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As the owner of a successful business, you may now be looking to franchise. However, franchising your business may seem daunting or confusing. Franchising is a time and resource-consuming process. Franchising also accompanies a wide range of benefits, such as the ability to expand using someone else’s labour and capital, and less exposure to risk whilst growing. This article will detail the key steps to set up a franchise business in New Zealand. 

1. Is Your Business Franchisable? 

There is a wide array of matters to consider before you set up your franchise.

Pilot Operation

You need to have a successful business model to create a successful franchise. Franchising is not a way to relieve yourself of financial difficulties. Before franchising, you should have a pilot operation. 

A pilot operation is your original business model – the business before the first franchise. It allows you to determine what test systems, marketing plans and supply chains work, and those that do not. It also ensures that you know the standard of service you like to provide and the pricing necessary to provide this service. 

Franchise Feasibility Assessment

Once you have established this pilot operation, you should engage a qualified franchise consultant to undertake a franchise feasibility assessment. 

This assessment not only assesses your business to see if it is franchisable; it also builds a franchise model that suits your specific business concept. A professional can help you translate your one location to an expandable franchise by establishing and securing supply lines and pinpointing potential locations. 

2. Franchise Documentation 

Once you properly develop your business model, the next step is to prepare the various franchise documents. This documentation will ensure that you can establish, promote and run profitable duplicates of your pilot operation. 

In New Zealand, there is no legal code or piece of law specific to franchising. Instead, your documentation must comply with the Code of Practice and the Code of Ethics of the Franchise Association of New Zealand (FANZ). 

Franchise Manuals

This area of documentation may include:

  • franchisee and franchisor manuals;
  • operating manuals;
  • training manuals; and
  • health and safety manuals.

Such documentation sets out the procedures, systems and guidelines that each franchisee has to follow when setting up and running a new location. These documents ensure that there is consistency across the franchise as a whole. 

Franchise Identity 

Your franchise should have a brand that encapsulates the essence of your business and marketing systems that will attract both customers and potential franchisees. This will usually involve setting up a name, logo, design and website for your franchise. 

Not only should you properly develop this brand, but you should adequately protect it. You must register all of your trademarks; your franchise’s name, logo and design. Failure to do so may result in losing control of your brand. 

Franchise Agreements

The franchise agreement is the written contract that will govern, and create, your legal relationship with each of the franchisees. 

As this document is the basis for your franchise, you should adequately develop it for your specific business. The franchise agreement should contain clear and detailed clauses on all of the main elements of the franchise, such as the franchise fees, territories, the franchisee’s obligations and causes of termination.

3. Franchisee Recruitment

Now that you have all of your documents in order and well-functioning systems in place, it is time to start recruiting franchisees. The franchisees are the individuals in charge of each franchise location and are an essential part of a profitable and successful franchise. 

Advertising 

You will need to have excellent advertising methods in place to attract potential franchisees. Advertising can take place on a variety of media and platforms, such as:

  • in newspapers;
  • on social media, such as Facebook; or 
  • at franchise expos. 

However you choose to advertise, this advertising material should be attractive and accurately represent your franchise system. 

Applications

You should provide interested applicants with detailed franchise application documentation. This should include:

  • an information pack; and
  • a full and detailed disclosure document. FANZ requires disclosure documents. Such documents should disclose matters such as the franchise company’s particulars, the status of the intellectual property, and a statement of the franchisor’s financial position. 

Successful applicants should be provided with the detailed franchise agreement, and have the ability to negotiate certain terms. Once you enter into an agreement, franchisees will pay an upfront franchise fee to enter into your franchise. 

4. Ongoing Franchise Management

Your work as a franchisor is not complete once the franchisee establishes the franchise. A successful franchise requires ongoing maintenance and constant adaptation. 

Franchisor Training

Running a franchise differs from running an individual business. Acquiring expertise in running a franchise will only aid in your franchise’s success. To learn more about running a franchise, you can:

  • research and attend training courses covering topics, such as franchise management;
  • attend franchise meetings and conferences; or
  • develop a peer group of other franchisors and franchise-experienced specialists. 

Information Management Systems

Setting up an online system accessible to all of the franchisees allows each franchisee to benchmark their performance. This information management system provides you with an opportunity to spot successful areas and others that may require more support to maximise its potential.  

Key Takeaways

Setting up a franchise is a time-consuming process that requires a large amount of resources and attention. Although franchising accompanies long term benefits, you must first ensure that you have a secure business model that will be viable as a franchise. This model has to be backed by the appropriate documentation, effective systems and passionate franchisees. 

If you are interested in setting up a franchise in New Zealand, LegalVision’s franchising lawyers can help. Call us on 0800 005 570 or complete the form on this page. 

Frequently Asked Questions

How much does it cost to set up a franchise?

Franchising is an expensive and time-consuming business method if done correctly and well. How much it will cost to set up a franchise will differ case by case.

How is a franchise set up?

There are four key steps to setting up a franchise. You should: assess whether your business would translate into a successful franchise; prepare the necessary franchise documentation; recruit franchisees; and commit to ongoing franchise management.

Can you buy a franchise with no experience?

You can buy a franchise with no experience. However, to ensure success, it is best to consult with experts and professionals within the franchising sphere.

Is it worth buying into a franchise?

Although it is a time consuming and expensive process, franchising does accompany an array of long-term benefits. This includes the ability to expand using someone else’s labour and capital, and less exposure to risk whilst growing.

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