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If you are looking to start a new business venture, setting up (or joining) a franchise business may be perfect. As a franchisee, you benefit from participating in a franchise network. The benefits of a franchise range from business assistance to brand recognition. Franchised businesses often have a higher success rate than non-franchises. Further, starting a franchise with an already successful company may be less risky than opening your own business from scratch. This article will outline the key advantages of setting up a franchise in New Zealand and whether starting one is right for you. 

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Established Brand

The main benefit of setting up a franchise is commonly brand recognition. Franchises are usually well-known and established businesses in the market. As a result, they generally have an existing customer base. 

For instance, consider the Mcdonald’s franchise. If you decide to open a franchise and become part of the Mcdonald’s network, customers will know what your business entails and what to expect. In addition, the instant brand recognition you receive as a franchisee is a great way to attract customers quickly. 

Alternatively, when setting up a business from scratch, you will need to work to build your customer base. This will take time, effort, and extensive market research to ensure you are targeting the right market. Additionally, you will need to ensure that your branding is effective. Moreover, you will need to attract customers and convince them that your products and services are better than your competitors. 

Lower Risk

Starting a business from scratch comes with many high risks, in contrast to opening a franchise that comes with lower risks. Most franchisors have already successful companies that conduct testing and have a proven business model. Ultimately, lower risks mean you have less chance of making losses and are more likely to succeed in the market.

The lower risk associated with franchises means you may attract more investors and have greater ease in accessing loans. First, however, you will need to prove to your investors that your franchise is a low risk. You can do so through proven traction records and financial statements. Moreover, it often costs less to buy a franchise than to start your own business. 

Franchise Disclosure Document

As a franchisee, your franchisor should provide you with a disclosure document that outlines the critical information about the franchise. Although this is not a legal requirement, it is beneficial to have it to protect your interests in the franchise. Moreover, a disclosure document enables you and your franchisor to comply with the Franchise Association of New Zealand’s (FANZ) guidelines. 

The disclosure document should include:

  • a company profile including financial information;
  • an outline of the franchise such as history and intellectual property;
  • your obligations as a franchisee;
  • franchisor obligations; and
  • inclusions in franchise purchase.

The disclosure document can help you decide whether or not you want to buy into the franchise system. However, it is good practice to conduct due diligence on the franchise. 

Ongoing Support

When investing in a franchise, you will receive business support and assistance from your franchisor. Additionally, you will receive all the equipment and supplies to run the franchise. This can help you run the franchise successfully and ensure you use the correct systems. As a result, business experience is not typically necessary to run a franchise as your franchisor will help you. In addition, your franchisor may assist you with:

  • administrative work;
  • insurance;
  • legal documents;
  • finance; and
  • marketing plans.

Many franchise owners also offer training programs to help you run the franchise. This may include mentoring, sales, and marketing courses. Furthermore, they might make an effort to ensure you are up to date with recent technologies. In addition, your franchise will also reap the benefits of your franchisor’s national campaign. 

Franchise Agreement

One of the benefits of entering into a franchise is having a franchise agreement that protects your rights and interests. The contract will outline the relationship between you and your franchisor. As a result, your franchise agreement may include:

  • how long the relationship will last;
  • dispute resolutions;
  • franchising fees;
  • support the franchisor will give you;
  • licensing;
  • intellectual-property; and
  • exit plan.

If the franchisor is a part of FANZ, the franchise agreement will need to cover specific clauses according to FANZ’s requirements. 

Franchise Manual

You will most likely receive a franchise manual from your franchisor when opening a franchise. This document is handy and will aid you in running the franchise. Moreover, the document will outline the franchise’s operating methods and core functions. The manual may also include:

  • branding requirements;
  • how to run the franchise systems;
  • suppliers and distributors;
  • marketing strategy;
  • day to day operations;
  • training programs; and
  • privacy policies.

With this model, you can replicate your franchisor’s success and ensure smooth integration into the business. 

Key Takeaways

There are many benefits of setting up a franchise, such as brand recognition and a lower level of risks in starting a business. Moreover, you will receive ongoing support and training from your franchisor to help you run the franchise efficiently. In addition, your rights in the franchise will have protection through a franchise disclosure document and a franchise agreement. Lastly, with a franchise manual, you can integrate into the franchise smoothly and replicate the success of your franchisor. 

If you need help buying a franchise, you can contact our experienced franchising lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page

Frequently Asked Questions

What is a franchise disclosure document?

A franchise disclosure document is not a legal requirement, but it is beneficial. It outlines the franchise’s health, such as finances, systems, and profit projections. This document can help you in deciding whether you want to commit yourself to the franchise or not. 

What is a franchise agreement?

A franchise agreement governs the relationship between you and your franchisor. It outlines your rights and obligations and protects your interests in the business. If your franchisor is part of the FANZ, then there may be requirements as to what the agreement should contain. 

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