therefore when franchising your business it’s important to think about how you can make your franchise offering ‘cut through’ and be more appealing than your competitors.

There is an array of strategies that you can use to make your franchise offering more attractive including discounts; finance packages; guaranteed income periods; lead generation programs and value add items. What is also important to understand is the psyche of the franchisee. The franchisee and franchisor are quite different in their make-up.

The difference between franchisors and franchisees Generally speaking franchisors are entrepreneurs. They have a higher risk threshold which is why they have started their own business and now are preparing to expand it. Franchisees in contrast have a lower risk threshold which is why they are prepared to pay a premium to buy someone else’s business system so they can implement it. Understanding these fundamental differences is key to effectively packaging your franchise offering.

- 131 -

Business FranchiSe Guide

Why franchisees buy Contrary to popular belief, franchisees are not primarily motivated by profitability and return on investment. That’s not to say they don’t want to earn a decent income – they absolutely do. However the primary reason most franchisees buy a franchise is because they are looking for to a business opportunity that has potential, but also has less risk. What ‘lower risk’ really means, is that the franchisee is looking to become a business owner but wants to do so in a way that they feel is safe and secure. This is why they are prepared to pay a premium to buy a franchised business where somebody else has already determined what works and all the franchisee needs to do is follow the same system to get the same results.

Apart from feeling safe and secure they also want to feel a sense of pride that comes from owning and growing a business. Franchisees like the idea of ‘being their own boss’, creating an asset and not slaving away for someone else.

Would you be a good franchisor?

Just because you have successfully built your own business does not automatically guarantee that you would make a good franchisor – and this is a mistake many business owners make.

In essence franchising is a shift in focus for the franchisor from operating the business on a day to day basis to growing the business. Many find this opportunity to work on growing their business an exciting challenge.

So as the business transforms from being a single business unit to a franchised business the franchisor’s role takes on a new role of leader. Instead of focusing just on the business he/she needs to start thinking and acting like a leader.

In this role the franchisor needs to be able to inspire his/her franchisees to achieve to the best of their abilities. The key attributes a franchisor must possess include: A vision. The franchisor must have a vision for the company and have the ability to convey that vision to the franchisees in a way that inspires and motivates them to be the best they can be. The franchisor must be able to see and convey a ‘helicopter view’ of the business. That is, from on high they must be able to see in all directions. To know where the company is going and how it’s going to get there. They must be constantly looking ahead and re-positioning the company to achieve the greatest profitability for both the company and its franchisees.

- 132 -

Franchising your own business

Effective communication skills.

A franchisor must be an effective communicator. Through effective communications a franchisor must be able to develop and share their ideas with franchisees. They must be able to persuade them to follow a course of action and show them a way forward.

Good people skills. A good franchisor must like people and have good people skills. A good franchisor will take the time to get to know their franchisees. To understand what makes them tick and what makes them happy. They should genuinely care about their welfare and support them as best as they can to ensure their success.

Integrity. A franchisor must have integrity. For without it the whole business will come undone â&#x20AC;&#x201C; if not at the start then eventually. Franchisors must be trustworthy before others will follow them. Qualities that establish trust include competence, consistency, caring, candour, and congruity. While keeping things fresh is important, franchisors shouldnâ&#x20AC;&#x2122;t change direction too frequently as this will cause franchisees to lose confidence.

A win-win attitude. In addition to being a leader it is also vital that the franchisor acknowledges and recognises that franchising requires an effective partnership between the franchisor and the franchisee. The partnership is highly dependent. If the franchisee does well so too does the franchisor and vice versa.

Once making the decision to franchise, the franchisor needs to recognise that he/she now has a new customer. Instead of being at the coal face servicing the end user, the franchisor now has a new customer in the form of the franchisee.

The franchisors role shifts from directly servicing its end users to helping its franchisees to do that to the best of their abilities.

Should you franchise your own business?

Franchising is a great way to build a business. If you have a good business or even a business concept that you can confidently take to market, then franchising can be a great way to cost effectively scale up a business in a number of locations. There are many rewards for the franchisor including increased brand awareness, group buying and advertising power, and increased financial rewards. But franchising your own business does take time, it takes investment and it requires skills and resources. Franchising is a wellestablished and proven model for growth in Australia and New Zealand with more than 1600 franchise systems.

Every franchised business that turns over millions of dollars started off as - 133 -

Business FranchiSe Guide

an idea or a small business (think McDonalds, Boost Juice or Jimâ&#x20AC;&#x2122;s Lawn Mowing). Could your business or business idea be the next big thing?

James Corne Founder & Managing Director The Franchise Institute (Aus) 1300 855 435 www.thefranchiseinstitute.com.au

- 134 -

Chapter 15

The Franchise Council of Australia

By The Franchise Council of Australia

About the Author The Franchise Council of Australia Limited (FCA) is the peak body for the $131 billion franchise sector in Australia, representing franchisees, franchisors and service providers to the sector.

As the peak body for franchising, the FCA strives to add value to the businesses of its members by providing a range of services relevant to franchising which represent good value.

The FCA recognises that its members have different needs, and that different types of members should co-exist harmoniously.

The success of franchising depends on successful franchisors, and this in turn, depends on profitable and happy franchisees.

The Franchise Council of Australia works constantly to ensure that all activities and services which benefit franchising benefit the broader community â&#x20AC;&#x201C; including franchisees, franchisors, employees and their local economies and communities.

- 135 -

Business FranchiSe Guide

T

he Franchise Council of Australia Limited (FCA) is the peak body for the $131 billion franchise sector in Australia, representing franchisors, franchisees, service providers and advisors to the sector.

The FCA is a nationally incorporated not-for-profit association with a national head office based in Melbourne, Victoria.

The FCA’s main aim is to help people get into franchising and ensure the sector they are joining is as good as it can be. This means promoting best practice in the sector and providing the education and other services necessary to ensure a healthy sector constantly striving to lift its own standards.

The FCA was formed in 1983 as a not-for-profit trade association, with the following objectives: • to establish standards of international best practice in business format franchising for Australian franchise systems

• to provide information and education about franchising to existing and potential franchisees and franchisors • to educate State and Federal Governments on issues relevant to the sector.

Since 1983, these objectives have been further expanded to include the following: • to develop a vital, strong and financially viable franchising sector

• to advance the interests of members in Australia and in specific interest areas including franchisee interests, women in franchising and international market development • to continually foster among consumers, governments and the business community, a broad-based understanding of the economic importance of having a strong franchise sector in Australia

• to design efficient, identified, value-added services to members, and assist them to be more effective in franchising.

The FCA is available to assist all stakeholders in the Australian franchise sector in a variety of ways, to ensure the sector is a vibrant place to do business.

Membership of the FCA is voluntary, and is open to any individual or organisation involved in the franchising sector, including; franchisees, franchisors, lawyers, accountants, banks, consultants, academics, publishers and many more.

Whether offering advice on best practice franchising, educating government on policies affecting the sector, promoting franchising in the media or providing professional development services to its members, the FCA does its part to make the sector a positive, sustainable place to earn a living.

The FCA is closely affiliated with franchising associations around the world, - 136 -

the franchise council of australia

and is a founding member of the Asia Pacific Franchise Confederation (APFC).

It is also a member of the World Franchise Council (WFC) and for 1999 and 2000 was its secretariat.

Membership of the FCA means credibility – maintained through the FCA member standards and the Franchising Code of Conduct; professional support – through education programs, networking opportunities and regular events; and representation – ensuring members’ voices are heard by governments, regulators and other important groups.

Membership also means solidarity. FCA members belong to an association where their peers work together for the betterment of the sector. FCA members share a common method of doing business – not a common business. For this reason, franchisors, franchisees and suppliers can freely exchange ideas without fear of losing their competitive edge.

The FCA currently has more than 650 franchise systems and suppliers in its membership base. This strong commitment to belonging demonstrates the relevance and value brought to the sector by the FCA.

The FCA has a federated governance model. The national Board of Directors has representation from each State chapter as well as specific interest representatives. The FCA Constitution allows a maximum of 15 directors.

Each State Chapter elects a president, who is then appointed to the national board. Up to ten additional directors may be included on the Board – five by direct member election plus up to five additional directors appointed by the Board.

Major services and initiatives The FCA recognises that its members have different needs, and that different types of members should co-exist harmoniously. The success of franchising depends on successful franchisors, and this, in turn, depends on profitable and happy franchisees. The FCA works constantly to ensure that all activities and services which benefit franchising will benefit the broader community – including franchisees, franchisors, employees and their local economies and communities.

As well as commitment to the highest industry standards, the FCA facilitates a number of services and initiatives to assist in promoting and advancing the role of franchising in Australia, as well as supporting its members. These include:

Representation services Key among the FCA’s strategic objectives is to enhance the perception and reputation of franchising to Government and other stakeholders, along with the wider business community. The Board and Executive team at the Franchise - 137 -

Business FranchiSe Guide

Council actively consults and collaborates with Government and other associations with regard to franchising and small business legislation.

