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Franchising your business can be an excellent way to promote growth and spread your brand. However, there is the potential to franchise your business at the wrong time and induce disastrous consequences. Therefore, this article will discuss how to determine whether your business is franchise ready.

What Does Starting a Franchise Involve?

Starting a franchise is a significant business decision to make and one that you should plan carefully. Once you start turning your business into a franchise, it will be difficult to return your business to the state it was beforehand. Therefore, you need to ensure you understand what starting a franchise would mean for your business.

In particular, when you start a franchise as the franchisor, you are taking the successful parts of your business and turning them into a replicable model for your franchisees. In return for this, franchisees compensate you, and your business can grow. You define how they can set up their businesses, and they manage the day to day operations. Therefore, as the franchisor, you can provide:

  • staff training programmes;
  • education resources;
  • advisory support;
  • intellectual property usage, through licensing or other arrangements;
  • unique know-how;
  • management systems;
  • marketing strategy;
  • branding;
  • products for distribution; 
  • operating systems; and
  • other aspects necessary for another business to replicate your success.

For example, Starbucks is a popular franchise in New Zealand. Franchisees across the country can:

  • create drinks using Starbucks recipes and ingredients;
  • use their branding; and 
  • take advantage of the recognition the franchise already has. 

In return, they will need to comply with Starbucks’ operating procedures and other policies.

Notably, there are no dedicated laws that regulate franchising in New Zealand. However, as the franchisor, you will need to ensure your franchise complies with other laws, such as consumer and contract law. You can also join the Franchise Association of New Zealand (FANZ), which have their own rules for members.

Is My New Zealand Business Franchise Ready?

Before you begin the process of transforming your business into a successful franchise, you need to determine whether it is ready for this. A franchise structure will not suit every business, and some will see greater success than others. Therefore, you need to evaluate the viability of your business as a franchise.

In particular, you need to identify your key point of difference and how your franchisees can replicate that across the country. This unique aspect does not necessarily have to be a product, but it could be your management system or how you market your business.

Timing is another key factor in determining if your business is ready to turn into a franchise. You want to start franchising your business when it is ready for further growth, and you have time to research the market to determine what strategies work. On top of that, your business must be running a successful pilot operation before franchising. This original business model allows you to test various aspects of what is successful for you.

You must not franchise too early, without a proven pilot operation to rely on. Franchisees are also less likely to sign on if you do not have a credibly successful idea to invest their time, money, and effort in.

What Can I Do to Prepare My Business?

How you prepare your business for franchising will depend on your unique situation and goals. Therefore, you should conduct appropriate market and franchising research to determine what will and will not work for you.

However, there are specific processes that you can undertake to make preparing your business for franchising easier. These include:

  • setting up your business as a company to protect your assets and limit liability;
  • establishing sound communication systems with your franchisees, especially how you will inform franchisees of changes and updates;
  • determining how you will regulate your franchisees and ensure they comply with the law;
  • looking into the benefits that FANZ membership can give you, especially when you are starting out;
  • planning proper dispute resolution processes for when things go wrong;
  • preparing the necessary franchise documents;
  • drafting confidentiality agreements to protect your interests when engaging potential franchisees;
  • setting up your intellectual property for sharing with others, protecting it adequately; and
  • engaging the help of franchising experts who can evaluate your business’s specific needs.

Key Takeaways

To determine whether your business is franchise ready, you need to figure out what aspect of its success you wish to replicate across your franchisees. Therefore, you need to have an already profitable business model ready for further growth. As a result, you need to evaluate your business’s unique situation and goals to determine its readiness.

If you need help with your business’ franchise readiness, our experienced franchise 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 used to grow a business. The franchisor allows other parties to replicate the franchise business model to create their own success. In return, the franchisor’s brand grows, and they receive various fees or royalties.

How can I start a franchise?

When starting a franchise, you must conduct appropriate research as to what will be successful for your business. Part of this process will include starting a pilot operation and conducting a franchise feasibility assessment.

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