Franchising your business

What is franchising?

Franchising is the practice of using another firm's successful business model. A business owner (a franchisor) assigns independently owned outlets (a franchisee) the right to market and distribute their products or services.

For a fee, the franchisor grants the right to operate a replicated business under a trademarked name, using established management techniques, marketing and operational procedures.

In addition to this upfront capital fee, the franchisee is normally required to pay ongoing royalty fees and/or a percentage of gross monthly sales and agrees to comply with franchising procedures.

Franchising your business

If you are considering franchising as a form of expanding an existing business, you will need assistance from a team of professionals, including your accountant, solicitor, banker and franchise consultant. 

The successful franchising of any business requires careful planning.  The cost and time involved in the process of franchising depends on the complexity of the business, the proposed system and the current position. 

The process is likely to include:

  • an independent objective evaluation of the current situation and the business including the product or service, the protection of trademarks and other intellectual property, the market, the systems and the profitability;
  • estimates of costs to continue the franchising process and the finance required; and
  • improvements required to the system as a result of this initial evaluation.

Then if you decide to proceed:

  • development of an appropriate model for your franchise system; and
  • a plan of action up to the launch of the franchise and its expansion in the short to medium term.

What types of franchise models are there?

There are three major types of franchise models:

Business format franchise

This is the model that people most commonly think of as a franchise. As the franchisee you would be given the rights to use the franchisor's intellectual property in your own business. An example of this model is a fast food outlet.

Product franchise

This is where the franchisee sells the franchisor's product from a wholesale or retail outlet. As the franchisee you would be given exclusive rights to sell the product within a specific area. An example of this model is a motor vehicle dealership.

Processing or manufacturing franchise

In this model the franchisee produces the product. The franchisor provides an essential ingredient or "know-how" to the franchisee. An example of this model is the soft-drink industry.

Talk to the Franchise Council of Australia for more information on franchising your business.

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