The FCA also works tirelessly to educate the business sector and wider public on the benefits of franchising. Along with endorsing and exhibiting at the Franchising and Business Opportunities Expos around the country each year, FCA also exhibits at various industry trade shows including Food Service Australia, Regional Living Victoria and many others to promote the franchising business model to those who may not have considered it previously.

The FCA Franchise Academy The FCA Franchise Academy is committed to providing franchisors, franchisees, franchise consultants and suppliers with the best education programs available in the market, both locally and internationally.

The FCA Franchise Academy aims to provide both franchise-specific and generic business skills training and education for pre-entry, in-market and succession (exit) to all organisational levels. The establishment of the FCA Franchise Academy coincided with the introduction of nationally recognised qualifications in franchising.

In 2012 The FCA Franchise Academy launched the Certified Franchise Executive program (CFE). The CFE is the only internationally recognised professional accreditation program for franchise executives. It is an educational framework designed to enhance the professionalism of franchising by certifying the highest standards of quality training and education.

The program offers existing and aspiring franchise professionals and entrepreneurs the opportunity to grow professionally and reach a recognised standard of excellence within the local and international franchise community.

Supplier Forum Established in 2008, the objective of the FCA Supplier Forum is for suppliers to the sector to advise the FCA on what products and services they expect and need from their industry representative body.

The FCA recognises that a franchise cannot sustain success without the assistance of the many and varied consultants, services and business systems they provide.

Suppliers such as consultants, lawyers, finance, IR companies, software companies and many more, constitute the bridges that allow franchisors and franchisees to travel above the competitive landscape, on their way to a sustainable commercial advantage.

- 138 -

the franchise council of australia

Women in Franchising Committee The number of women participating in small business and franchise ownership is increasing, with almost 28 per cent of franchised units predominately owned or operated by females (Franchising Australia survey).

In 2007, the FCA announced the introduction of the Women in Franchising Committee (WIF), dedicated to promoting and advancing the achievements of women in franchising and small business.

The aim of the WIF Committee is to increase female participation in franchising.

It aims to be a professional, organised group within the FCA that will provide women inside and outside the sector with information and encouragement, as well as genuine opportunities for contribution, networking and professional development.

The National Franchise Convention The FCA hosts the annual National Franchise Convention. The Convention brings together the Australian franchise community â&#x20AC;&#x201C; including successful business people, CEOs, government officials and industry advisors â&#x20AC;&#x201C; to enjoy education, networking and business development opportunities.

Traditionally a three-day event, the National Franchise Convention also includes a trade exhibition where suppliers to the franchise sector can showcase their products and services. The convention is open not only to those in franchising circles but also to the small business sector generally and it is not necessary to be an FCA member to attend.

FCA Excellence in Franchising Awards The FCA Excellence in Franchising Awards recognise and reward companies and individuals within the Australian franchise sector and provide a platform for entrants to showcase their achievements on the national stage.

The Awards are open to FCA member companies only and are committed to ensuring that franchisors, franchisees and suppliers to the sector are appropriately represented.

Success at the Awards can increase brand recognition, customer enquiries and media coverage. It can boost company morale and help attract the best talent to companies.

The Excellence in Franchising Awards ceremony is held in conjunction with the National Franchise Convention and is the pinnacle of the franchising year.

Past winners include 2013 Established Franchisor of the Year, Specsavers, 2013 Franchise Woman of the Year, Debb Meyer (Narellan Pools) and 2013 Multi-unit Franchisee of the Year, Caroline and Paul Attard (Poolwerx) and many more.

- 139 -

Business FranchiSe Guide

Hall of Fame The Australian Franchise Hall of Fame was established in 2003. During its creation, the selection panel searched back to the origins of franchising in Australia and, by a meticulous process of elimination, identified the groundbreakers, influencers, quiet achievers, selfless contributors and outstanding performers who endured the trials and laid the foundations of the sector’s success.

Now, it is members of the Hall of Fame itself who induct new entrants. The sole criterion is an outstanding contribution to franchising – whether as a franchisor, franchisee, academic, lawyer, consultant, politician, financier – whomever.

FCA Member Standards Members of the FCA receive many benefits which help businesses keep informed and connected with the franchise sector and facilitate education.

One of the hallmarks of a reputable sector is a commitment to high standards of personal and professional conduct. This enhances public perceptions of franchising, helps safeguard the investments of franchisors and the businesses of franchisees, protects franchise networks from unfair or unethical attack and provides guidance for those seeking to commence their franchising journey.

The FCA encourages its members to maintain standards of conduct worthy of franchise sector professionals. The Member Standards are designed to provide members of the FCA with an authoritative guide on acceptable standards of conduct.

The FCA believes the Australian franchise sector to be well regulated with the Franchising Code of Conduct (the Code) allowing for affordable, efficient dispute resolution procedures and disclosure provisions to assist and guide the sector. It also considers that the relationship between the franchisor and the franchisee can be developed even further with best practice guidelines in the form of FCA Member Standards.

It is the FCA’s view that a member gains significant market benefit in identifying themselves with FCA membership and as such the business practice and activities of members should work towards franchise best practice.

Member obligations: All FCA members are expected to conduct their franchising activities professionally and in accordance with Australian law. They are expected to comply with agreed minimum standards of conduct. The FCA considers the following standards to be relevant to members: - 140 -

the franchise council of australia

• Members of the FCA shall abide by all relevant State and Federal laws including, in particular, the Franchising Code of Conduct and the Competition and Consumer Act. Within 14 days of a written request by the FCA, a member shall furnish to the FCA a copy of its current disclosure document, franchise agreement and any other documentation or advertising material used in connection with the appointment of a franchise.

• No member shall imitate the trademark, trade name, corporate name, slogan, or other mark of identification of another member of business in any manner or form that would have the tendency or capacity to mislead or deceive.

• Members will become familiar with the content of these Member Standards and draw them to the attention of clients as appropriate from time to time.

• A member, be they a franchisor, vendor, franchisee, franchise broker, or representative of a franchise system should not sell a franchise if at the time the franchisor or vendor franchisee knew or ought to know that a reasonably competent franchisee would be unlikely to be able to successfully operate the franchise.

• Members are expected to behave professionally and refrain from illegal, unethical or improper dealings or otherwise act contrary to the image of franchising or the FCA.

Relating to a franchisor and franchisee: • A franchisor shall, as part of the franchisee recruitment process, make reasonable investigations to assess whether a prospective franchisee appears to possess the basic skills and resources to adequately perform the needs and requirements of the franchise.

• The franchisor shall have training and support processes, as applicable, to the franchise system to help franchisees improve their abilities to conduct their franchises. Franchisees will endeavour to apply and adapt all learning to their operation.

• A franchisor and franchisees should be reasonably accessible and responsive to communications, and provide a mechanism by which ideas may be exchanged and areas of concern discussed for the purpose of improving mutual understanding and reaffirming mutuality of interest.

• Franchisors and franchisees shall endeavour to resolve complaints, grievances and disputes through direct communications and negotiation. Failing this, consideration should be given to mediation or arbitration.

• Franchisors and franchisees should, in their dealings with one another, avoid - 141 -

Business FranchiSe Guide

the following conduct, where such conduct would cause significant detriment to either party’s business: (a) substantial and unreasonable overvaluation of fees and prices; and (b) unnecessary and unreasonable conduct beyond that desirable for the protection of the legitimate business interests of the franchisor, franchisee or franchise system.

Relating to a supplier member: • A member who is a lawyer, accountant, consultant or other supplier or service provider (‘supplier member’) should behave in a manner consistent with these guidelines, respect the integrity of established franchise systems and not seek to inflame any dispute, incite litigation, generate media coverage or otherwise act in any way which is unprofessional or may create a misleading impression of the system.

• Provide a client or prospective client on request with a written resume or profile of any relevant qualifications of the supplier together with true representations of the supplier’s franchising education and experience.

• Respect the confidentiality of all information received concerning a client’s business which is not in the public domain and will not disclose or permit disclosure of any such information without the client’s prior permission in writing.

• Not advise any franchisee or prospective franchisee in relation to any franchise opportunity offered by any franchisor for who the adviser has acted, without full disclosure of relevant circumstances. Disclose to a client or prospective client any personal or financial interests or other material circumstances which may create a conflict of interest in respect of that client and in particular, without derogating from the generality of the foregoing: - any directorship or significant interest in any business which competes with the client - any financial interest in goods or services recommended by the adviser for use by the client - any personal relationship with any individual in the client’s employment

- Not undertake work for which they are not appropriately licensed, qualified and experienced.

