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As your business grows and gains popularity, you may be considering how you can best encourage growth in a way that ultimately benefits you. Franchising is a popular way of doing this, but it may not necessarily be the best method for every business. Therefore, this article will provide some background on the matter and explore whether a franchise is the best way to grow your business in New Zealand.

What Is Franchising?

Franchising is a kind of structuring model that businesses may employ if they wish to grow. You identify aspects of your business that make it successful, condense those down into a replicable system, and others pay you to be a part of that successful system. You (as the franchisor) let others (the franchisees) adopt your processes and methods to become part of a larger whole. In return, you receive payment and can grow your business both in reputation and geographic spread.

For instance, you may wish to expand your sandwich shop into other areas of the country but lack the resources to do so on your own. Franchising can be a way to achieve this by having other businesses use your branding and sandwich making process in their own shops across New Zealand.

Furthermore, franchising involves you outlining your specialist knowledge in franchise operation manuals and other important franchising documents. Additionally, you may need to consider other matters such as:

  • licensing and intellectual property matters;
  • confidentiality agreements;
  • workplace policies;
  • employment policies; and
  • fee summaries and calculations.

As a franchisor, you have certain duties to your franchisees which you will need to meet. They will expect you to support them and provide certain services, such as:

  • training;
  • marketing;
  • product sourcing; and
  • development.

Benefits of Franchising

There are various benefits to franchising, which contribute to why it is a popular model for business growth. However, whether these benefits will be the best for your business will depend on you and your unique circumstances.

The core benefit of franchising comes from enlisting other businesses, with their own personnel and resources, to supplement the core franchise. In particular, this means that you can:

  • expand your business geographically, creating a network across the country;
  • be less exposed to certain risks, as franchisees take control of their own operations;
  • spend more time focusing on the core aspects of your business, while franchisees manage the day to day operations;
  • find franchisees that want to succeed and achieve their own goals, which can further benefit your company as a whole;
  • expose your brand to broader markets, increasing the recognition of important intellectual property, like trade marks; and
  • draw more customers to your products or services.

Potential Risks

While there are numerous benefits to franchising your business, these do not come without some risks and fallbacks. There is no guarantee that the franchising model will suit your business, and some businesses will do better than others. On top of that, if you are not careful, certain mistakes can contribute to your franchise not taking off as it should.

Some potential risks include:

  • franchising your business before it is ready;
  • relying on a business model that does not translate well to franchising;
  • bringing on franchisees that do not uphold their end of the deal;
  • brand mismanagement and loss of control; and
  • employment liability.

Therefore, it is crucial that before deciding whether you should franchise your business, determine whether it is a feasible option for you. Additionally, you need to complete extensive due diligence processes and thoroughly vet your potential franchisees. 

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Is Franchising Right For My Growing Business?

Whether franchising suits your business’ growth model will depend on your unique circumstances. Therefore, you need to ask yourself certain questions and implement various evaluation processes to see whether franchising is a viable option for you. 

Before setting up your franchise, you need to ensure your original business model (your pilot operation) works as it is. You should also conduct a franchise feasibility assessment to determine whether it would work on a broader scale. Some key aspects to consider in this process include:

  • What is your key point of difference, and is it replicable?
  • What will you offer franchisees to make your proposition the most attractive?
  • Do you have a proven and successful track record, showing that customers want your goods or services?
  • How long will it take for your franchisees to become self-supporting, and can you maintain that?
  • Do you have the resources to train and support franchisees?
  • Are there other growth options that work better for your business?

A franchising expert can help you evaluate your business to determine whether franchising is appropriate for you.

Key Takeaways

Franchising is one popular way for businesses to grow in New Zealand. However, before engaging in this process, you need to realistically evaluate your business to determine whether this is the right option for you. If you need help with franchising your business, our experienced franchising lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What is a franchise?

A franchise is a business model that you may use to grow your business. You, as the franchisor, allow other parties, the franchisees, to replicate your business operations to create their own success. In return, you grow your brand and receive various fees or royalties.

Is franchising the best way to grow my business?

Franchising is a popular method for business growth, but it may not necessarily suit your particular business model. Therefore, it is essential that you go through a franchise feasibility assessment to determine whether it is right for you.

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