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Franchising is a popular business model for growth and can bring you various benefits. However, this will depend on how well you manage the initial franchising process and the work you put into setting up your franchise. While general legal requirements apply (such as contract law), franchising is not a formally regulated industry in New Zealand. So, many of its rules come from commercial convention and self-regulation. Therefore, this gives you more freedom to determine how you want to start your franchise, such as the various categories you wish to take advantage of. This article will provide some background and explore what type of franchise you should start in New Zealand.

How Does Franchising Work?

Franchising refers to a specific kind of business model that you may use to expand your initial business concept. You (as the franchisor) allow other parties (the franchisees) to use and replicate certain aspects of your business, usually in other geographical areas. These aspects may include:

  • specialist business processes or know-how;
  • employee training;
  • marketing plans;
  • product supply;
  • specific business management structure; and
  • branding elements and other intellectual property.

In return, franchisees will pay you periodic fees or royalties for your specialist knowledge and resources.

Business Structure

One of the first major decisions you need to make regarding the type of franchise you wish to start will be its business structure. In New Zealand, three popular ways of business structuring include:

  • sole traders;
  • partnerships; or
  • companies.

It is up to you how you decide to structure your business, but one of the most efficient ways to do so is as a company. This process separates your own personal liability from the franchise’s and also allows for easier structuring as you grow.

Documents

Additionally, as the franchisor, you have various obligations to your franchisees. You need to provide support for their own growth and success, which you should outline in important documents such as a:

Types of Industries for Franchising

In New Zealand, many different industries allow for franchising success. Some are better suited for it than others, so you should duly consider what kind of industry you wish to start your franchise in. For example, ten of the most popular industries in New Zealand for franchising include:

  • financial services;
  • computers and telecommunications;
  • business and commercial services;
  • food and beverage;
  • fitness, health, and beauty;
  • auto services;
  • home and building;
  • home services;
  • retail; and
  • leisure and education.

For instance, Coffee Culture is a popular cafe franchise in New Zealand, and they are in the food and beverage industry.

Your Franchising Model

Another way to differentiate between franchises is the type of model you wish to offer your franchisees. For instance, you may market the idea of your franchise to franchisees as a job, where you provide them with a way to make an income, with a lower entry cost and less opportunity to grow the business. Here, you may have more control over the day to day aspects of how they run their business.

On the other hand, you may market your franchise as more of a business, where you give franchisees more control. They gain the capacity to grow more with greater flexibility and a higher entry cost.

How you differentiate between these depends on how you wish to run your franchise and the level of control you wish to offer your franchisees. Work with a franchising expert to determine what method works for you.

For instance, you may give certain franchisees more control over their location as a ‘master franchisee’. This is where they gain certain control powers over other franchisees. The master franchisee process can allow for greater growth. However, it can also generate greater administration and less control for you as the franchisor.

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Styles of Franchising

Additionally, you may differentiate your franchise based on the type of information you provide your franchisees. There are three types of franchises according to this format, which the following table details.

Business format franchises

You give franchises various intellectual property rights to sell and market your products or services. These can range from trade marks to trade secrets unique to your business.

Manufacturing or processing franchises

Here, you provide information about how to create your products. Franchisees can then manage product manufacture and sale themselves.

Product franchises

Franchisees can sell your product from a retail outlet or warehouse, usually in a specific location.

In New Zealand, business format franchises are the most common. 

What Type of Franchise Should I Start?

Due to the flexibility of New Zealand’s franchising regime, you have a lot of control over the kind of franchise you can start. However, this fact only means that you should conduct extensive research and evaluation methods for determining whether your franchise idea is viable.

Key Takeaways

Franchises in New Zealand vary, and the type that you should start will depend on your unique circumstances. Therefore, you need to ensure that you have a viable franchise model that will be attractive for potential franchisees. If you need help with starting your franchise, 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.

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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