The FCA recognises that the franchise sector is constantly changing, sometimes more quickly than the wider business sector. The FCA works consistently to ensure all activities directly benefit the membership, while staying true to the main strategic objectives of the Board of Directors – enhancing the public - 142 -

the franchise council of australia

reputation of franchising in the wider business sector, and ensuring Australia remains the most attractive market for both franchisors and franchisees, in which to franchise in the world.

The Franchise Council of Australia (AUS) 1300 669 030 info@franchise.org.au www.franchise.org.au

- 143 -

Business FranchiSe Guide

- 144 -

Franchise Listings categories: Automotive Products & Services.................................................................................. 146 Beauty Products & Services............................................................................................... 148 Business Services........................................................................................................................... 149 Cleaning and Lawns & Gardens.................................................................................... 150 Clothing Alterations. ................................................................................................................ 151 Courier Services.............................................................................................................................. 152 Education / Entertainment.................................................................................................. 153 Financial Services......................................................................................................................... 154 Food – Coffee & Cafes. ............................................................................................................... 155 Food – Restaurants & Dining............................................................................................. 159 Food – Takeaway.............................................................................................................................. 162 Furniture & Bedding.................................................................................................................... 167 Health & Fitness............................................................................................................................... 168 Health & Safety................................................................................................................................. 169 Real Estate............................................................................................................................................. 170 Retail. ........................................................................................................................................................... 171 Telecommunications.................................................................................................................. 173 Vending....................................................................................................................................................... 174

- 145 -

automotive products & services

battery world PO Box 46, Brisbane Markets QLD 4106 Contact: Delena Farmer | Phone: (AUS) 07 3373 1764 Email: delena.farmer@batteryworld.com.au | Web: www.batteryworld.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: 81 stores Australia-wide and growing!

Current: 73 franchise outlets

Do the quick battery test yourself!. Think of how many things you use each day that rely on a batteries? Now multiple that by the amount of households in Australia or even just in your local area?

FINANCIAL DETAILS: Initial franchise fee: $49,900 Minimum investment: $250,000+

There is still room for more stores to meet the growing battery and portable power needs of everyday people and businesses.

Royalty fee: 7% max Financial assistance: ANZ accreditation Advertising/marketing fee: 3.4 %

COMPANY DETAILS: Date of first franchise: 1997 Membership: Franchise Council of Australia, Australian Retailers Association of Australia; Australian Battery Recyclers of Australia.

Training provided: 4 weeks Induction Course (2 weeks in store+ 2 weeks in classroom).

Territories available: Various areas in Melbourne and Regional Victoria; Sydney and Regional NSW, Brisbane, Gold Coast and Sunshine Coast; Adelaide.

- 146 -

automotive products & services

SNAP-ON TOOLS PO Box 6077, Blacktown NSW 2148 Contact: Les Coppin| Phone: (AUS) 1800 762 766 Email: les.coppin@snapon.com | Web: www.snapontools.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Snap-on Tools are a status symbol with a designer pedigree and a heritage spanning nearly a century. And the Snap-on franchise is as good as its product, with incredible franchisor support, a business model thatâ&#x20AC;&#x2122;s been proven for decades, exclusive territories, extensive training and no messy commercial leases. Snap-on finance available.

Current: 164 Australia

Over 4000 international FINANCIAL DETAILS: Initial franchise fee: $40,000 Minimum investment: From $37,000 Royalty fee: NIL

COMPANY DETAILS:

Financial assistance: Accreditation with major banks + Franchisor Finance

Date of first franchise: 1997 in Australia

Advertising/marketing fee: NIL

Membership: FCA Training provided: 6 days at the Snap-on Training Centre, Dallas, Texas, USA. 2 days at Snap-on National Distribution Centre, Sydney, 3 weeks in territory followed by ongoing support.

Territories available: Various around Australia and New Zealand

- 147 -

Beauty Products & Services

HAIRHOUSE WAREHOUSE Level 1, 605 Doncaster Road, Doncaster VIC 3108 Contact: Peter Fiasco | Phone: 0451 370 060 Email: franchising@hairhousewarehouse.com.au Web: www.hairhousewarehouse/franchising Training provided: Yes, intensive workshop and in store training, as well as ongoing training and support in-store

BUSINESS DESCRIPTION: As Australia’s largest retail hair and beauty salon franchise, and market leader, Hairhouse Warehouse has a brand that consumers have come to rely on for over 20 yearsHairhouse Warehouse is launching the next phase of its expansion, with not only planning 165 stores over the next three years, but a reduction in the entry cost to start your own Hairhouse Warehouse business. This opens the brand to more possible franchisees that have a passion to run their own successful business.

Territories available: NT/Darwin Metropolitan and Regional NSW Metropolitan and Regional SA/Adelaide Metropolian and Regional WA/Perth Metropolitan and Regional Queensland Metropolitan and Regional FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

The brand is enjoying strong sales growth in Australia, and the franchisees are enjoying solid returns. This is given Hairhouse Warehouse the prime opportunity to open up the brand to more franchisees in Australia and share in the success.No hair or beauty certification is required.

2010: 115 2011: 128 2012: 138 Current: 142 FINANCIAL DETAILS: Initial franchise fee: $66,000 plus GST Minimum investment: $350,000 for Greenfield sites

COMPANY DETAILS: Date of first franchise: 1998

Royalty fee: 6% of gross sales plus GST

Membership: FCA, HBIA

Advertising/marketing fee: 3% of gross sales plus GST - 148 -

Business Services

INXPRESS 1/26 Flinders Parade, North Lakes QLD 4509 Contact: Meredith Ham | Phone: 1300 469 773 Email: sales.au@inxpress.com | Web: www.inxpress.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: As one of DHL’s largest shipping partners, InXpress provide heavily discounted shipping to SME’s by leveraging small orders into large volume discounts.

2011: 10 Nationally 2012: 15 Nationally 2013: 18 Nationally

With massive global buying power and an international network we’re passionate about our service and our customers. With an expanding National brand, InXpress Franchisees leverage the savings to build a business with long term residual income and lifestyle

Current: 34 Nationally over 200 Globally FINANCIAL DETAILS: Initial franchise fee: $49,000 + GST Minimum investment: $49,000 +GST Royalty fee: 30% of gross margin

COMPANY DETAILS: Date of first franchise: 2002 Membership: FCA and BFC Training provided: Business development in successful model, with sales training and ongoing support.

Territories available: National opportunities across all capital cities and metropolitan areas - contact us for more details.

- 149 -

Cleaning and Lawns & gardens

V.I.P. Home Services Offices in NSW, VIC, WA, SA and QLD Contact: Graham Brusnahan | Phone: 13 26 13 Email: info@viphomeservices.com | Web: www.viphomeservices.com.au FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Over the last 35 years, V.I.P. has helped over 4,000 people just like you become successful business owners in cleaning and lawns and gardens franchise opportunities by providing:

Current: Over 1000 (AUS) FINANCIAL DETAILS: Initial franchise fee: From $10,000

• Training, coaching and mentoring

Minimum investment: $13,000

• Affordable franchise options

Royalty fee: Flat fee that includes marketing

• National and local marketing • An established client base

Financial assistance: POA

• An initial start-up kit so that you’re ready to go COMPANY DETAILS: Date of first franchise: 1979 Membership: FCA Training provided: 4 weeks initial training and ongoing training throughout the life of the franchise.

Territories available: Australia wide

- 150 -

Clothing Alterations

LOOKSMART ALTERATIONS Level 3, 73-75 Dunmore Street, Wentworthville NSW 2145 Contact: Ray Bryant | Phone: (AUS) 02 9637 8222 Email: contact@looksmartgroup.com | Web: www.looksmartgroup.com

BUSINESS DESCRIPTION:

COMPANY DETAILS:

LookSmart Alterations is The Stylist Tailor in the Australian and New Zealand marketplaces.

You don’t need to be a tailor to own a LookSmart Alterations franchise. A LookSmart franchise can be run under complete management.

Date of first franchise: 2000 Membership: FCA Training provided: 2 to 4 weeks in-store training and ongoing support Territories available: All States in Australia and New Zealand

• 54% of franchisees are non-tailors

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

• 49% of franchisees are multi-site owners • 53% of LookSmart franchises are under complete management

Current: Over 120 stores in major shopping centres across Australia and New Zealand

LookSmart Alterations’ loyal customers include one million consumers per annum, Sass and Bide, SABA, Review, Marcs, Specsavers, David Jones, Myer, ACS, Tarotcash, YD, Virgin Australia, Roger David, Qantas and Jetstar.

FINANCIAL DETAILS: Initial franchise fee: $25,000 - $50,000

- 151 -

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 1,200 Courier Franchisees across Australia, New Zealand, Ireland, Northern Ireland and South Africa.

2011: AUS 600 and NZ 247 2012: AUS 660 and NZ 260 2013: AUS 695 and NZ 265 Current: AUS over 700 Courier Franchisees and NZ over 270 Courier Franchisees

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.

