A franchise is a business agreement where a business owner (the franchisor) gives permission to someone else (the franchisee) to operate a branch of their business under the same name.
The franchisee can sell the same products or services as the original business for a set period. It’s like renting a proven business model.
The franchisor supports the franchisee with training, marketing assistance, and ongoing guidance to ensure the success of the new branch.
A franchise agreement is a contract between the franchisor and the franchisee. It sets out the terms and conditions for the operation of the franchise business.
In Australia, franchise agreements are regulated by the Franchising Code of Conduct. The Franchising Code looks at four main criteria to determine whether an agreement is a franchise agreement:
The distinction between a franchisor and a franchisee is crucial. A franchisor is the original owner of the business model, trademarks, and brand. A franchisee, on the other hand, is an individual or entity that purchases the right to operate a business using the franchisor’s brand and methods.
Responsibilities of the franchisor
In a franchise agreement, the franchisor — the original owner of the business — has duties to help the franchisee succeed. These duties include:
Training: The franchisor must train the franchisee. This involves learning how to run the business, how to serve customers well, and how to apply the special methods unique to the franchise.
Advertising and sales promotion: The franchisor takes care of advertising and promoting the brand. This can include large campaigns to make more people aware of the franchise.
Support: The franchisor also offers ongoing support to the franchisee. They offer advice, guidance, and help with any problems that arise during the day-to-day running of the business.
Put simply, the franchisor’s role is to make sure that the franchisee has all the tools they need to run their business successfully.
Responsibilities of the Franchisee: On the other side of the agreement, the franchisee, who runs the business under the franchisor’s brand, also has responsibilities:
Services: The franchisee must provide the services listed in the agreement. This means that it must deliver products, services, or experiences in accordance with the franchisor’s standards.
Methods: Following the methods specified by the franchisor is important. The franchisee must run the business according to these specified methods to keep things consistent across all franchise locations.
Manuals: Franchise manuals act as a guide for the franchisee. The agreement states that the franchisee must follow the instructions and guidelines in these manuals. These manuals cover different parts of business management.
Standards: Maintaining certain standards is a big task. Whether it’s the quality of the products, how customers are treated or how clean the place is, the franchisee has to meet the standards set by the franchisor.
Business Promotion: The franchisee helps to promote the business in their area. This may mean doing local marketing to attract more customers and publicise the business in the community.
Simply put, the franchisee’s job is to run the business well according to the franchisor’s rules and standards.
A franchise agreement is made up of specific parts that are important for running a particular business. Besides other clauses and details, a franchise agreement should include these basic things:
Yes, every franchisor must provide a franchise agreement to potential franchisees. The franchisor and you have a contract, which the Franchising Code of Conduct regulates.
There are a few types:
Yes, technically, but it’s not easy. There are consequences:
Yes, most have a set time, usually 5 to 15 years. When it ends, you can:
Yes, franchisors must create a profile and share info about their franchise on the Franchise Disclosure Register. It’s part of following the Franchising Code of Conduct.
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