FAQ’s – Franchising

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FAQs FranchisingHere are some of the most
frequently asked questions about franchising.
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1. What is a Franchise? A franchise is a
business that operates under a system. It
involves one party (the Franchisor) granting
another party (the franchisee) the right to
operate a replicated business, usually under
a recognised registered name, and to use
established management methods, marketing
systems, and operating procedures. In return the
franchisee commits to paying the franchisor an
initial fee, and further ongoing fees
(royalties). The Franchisee also agrees to comply
with franchise systems, policies and procedures.
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2. What is a Franchisor? The person or company
who owns the operating systems, trademarks, and
procedures. 3. What is a Franchisee? The person
or company which pays the Franchisor for the
right to use the systems, products and processes
which are owned by the Franchisor.
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4. What are Royalties? Royalties are paid for
the continuous use of a piece of work, such as
the payments made to an author for a book that is
on the market. These expenses are in addition to
any one time initial fees. The payments are
usually lower than upfront fees since they are a
continuous regular expense. With regard to
franchise royalty payments, the franchisee earns
daily sales as their main source of revenue. The
regular monthly income that the Franchisor earns
is based on royalty payments from each
franchisee.
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5. What is a Franchise agreement? The franchise
agreement is the cornerstone document of the
FranchiseeFranchisor relationship. It is this
document that is legally binding on both parties,
laying out the rights and obligations of each
party. For an agreement to comply under the code
it must contain four elements an agreement
between the parties, which may be written, oral
or implied substantial or material association
with a trademark, advertising or commercial
symbol a grant by the Franchisor to the
franchisee of the right to carry on the business
agreement by the franchisee to pay the
Franchisor, or an associate, an amount in return
for the grant of these rights and usages.
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6. What is a Disclosure Document? A Disclosure
Document is the document (or documents) which
provide detailed information about a franchise
and the Franchisor. Disclosure Documents are
required to be given by the Franchisor to
potential and existing franchisees, at various
points in the Franchisor/Franchisee
relationship.
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7. What is the Franchising Code of
Conduct? The code has the force of law and
requires Franchisors to disclose specific
information about a franchise to both potential
and existing franchisees. It regulates the
dealings between both parties in a franchise
relationship and provides for dispute resolution
mechanisms. For a copy see http//www.accc.gov.au/
business/industry-codes/franchising-code-of-conduc
t
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8. Do I have to get professional advice before
entering into a franchise agreement? Yes. It is
important to get professional legal and financial
advice before you enter into a franchise
agreement. Acquiring or selling a franchised
business is a significant decision and often
involves a significant financial decision and
commitment, so having good independent advice is
highly recommended. When acquiring a franchised
business, you will need to provide the Franchisor
with a statement saying that you have sought
advice from a legal adviser, business adviser
and/or accountant.If you choose not to seek this
advice, you will have to provide your Franchisor
with a statement saying that you have been told
you should seek advice, but you elected not to do
so.These documents must be provided to the
Franchisor before entering into any franchise
agreement.
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9. Is there any restriction on who I can sell my
franchise to? The Franchisor is able to
determine who is a suitable operator of the
business. When selling a franchised business, it
is necessary for the franchisee to request the
franchisors consent for a transfer of the
franchise. This must be done in writing. If the
Franchisor does not respond within 42 days,
consent is taken as having been granted. The
Franchisor cannot unreasonably withhold
consent. Often there are conditions attached to
your transfer. Such as a transfer or assignment
fee Ian SalterSpecialist Franchise Business
BrokerBenchmark Business Sales Valuations
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Contact Info AddressBroker Support Centre,
Suite 104, Bermuda Point, 20 Lake Orr Drive.
Varsity Lakes, QLD 4227 Australia Phone
number1300 366 521 (toll-free)61 7 5562 2711
(international)07 5562 2744 (fax) E-mailadmin_at_b
enchmarkbusiness.com.au