FINANCIAL DETAILS: 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)

COMPANY DETAILS:

Royalty fee: N/A

Date of first franchise: 1984

Financial assistance: N/A

Membership: FCA and FANZ

Advertising/Marketing fee: N/A

Training provided: Ongoing training and support is provided to our franchise partners.

Territories available: Various territories are available throughout Australia and New Zealand.

- 152 -

Education / Entertainment

BEGIN BRIGHT PO Box 117, Pottsville NSW 2489 Contact: Mat Tower | Phone: (AUS) 1300 234 462 Email: franchise@beginbright.com.au | Web: www.beginbright.com.au BUSINESS DESCRIPTION:

FRANCHISE OUTLETS:

Begin Bright is Australiaâ&#x20AC;&#x2122;s fastest growing School Readiness & Primary Tutoring franchise. Our aim is to offer more students the opportunity to learn at Begin Bright through school readiness, primary tutoring and holiday programs to enable stakeholders a successful lifestyle, have fun and to make a positive impact.

2011: 2 2012: 6 2013: 10 Current: 17 FINANCIAL DETAILS:

Date of first franchise: October, 2011

Initial franchise fee: $48,000 plus GST including launch marketing, products & computer

Membership: Franchise Council of Australia

Minimum investment: $70,000 plus GST

Training provided: Initial 4 day training followed by weekly coaching calls for your 12 week launch period, field visits, conferences and phone support.

Advertising/marketing fee: included in your Royalty Fee

COMPANY DETAILS:

Royalty fee: 12%

Territories available: NSW, QLD, VIC

- 153 -

Financial Services

The Interface Financial Group â&#x20AC;&#x201C; IFG 50/50 180 Renfrew Drive, Suite 245, Markham, Ontario, L3R 9Z2 Canada Contact: David T. Banfield | Phone: (AUS) 1300 940 908 Email: ifgau@interfacefinancial.com | Web: www.interfacefinancial.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

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

Current: Australia 5

New Zealand 13

Canada 12

U.S.A. 148

UK & Ireland 17

Singapore 3

COMPANY DETAILS: Date of first franchise: 1990 (Canada) Training provided: Extensive initial training (5 days) covers both theoretical and practical aspects of the business.

Ongoing regular training and coaching is also provided.

FINANCIAL DETAILS: Initial fee: $24,500 Minimum investment: Franchise fee+ working capital of $30,000+ Financial assistance: IFG 50/50 offers a Capital Leverage Programme for franchisees.

Territories available: Single units are available in all territories.

Advertising/marketing fee: N/A

- 154 -

Food - Coffee & Cafes

CAFE2U PO Box 290, Frenchs Forest NSW 1640 Contact: John Stanton | Phone: ((AUS) 1300 Cafe2U (1300 223 328) (NZ) 0508 004 388 Email: franchises@cafe2u.com | Web: www.cafe2u.com FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: Australia: 164 NZ: 12 UK: 70 USA: 4

BUSINESS DESCRIPTION: Australian owned and founded Cafe2U is the world’s largest mobile cafe franchise, with over 200 franchises worldwide. Cafe2U provides opportunity for entrepreneurs who serve award winning great espresso coffee and food to customers in non-traditional locations.

Cafe2U is Australia’s fastest growing coffee franchise (Fast Franchises 2011, 2012) and was named by Smart Investor Magazine as one of Australia’s best value franchises in December 2009.

FINANCIAL DETAILS:

COMPANY DETAILS:

Royalty fee: Zero

Date of first franchise: 2005 (Licenses from 2000)

Financial assistance: Cafe2U has a suite of financial partners to select from

Membership: FCA, FANZ, BFA, IFA, HACCP Certified

Advertising/marketing fee: (AUS) $26.71 + GST per week (NZ) $25.00 + GST per week

Initial franchise fee: Included in purchase price Minimum investment: (AUS) From $129,600 + GST (NZ) From $125,000 + GST

Training provided: Cafe2U’s unique Acceleration Package includes a 4 week training programme, a personal Franchise Coach and an income guarantee. This has proven success in fast tracking all new franchises.

Territories available: Australia and NZ

- 155 -

Food - Coffee & Cafes

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

and retail experience. The store design and layout is appealing to a broad range of consumers. Our coffee blend is specially roasted for us by our Italian barista and is rated as one of the best in Australia.

COMPANY DETAILS:

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.

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

All this enhances the commercial viability and strength of the business model. The brand has 4 concepts - Lounges, Lounge Bars, Pavilions, Pavilion Bars.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

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.

Current: 25 Across Australia, New Zealand and International

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

A professional team backs the franchise at Theobroma with extensive franchising, marketing

Marketing fee: 3%

- 156 -

Food - Coffee & Cafes

XPRESSO MOBILE CAFÉ PO Box 57, Carina QLD 4152 Contact: Jonathan Payne | Phone: (AUS) 1300 655 559 Email: jonathan@xpresso.com.au | Web: www.xpresso.com.au BUSINESS DESCRIPTION:

COMPANY DETAILS:

Xpresso Mobile Cafes – powered by Di Bella Coffee, operate in areas nationally where there are little to no fixed location café options for the workforce in commercial and light industrial precincts.

Date of first franchise: 2013 Membership: FCA Training provided: Yes and comprehensive Territories available: QLD, NSW, VIC, SA, WA & TAS

We supply premium Di Bella Coffee products – both hot and cold. Customers enjoy our frappes, energy drinks, bottles of water and food options such as gourmet cookies that are designed to complement the ultimate coffee experience.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 10

An Xpresso Mobile Café is also able to ‘custom grind’ beans selected from a dedicated bean display cabinet and then weigh, heat seal and retail to the customer on the spot. We also stock Di Bella Coffee specialty capsules that fit the ‘Nespresso’ pod machine.

FINANCIAL DETAILS: Initial franchise fee: Included in purchase price Minimum investment: $115,000 + GST Royalty fee: 0% Financial assistance: Westpac, ANZ, commercial/equipment nationally accredited finance broker

Both of these services are unique to Australia. We’re setting the benchmark for coffee vans. Will you join us?

Advertising/marketing fee: Administration Fee of $150 + GST per week from month 6 - 157 -

FOOD â&#x20AC;&#x201C; COFFEE & CAFĂ&#x2030;S

Food - Coffee & Cafes

ZARRAFFAâ&#x20AC;&#x2122;S COFFEE

/54 Siganto Drive xenford QLD 4210

elephone: ax: NBJM 8FCTJUF ontact: osition:

07 5500 0800 07 5500 0900 BENJO![BSSBGGBT DPN XXX [BSSBGGBT DPN Christine Allsopp Franchise Manager

ZARRAFFAâ&#x20AC;&#x2122;S COFFEE

1/54 Siganto Drive, Helensvale QLD 4210 OUTLETS AUSTRALIA/ USINESS DESCRIPTION: Contact:FRANCHISE Christie Barritt| Phone: (AUS) 07 5500 0800 INTERNATIONAL anked 20th in BRW Fast Franchises in Email: franchise@zarraffas.com | Web: www.zarraffas.com

009, Zarraffaâ&#x20AC;&#x2122;s Coffee is an award winning 2006: 3 pecialty retail coffee outlet. It has been roviding premium coffee products and BUSINESS DESCRIPTION:2007: 3 eshly roasted coffee beans since its 2008: 7 Zarraffaâ&#x20AC;&#x2122;s Coffee is an Australian-owned stablishment on the Gold Coast in 1997.

COMPANY DETAILS:

Date of first franchise: 2001 and operated retail coffee franchise chain, Membership: ecently awarded Gold Coast Business of Current: 35 stores as at 18/05/2009 with FCA with head based on the he Year in 2007 and 2008 andoffice winneroperations of 5 stores due to open by 31/12/2009 Training provided: Yes Gold Coast, 1997. The successful arious Equal Golden Bean Coffeesince Roaster wards. growth of the company stemsFINANCIAL from a DETAILS: Territories available: dedication a consistently high offee: $50KQLD, NSW, WA he business is founded on the to mantra Initialstandard franchise o create â&#x20AC;&#x2DC;An individually perfect of product andcup service, in addition to business offee - every timeâ&#x20AC;&#x2122;innovations which encapsulates such as drive thruMinimum stores. investment: $300K FRANCHISE OUTLETS AUSTRALIA/ he Companyâ&#x20AC;&#x2122;s mission and our customersâ&#x20AC;&#x2122; INTERNATIONAL: Financial assistance: Westpac & NAB The award-winning franchise group xpectation. Great service is our practice operates over 65 stores throughout Current: 68 stores as at 13/06/2014 nd fresh, quality coffee is our business.

Advertising/Marketing Fee: 3% Queensland, New South Wales and now OMPANY DETAILS also in Western Australia. Zarraffaâ&#x20AC;&#x2122;s Coffee FINANCIAL DETAILS: healthy2001 expansion is attributable to a strong ate of ďŹ rst franchise: Initial franchise fee: commitment to their mission statement of Membership: FCA From $50,000 plus GST producing â&#x20AC;&#x2DC;an individually perfect cup of Minimum investment: coffeeâ&#x20AC;Śevery timeâ&#x20AC;&#x2122;. This mantra is the raining provided: Yes From $700,000 plus GST foundation of all facets of the business erritories Available: QLD from frontline customer service to ongoing Financial assistance: franchise training; ensuring delivery on this Westpac, 175 NAB, ANZ promise to the loyal customer base.  Advertising/marketing fee: 3% With available franchise sites in areas such as Queensland, New South Wales and Western Australia, the brand is on track to continue successful expansion, providing a proven business opportunity for potential franchisees.

- 158 -

Food - Restaurants & Dining

FASTA PASTA PTY LTD Level 1, 137 The Parade (ENT Via Edward Street), Norwood SA 5067 Phone: (AUS) 08 8304 8600 Email: franchise@fastapasta.com.au | Web: www.fastapasta.com.au

BUSINESS DESCRIPTION:

COMPANY DETAILS:

With our authentic Italian background and 30+ years success story, Fasta Pasta is now Australia’s largest, independently owned group of ‘fresh pasta’ Italian restaurants.

Date of first franchise: 1990 Training provided: 12 weeks training in one of our company stores which will cover areas such as, front of house, kitchen (all areas), necessary bookwork, Point of Sale, Management Skills.

An innovative ever-changing menu, with more healthy options and commitment to outstanding service, have all contributed to Fasta Pasta being voted Roy Morgan’s ‘Quick Service Restaurant of the Year’ in 2012.

Territories available: Nationally FRANCHISE OUTLETS AUSTRALIA: Current: 37

A Fasta Pasta franchise is a great opportunity to be part of our winning national franchise team of people who are pasionate about fresh food and delivering outstanding customer service.

FINANCIAL DETAILS: Initial franchise fee: $ 50,000 + GST Minimum investment range: $650,000 - $950,000 Royalty fee: 6% of net sales Marketing fee: 3% of net sales

- 159 -

Food - Restaurants & Dining

HOG’S BREATH CAFE Level 1, 152 Shore Street, Cleveland QLD 416 Contact: Peter Josefski | Phone: 1800 HOGSTER (AUS) or 0800 HOGSTER (NZ) Email: peterjosefski@hogsbreath.com.au Web: www.hogsbreath.com.au or www.hogsbreath.co.nz Territories available: Nationally and throughout New Zealand

BUSINESS DESCRIPTION: Hoggies set out to be unlike any other restaurant. In a nutshell, it is about providing quality food and beverages in a casual environment with an over-riding friendly, party atmosphere. The diverse menu is centred around our famous Prime Rib, an unbelievably tender steak that melts in your mouth.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 85 FINANCIAL DETAILS: Initial franchise fee: $50,000 AUD (excluding GST)* *Dependent on site selection

COMPANY DETAILS: Date of first franchise: Established in 1989 and opened its’ first franchise store in 1990

Minimum investment: $750,000 - $950,000 AUD Royalty fee: 5% of Net Sales*

Training provided: The eight-week Franchisee Training Program at Hog’s University covers: Management procedures, Front of House procedures, Back of House procedures, Account management, Introduction to the Support Office Team and Theoretical and practical instruction. We also provide comprehensive Operations, Kitchen and Staff Training manuals. Additional 3 week instore training for new store opening

Financial assistance: Accredited with a number of banking institutions Advertising/marketing fee: 2% of Net Sales* *Net Sales is Gross Sales less promotions, discounts and merchandise sales

- 160 -

Food - Restaurants & Dining

Zambrero Level 24, 1 Alfred Street Sydney NSW 2000 Contact: Talia Waelsch | Phone: (AUS) 1300 ZAMBRERO or +61 479 180 528 Email: franchise@zambrero.com | Web: www.zambrero.com BUSINESS DESCRIPTION:

COMPANY DETAILS:

Zambrero is a Quick Service Restaurant franchise that sells healthy Mexican food to support humanitarian projects in Africa, Asia and the Americas. Since being formed in 2005

by Dr Sam Prince, millions of meals have been provided to those living in poverty around the world through the Plate 4 Plate initiative.

Date of first franchise: 2007 Membership: Franchise Council of Australia Training provided: extensive 12-week training plan consisting of a Support Office induction, in-restaurant training, business assistance and ongoing training Territories available: Australia-wide and international

Plate 4 Plate is Zambreroâ&#x20AC;&#x2122;s way of providing food to those in need. For every burrito or bowl purchased at Zambrero, a meal is donated through distribution partner Stop Hunger Now, which distributes food to those in the developing world.

Franchise Outlets Australia/ International Current: 51 Australia, 1 International, as of July 2014.

The menu is bold, modern Mexican, with burritos, tacos, nachos and quesadillas made with fresh ingredients and fresh ideas.

Financial details:

Founder, Dr Sam Prince, is an entrepreneur, medical doctor, and philanthropist. He established Zambrero in Canberra at the age of 21 while studying medicine and by 2010 the company was recognised as the fastest growing franchise in Australia by Business Review Weekly (BRW) Magazine.

Franchise fee: $25,000 - $30,000 Minimum investment: $250,000 Royalty fee: 6% Marketing fee: 3%

MISSION: To empower a social movement dedicated to the provision of food to those in need, through customer engagement and corporate responsibility.

- 161 -

Food - Takeaway

DOMINOS PIZZA ENTERPRISES LTD Level 5, ‘KSD1’ 485 Kingsford Smith Drive, Hamilton QLD 4007

Contact: Ashleigh Williams | Phone: (AUS) 07 3633 3393 Email: franchise.recruitment@dominos.com.au | Web: www.dominosfranchise.com.au FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 588

BUSINESS DESCRIPTION: Established in 1983, Domino’s Pizza Enterprises Limited (“Domino’s”) is the largest quick service pizza franchise in Australia.

FINANCIAL DETAILS:

Domino’s strong growth plan across Australia and New Zealand means it is always on the lookout for passionate and motivated people to become franchisees.

Our whole focus is to help franchisees sell more pizza, make more money and, most importantly, have more fun.

Initial franchise fee: $60,000.00 + GST Minimum investment: 40% of cost Royalty fee: 7% Financial assistance: Accreditation with all major banks.

Advertising/marketing fee: Maximum 6%

COMPANY DETAILS: Date of first franchise: 1983 Training provided: 6 weeks Territories available in: VIC, QLD, NSW, SA & WA

- 162 -

Food - Takeaway

PASTAGOGO 393 Glynburn Road, Kensington Park SA 5068 Contact: Leo Pugliese | Phone: 0402 211 599 Email: info@pastagogo.com.au | Web: www.pastagogo.com.au FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Our aim at pastagogo is to establish ourselves as the number 1 pasta take away outlet throughout Australia, providing authentic great tasting pasta to an expanding market.

2012: 2 2013: 2 Current: 2

Visit pastagogo, choose your pasta, pick your sauce and in no time youâ&#x20AC;&#x2122;ll be enjoying the best tasting pasta, made to order, ready to eat in minutes.

Financial Details.

Initial franchise fee: $25,000 Minimum investment: $180,000 - 225,000 Royalty fee: 6%

COMPANY DETAILS:

Advertising/marketing fee: 4%

Date of first franchise: November 2012 Training provided: 4-6 weeks in an existing pastagogo store and a further 2 weeks at your newly acquired store.

Territories available: Nationally

- 163 -

Food - Takeaway

RED ROCK NOODLE BAR PO Box 1463, Capalaba QLD 4179 Contact: Phil Colburn | Phone: (AUS) 1300 473 376 Email: admin@redrocknoodlebar.com.au | Web: www.redrocknoodlebar.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Red Rock Noodle Bar is one of the healthiest food franchises in Australia in this popular, growing fast food industry.

Current: 12

We deliver this by offering an exciting and delicious range of Asian 97% Fat Free tastes that appeal to everyone who wants to eat and stay healthy.

FINANCIAL DETAILS: Initial franchise fee: $25,000 Minimum investment: $180,000 - $220,000 Royalty fee: 8%

COMPANY DETAILS:

Advertising/marketing fee: 4%

Date of first franchise: 2006 Membership: FCA Training provided: 4-6 weeks Sites available: QLD cities including Gold Coast/Sunshine Coast, Townsville, Mackay plus other states when available

- 164 -

Food - Takeaway

RED ROOSTER Level 1, Unit 17, 202 Ferntree Gully Road, Notting Hill VIC 3168 Contact: Gary Glen | Phone: (AUS) 03 9582 8716 Email: gary.glen@red-rooster.com.au | Web: www.redrooster.com.au FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: ‘Be in business for yourself…but not by yourself’ with one of Australia’s most recognised brand identities.

Red Rooster offers ‘rippa’ business opportunities for the right candidates.

2011: 275 2012: 295 2013: 296 Current: 309

COMPANY DETAILS:

FINANCIAL DETAILS:

Date of first franchise: 1986

Initial franchise fee: $50,000

Membership: FCA

Minimum investment: $700,000

Training provided: Full structured training program

Royalty fee: 5%

Territories available: VIC, NSW, QLD, WA

Advertising/marketing fee: Up to 6%

Financial assistance: Bank accreditation

- 165 -

Food - Takeaway

sumosalad Level 1, 1 Short Street, Leichhardt NSW 2040 Contact: Steven Shirley | Phone: (AUS) +61 9569 7866 Email: franchisee@sumosalad.com | Web: www.sumosalad.com Training provided: We provide an extensive 4 weeks training program which includes two weeks in an existing SumoSalad store and a further two weeks at your newly acquired store.

BUSINESS DESCRIPTION: SumoSalad has enjoyed phenomenal success and growth since its inception in 2003 and has built a strong, trusted and recognised brand in the food retail industry with loyal customers following the brandâ&#x20AC;&#x2122;s continual expansion into key sites throughout Australia and abroad.

Due to increased visibility, awareness and convenience, our brand has grown in strength and more importantly popularity.

As a franchisee, you get the benefit of being in business for yourself but not by yourself! You have the opportunity to use your entrepreneurial skills and to be your own boss, whilst taking advantage of established business processes and procedures.

Territories available: Stores available in Sydney, Regional NSW, ACT, Melbourne, Brisbane, Regional QLD, Adelaide and Perth.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: over 100 across Australia, New Zealand, Singapore, Dubai and UK

FINANCIAL DETAILS: Initial franchise fee: $45,000 plus GST

COMPANY DETAILS:

Minimum investment: $295,000 plus GST

Date of first franchise: February 2004

Royalty fee: 6%

Membership: Franchise Council of Australia (FCA)

Financial assistance: Accreditation available through major Banks Advertising/marketing fee: 3%

- 166 -

Furniture & Bedding

snooze 21A Shierlaw Ave,Canterbury VIC 3126 Contact: Alistair Browne | Phone: (AUS) 03 9830 4166 Email: alistairb@snooze.com.au | Web: www.snooze.com.au

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: As one of Australia’s longest-running, most successful and innovative franchised business, Snooze’s experience in the bedding industry is second to none.

2011: 74 2012: 75 2013: 75 Current: 76

Boasting more than 70 stores across Australia, Snooze is looking for ambitious and passionate people to join the business’ exciting future.

FINANCIAL DETAILS:

Initial franchise fee: $50,000.00 plus GST

COMPANY DETAILS:

Minimum investment: $450,000

Date of first franchise: June 1977

Royalty fee: 3.5% Franchise Fee

Membership: FCA members

Financial assistance:

Training provided:

• Vendor finance options

• Sales and product training

• NAB & ANZ accreditation

• Business management support

Advertising/Marketing fee: 5% + 1%

• A national marketing program

- 167 -

Health & Fitness

PLUS FITNESS 24/7 Head Office â&#x20AC;&#x201C; 16/1 Exchange Parade, Narellan NSW 2567 Contact: Nigel Miller | Phone: (AUS) 02 8572 8222 Email: info@plusfitness.com.au | Web: www.plusfitness.com.au will support you through your initial eight weeks of trading and ongoing.

BUSINESS DESCRIPTION: Exercise your freedom with the only true Turn Key 24 hour Gym Franchise in Australia. Capitalising on strong supplier relationships developed over 18 years in the Australian Fitness Industry, Plus Fitness 24/7 provides the most comprehensive, supportive and competitively priced 24 Hour Gym Franchise.

Territories available: Various territories across Australia and New Zealand FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

2011: 24 2012: 54 2013: 125 Current: 160 Across Australia

Fast breakeven, impressive ROI, low staffing and unrivalled franchisee support is just the beginning!

FINANCIAL DETAILS:

COMPANY DETAILS:

Initial franchise fee: $45,000

Date of first franchise: 2009

Minimum investment: $249,000 Total investment includes all Gym Equipment*

Membership: FCA, Fitness Australia, IHRSA

Royalty fee: $895 per month

Training provided: Marketing, enquiry handling, membership sales, administration, gym operations, systems & database management, Access control & CCTV systems and fitness programming.

Initial training conducted at a Live Site prior to opening. A Plus Fitness Buddy

Financial assistance: Information on application Advertising/marketing fee: $1 per Active Member per quarter * Based on 250sqm facility

- 168 -

Health & Safety

The Drug Detection Agency (TDDA) PO Box 300 647, Albany, Auckland NZ Contact: Glenn Dobson | Phone: (AUS) 1300 4DETECTION (NZ) 0508 DRUGTEST Email: Glenn.dobson@tdda.com | Web: www.tdda.com FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: The Drug Detection Agency (TDDA) specialises in drug detection, education and prevention programs in the workplace. We help keep workplaces and the community safe from drugs. Contact us to join a proven business model with exclusive territories and world-class training to make a positive difference in your community.

Current: 29 throughout Australia and New Zealand FINANCIAL DETAILS: Initial franchise fee: Circa $150,000 Minimum investment: Plus van lease and working capital Royalty fee: 7%

COMPANY DETAILS:

Financial assistance: Terms available to approved candidates

Date of first franchise: December 2006 Membership: FCA (pending)

Marketing fee: 3%

Training provided: Comprehensive 100 day induction training provided including; 4 week residential course in Auckland NZ; AQTF qualification; public speaking; strategic business planning; sales processes; accounting processes; marketing and full operational competency including one on one operational coaching.

Territories available: Various territories throughout Australia

- 169 -

real estate

Buy Australian Properties Corporation Pty Ltd Franchise Support Office, 2/492 Christine Ave, Robina, Qld 4230 Email: franchise@buyaustralianproperties.com.au Web: www.buyaustralianproperties.com.au BUSINESS DESCRIPTION:

COMPANY DETAILS:

Buy Australian Properties is the first professional franchised property investment company in Australia.

Date of first franchise: 2014 Membership: FCA Training provided: Induction period of 5 days theory and 3 days infield, ongoing infield training as required, national training and education summits (four per year for 2-3 day period)

We are leading the industry with safe, ethical and proven ways of investing in residential property with integrity.

We supply quality approved direct property investments in brand new full turn key house and land packages, apartments, townhouses, units and row houses Australia wide.

Territories available: National.

Franchisees have the opportunity to operate a very unique, first of its kind property investment business in Australia.

FRANCHISE OUTLETS:

Are you a fit and are you ready to experience the BAP difference?

FINANCIAL DETAILS:

Current: Launched 2014 - newly offered franchise Initial franchise fee: 100,000 Minimum investment: 110,000 Royalty fee: 30% Flat Fee Advertising/marketing fee: Nil

- 170 -

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:

FRANCHISE OUTLETS AUSTRALIA:

7-Eleven is a global success story with more than 53,500 stores world wide.

Current: 600+

7-Eleven Australia is growing rapidly and you can be a part of the growth opportunities by becoming a 7-Eleven Franchisee.

FINANCIAL DETAILS: Initial franchise fee: Site specific Minimum investment: $400,000 - $1,000,000

As a 7-Eleven Franchisee you will benefit from our position as market leader in convenience retailing. You will be backed by our comprehensive support system. Our system gives you a complete turn-key set up including state of the art POS systems, product innovation and promotion as well as operational support.

Royalty fee: Gross profit split Advertising/marketing fee: N/A

COMPANY DETAILS: 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.

Territories available: VIC, NSW, QLD, ACT, WA - 171 -

Retail

BRIGHT EYES franchising PTY LTD “The Dock - Retailer House” Level 1, Unit 3 321 Kelvin Grove Road, Kelvin Grove QLD 4059 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: 48

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%

- 172 -

Telecommunications

ALLPHONES Level 7, 3 Rider Boulevard, Rhodes, NSW 2138 Contact: Samantha Dias | Phone: 13 8000 Web: www.allphones.com.au/who-we-are/allphones-franchise/ based sales resource to ensure best practice sales and marketing execution within your store/kiosk. In addition you will be supported by a dedicated Vodafone state based rep and you will have contact with all handset manufacturers who are featured in our range.

BUSINESS DESCRIPTION: Be the master of your own destiny in an industry that is ever evolving and shaping the way we live our daily lives. If you have the ability to connect with people and want to be your own boss, Allphones has some amazing franchise opportunities to become part of the mobile revolution and we want to hear from you!

Territories available: Nationally

Allphones is the largest independent telco retailer in Australia with over 90 points of presence. In 2014 and 2015 we will be expanding our footprint by an additional 40 sites meaning itâ&#x20AC;&#x2122;s a fantastic time to join our business.

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL: Current: 70 FINANCIAL DETAILS: Initial franchise fee: $30,000 - $50,000 (Ex GST)

COMPANY DETAILS:

Minimum investment: $70,000 (including franchise fee and working capital required)

Date of first franchise: 1999 Membership: FCA Training provided: Initial 4 weeks business partner onboarding programme.

Monthly state meetings cover all of the new updated product/plan and handset information across all product categories and you will be supported by a State - 173 -

Vending

Video Ezy Express & Blockbuster PO Box 3531, Rhodes, NSW 2138 Contact: Customer Care | Phone: (02) 8833 2111 Email: franchise.enquiries@fegroup.com.au | Web: www.fegroup.com.au/Franchising/

FRANCHISE OUTLETS AUSTRALIA/ INTERNATIONAL:

BUSINESS DESCRIPTION: Video Ezy Express & Blockbuster offer consumers the ease and convenience of renting movies from self serve Kiosk Vending machines located throughout Australia.

2012: 271 2013: 550 Current: 580

The rental Kiosk Vending machines are located in small to large shopping centres, supermarkets, local convenience stores, petrol stations and open air 24/7 locations.

FINANCIAL DETAILS: Initial franchise fee: Starting from $2,500 per kiosk Minimum investment: $70,000 Royalty fee: 12%

COMPANY DETAILS:

Financial assistance: Hardware lease options available

Date of first franchise: May 2012 Training provided: Yes

Advertising/Marketing fee: 3%

Territories available: Australia Wide

- 174 -

Professional Services categories: Accountants. ...................................................................................................................................... 176 Financial Institutions. ............................................................................................................. 177 Insurance Brokers....................................................................................................................... 179 Lawyers..................................................................................................................................................... 180 Point of Sale........................................................................................................................................ 184 Support Services / Consultant....................................................................................... 185 Training..................................................................................................................................................... 186

- 175 -

accountants

babo group pty ltd Level 1, 12 Cramer Street, Preston VIC 3072 Contact: Michael Hymer FCPA (Taxation) | Phone: (AUS) 03 9471 0092 Email: michael@babo.com.au | Web: www.babo.com.au BUSINESS DESCRIPTION: Babo Group provides a complete accounting and business structuring service to aspiring business entrepreneurs and to those entering into franchising.

Our in-house services and dedicated partner to your specific requirements will make sure that you are ready for business.

Our service is independent and objective making sure your expectations can be achieved.

Going into business is not always straight forward and entering into a franchise can be even more complex. We believe there may be a minimum of 92 points you need to consider when considering buying a franchise.

With our assistance and guidance we will make the experience as smooth and friendly as possible.

Babo Group is a proud member of the Franchise Council of Australia.

A Quick Test â&#x20AC;&#x201C; ask yourself!

1. Why am I considering this particular business?

2. What are the short and long term rewards I hope to achieve?

3. How can I improve this business?

4. What personal sacrifices does my family have to make for this business?

5. What are my financial and personal risks?

6. Can I realistically achieve the expected business targets?

7. What will prohibit me from selling this business to at least recover my costs?

8. Do I agree with the operational and ethical aspects of this franchise?

9. Will I be happy, wealthy and healthy?

10. Is your advice objective and independent?

Please call us to assist you with the proposal.

- 176 -

Financial Institutions

Cashflow It Po Box 867, Samford Qld 4520 Contact: James Scurr | Phone: 1300 659 676 Email: customerservice@cashflowit.com.au | Web: www.cashflowit.com.au BUSINESS DESCRIPTION: Cashflow It specialises in equipment financing solutions for the franchise sector. Itâ&#x20AC;&#x2122;s the smart way to finance the equipment you need in your business.

Cashflow It can get you pre-approved for finance so that you can find the best deal on the equipment you need from any supplier in Australia. You simply agree to a minimum 12 month term and we buy the equipment you need for your business. At the end of this term you have the option to Continue Renting, Purchase Equipment, Rent To Own or Return Equipment.

Apply online today in less than 10 minutes.

In Business Since: 2014

- 177 -

Financial Institutions

silver chef ltd PO Box 1760, Milton BC QLD 4064 Contact: Silver Chef | Phone: (AUS) 1800 337 153 Email: enquiries@silverchef.com.au| Web: www.silverchef.com.au BUSINESS DESCRIPTION: Silver Chef is the only specialist hospitality funder in Australia. We have provided flexible equipment funding solutions to customers for close to 30 years.

Unique to the marketplace, the Rent-Try-Buy® Solution is perfect for franchises who want to keep their options open and save their hard earned working capital rather than spending it on depreciating assets.

With the Rent-Try-Buy® Solution, you aren’t locked into a long-term contract. Instead, Silver Chef offers a simple 12 month term, so you have the flexibility to: • Buy equipment at any time during the first 12 months and receive a 75% rental rebate.

• Return equipment at the end of the 12 month agreement if you don’t need it anymore.

• Keep renting and we’ll continue to reduce the purchase price.

• Upgrade if you decide your franchise has outgrown the original equipment.

If you belong to a Silver Chef Accredited Franchise, you are already pre-approved for finance and you can access other great benefits.

Speak to your franchisor today or call Silver Chef on 1800 337 153 for further information.

In Business Since: 1986

- 178 -

Insurance Brokers

NATIONAL FRANCHISE INSURANCE BROKERS (NFIB) PO Box 495, Leederville WA 6903 Contact: Brad Dixon | 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.

Our service is fully automated, compliant and provides you with full documentation.

Put simply, our service is the fastest, most affordable way to get the most appropriate level of cover you need to protect your business.

In Business Since: Established in 2010

- 179 -

Lawyers

IVAN POOLE L A W Y E R S IVAN POOLE LAWYERS Level 6, 64 Marine Parade, Southport QLD 4215 Contact: Peter Thelwell - Associate, Ivan Poole - Principal, Sam Rees - Solicitor Phone: (AUS) 1300 ZAMBRERO or +61 479 180 528 Email: pt@ivanpoolelawyers.com.au | Web: www.ivanpoolelawyers.com.au BUSINESS DESCRIPTION: Ivan Poole Lawyers specialises in Franchising, Mediation and Intellectual Property, servicing clients around the Gold Coast, Queensland and Australia.

We act for Franchisor and Franchisee clients when buying, selling and throughout disputes to maximise their success.

We develop long-term partnerships with clients and take pride in contributing to their success.

In Business for: 25 years

- 180 -

Lawyers

MADGWICKS LAWYERS Level 33, 140 William Street, Melbourne, VIC 3000 Contact: Ed Browne | Phone: (AUS) 03 9242 4744 Email: franchising@madgwicks.com.au| Web: www.madgwicks.com.au BUSINESS DESCRIPTION: Madgwicks is a full service business law firm. Our team of experienced lawyers provide the full range of legal services to franchisors, franchisees and franchise industry service providers. Our strong connections with non-legal franchising specialists and links with franchising lawyers at Meritas member firms across Australia and globally, allow us to help clients locally and across the world.

In Business Since: 1973

- 181 -

lawyers

MST Lawyers 315 Ferntree Gully Road, Mount Waverley VIC 3149 Contact: Raynia Theodore | Phone: (AUS) (+61) 03 8540 0200 Email: raynia.theodore@mst.com.au | Web: www.mst.com.au BUSINESS DESCRIPTION: MST Lawyers is widely recognised as one of Australiaâ&#x20AC;&#x2122;s leading franchising law firms advising participants in the franchising sector, Australia wide, on all aspects of franchising.

We assist both emerging and established franchisors with their franchise strategy and structures, including drafting franchise documentation and managing franchise transactions. We act for franchisors in acquiring, selling or restructuring franchise networks, including providing strategic planning and asset protection advice. We also advise franchisors on Franchising Code compliance, consumer law compliance, leasing, employment law, intellectual property and dispute resolution.

We also assist many overseas franchisors in entering the Australian market, including reviewing, adapting and drafting necessary franchise documents and advising in relation to Australian legal compliance.

MST Lawyers also act for franchisees providing advice in respect of sales and purchases of franchise businesses, advising on franchise documents and leases and providing advice and services on the full range of commercial and other legal matters relevant to small business owners.

Our international affiliations allow us to stay in touch with global franchising trends and assist our clients with their international expansion strategies.

Our dedicated Franchise Team prides itself on delivering great service and sensible solutions to our clients every day.

In Business since: 1959

- 182 -

lawyers

wisewould mahony lawyers Level 8, 419 Collins Street, Melbourne VIC 3000 Contact: Robert Toth | Phone: (AUS) 03 9629 8333 Email: robert.toth@wisemah.com.au| Web: www.wisewouldmahony.com.au BUSINESS DESCRIPTION: Wisewould Mahony Lawyers acts for local and international clients and companies and can assist international companies to establish their business operations in Australia, establish franchise operations via master franchise and area development arrangements, licensing and distribution agreements, as well as regulatory compliance, corporate and taxation advice.

The firm has specialist advisors in the areas of franchising, licensing, employment law, litigation and dispute resolution and provides clients fees based on the scope of services and in many cases can provide fixed fees for clients.

In Business Since: Wisewould Mahony is the result of the successful amalgamation of Wisewoulds and Mahonys on 1 July 2009. Wisewoulds has been in business since 1853, and Mahonys since 1885.

- 183 -

Point of Sale

redcat pty ltd Level 2, 70 Park Street, South Melbourne VIC 3205 Contact: Spiro Vournazos | Phone: (AUS) 1300 4 REDCAT Email: info@redcat.com.au | Web: www.redcat.com.au BUSINESS DESCRIPTION: RedCat supplies integrated Point of Sale and Accounting solutions that manage sales, staff, stock, payroll, accounts, GST and reporting solutions to provide the complete business management system for the needs of franchised groups. We have a flexible centralised management capability that permits multiple levels of control and reporting capabilities and web based consolidated reporting tools. We also offer an iPhone or Smartphone capable global loyalty and gift card and payment system which is also fully integrated into the point of sale and can provide a very effective part of your marketing strategy.

From small single terminal sites through to large multi-location and franchise operations, RedCat adds value to a clientâ&#x20AC;&#x2122;s business through greater financial control and significant cost reductions.

With a significant Research and Development operation in Australia, their commitment to ongoing product development enables RedCat to maintain its position at the forefront of Franchise Solutions in Australia and International markets.

OUR CLIENTS RedCat serves some of the best hospitality venues in the country and over recent years has become a supplier of products and services in the leisure industry, clubs and an ever-expanding range of franchise and retail operations.

In Business Since: Started in 1991, focusing on the franchising sector since 1998.

- 184 -

automotive products & services Support Services/Consultant

franchise selection 1225/401 Docklands Drive, Docklands VIC 3008 Contact: Kevin Bugeja | Phone: (AUS) 1300 FRANCHISE (372 624) Email: kevin@franchiseselection.com.au | Web: www.franchiseselection.com.au BUSINESS DESCRIPTION: We assist potential franchisees through the interview and selection process. Our approach is not to sell franchises but to educate and assist buyers in finding the right business opportunity for them and to assist franchisors in selecting the very best franchisees.

We also offer training to franchisors that wish to improve their recruitment internally by using best practice standards and systems that are used in recruiting franchisees.

Franchise Selection also specialises in training Franchisors to increase the success of their own recruitment. We specialise in creating personalised CRM systems for Franchisors to increase the success of their franchise recruitment process. Franchise Selection also assist in lead generation strategies.

In Business Since: 2006

- 185 -

Training

traxion training Suite 1, Commerce Centre, 146 Bundall Road, Bundall QLD 4217 Contact: Kate Baring | Phone: (AUS) 1300 286 694 Email: service@traxiontraining.com.au | Web: www.traxiontraining.com.au BUSINESS DESCRIPTION: Setting up a training academy to meet the learning and development needs of your Franchisees or head office team may be easier and more cost effective than you think! Traxion Training is an FCA member and specialist Registered Training Organisation passionate about linking Franchise groups with government funding programs to enhance your workforce development programs. We offer a no-obligation service to review your organisationâ&#x20AC;&#x2122;s skill requirements and provide a complimentary report outlining how best to structure your training programs to tap into nationally accredited qualifications and government funding opportunities. To arrange this service, call Kate Baring on 1300 286 694 In Business Since: Business consulting since 1998 | RTO since 2010

- 186 -

Publications BUSINESS FRANCHISE AUSTRALIA AND NEW ZEALAND PO Box 968 Mt Eliza VIC 3930 Phone: (AUS) 03 9787 8077 Fax: (AUS) 03 9787 8499 Email: cgb@cgbpublishing.com.au Website: www.businessfranchiseaustralia.com.au

BUSINESS FRANCHISOR PO Box 968 Mt Eliza VIC 3930 Phone: (AUS) 03 9787 8077 Fax: (AUS) 03 9787 8499 Email: cgb@cgbpublishing.com.au Website: www.businessfranchiseaustralia.com.au

AUSTRALIA & NEW ZEALAND BUSINESS FRANCHISE DIRECTORY PO Box 968 Mt Eliza VIC 3930 Phone: (AUS) 03 9787 8077 Fax: (AUS) 03 9787 8499 Email: cgb@cgbpublishing.com.au Website: www.businessfranchiseaustralia.com.au

THE FRANCHISE REVIEW The official journal of the Franchise Council of Australia PO Box 2195 Malvern East VIC 3145 Phone: (AUS) 1300 669 030 Phone: +61 3 9508 0888 Fax: (AUS) 03 9508 0899 Email: info@franchise.org.au Website: www.franchise.org.au

- 187 -

Helpful organisations FRANCHISE COUNCIL OF AUSTRALIA 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

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

OFFICE OF FRANCHISING MEDIATION ADVISER 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

FRANCHISE ASSOCIATION OF NEW ZEALAND Unit 27, 2 Bishop Dunn Place Botany South, Auckland New Zealand Phone: +64 9 274 2901 Fax: +64 9 274 2903 Email: contact@franchise.org.nz Web: www.franchiseassociation.org.nz

SPECIALISED EVENTS PO Box 209 South Yarra 3141 Phone: +61 3 9999 5460 Fax: + 61 3 9999 5461 Email: info@specialisedevents.com.au Web: www.specialisedevents.com.au

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

- 188 -

Index of franchises & services NUMERICAL 7-Eleven.............................................................................................................................................................................................................171

A Allphones..........................................................................................................................................................................................................173

B Babo Group. ....................................................................................................................................................................................................176 Battery World................................................................................................................................................................................................146 Begin Bright....................................................................................................................................................................................................153 Bright Eyes Franchising..........................................................................................................................................................................172 Buy Australian Properties.....................................................................................................................................................................170

C Cafe2U................................................................................................................................................................................................................155 Cashflow It. .....................................................................................................................................................................................................177

D Domino’s Pizza Enterprises..................................................................................................................................................................162

E Evolve Entertainment...............................................................................................................................................................................174

F Fasta Pasta......................................................................................................................................................................................................159 Fastway Couriers........................................................................................................................................................................................152 Franchise Selection...................................................................................................................................................................................185

H Hairhouse Warehouse.............................................................................................................................................................................148 Hog’s Breath Cafe.......................................................................................................................................................................................160

I InXpress.............................................................................................................................................................................................................149 Ivan Poole Lawyers........................................................................................................................180

L LookSmart Alterations.............................................................................................................................................................................151

- 189 -

M Madgwicks Lawyers................................................................................................................................................................................181 MST Lawyers. ...............................................................................................................................................................................................182

N National Franchise Insurance Brokers. ........................................................................................................................................179

P Pastagogo. .......................................................................................................................................................................................................163 Plus Fitness 24/7. .......................................................................................................................................................................................168

R RedCat................................................................................................................................................................................................................184 Red Rock Noodle Bar...............................................................................................................................................................................164 Red Rooster. ...................................................................................................................................................................................................165

S Silver Chef........................................................................................................................................................................................................178 Snap-on Tools................................................................................................................................................................................................147 Snooze................................................................................................................................................................................................................167 SumoSalad. .....................................................................................................................................................................................................166

T The Drug Detection Agency................................................................................................................................................................169 The Interface Financial Group............................................................................................................................................................154 Theobroma.......................................................................................................................................................................................................156 Traxion Training............................................................................................................................................................................................186

V V.I.P. Home Services. ................................................................................................................................................................................150

W Wisewould Mahony Lawyers............................................................................................................................................................183

X Xpresso Mobile Café................................................................................................................................................................................157

Z Zambrero...........................................................................................................................................................................................................161 Zarraffa’s Coffee...........................................................................................................................................................................................158

- 190 -

notes

191

Business FranchiSe Guide

notes

192

Tired of working for someone else?

Ready to be your own boss?

Worried about going it alone?

Imagine buying a business with a proven system and business model and a brand that people already know!

This guide utilises decades of experience from experts in the franchising industry to help you on your franchising path to success.

A comprehensive guide that answers questions such as: • What is franchising and why is it so good?

• How do I choose the right franchise system?

• How do I obtain funding for my business purchase?

• What type of financial structure is best for my new franchise business?

• What can the Franchise Council of Australia and Franchise Association of New Zealand do for me?

All this and much, much more. This guide is your key to financial independence through franchising.

DON’T MISS THE LISTINGS PAGES FEATURING MANY TOP FRANCHISE SYSTEMS AVAILABLE RIGHT NOW!