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FAQs Franchising

Here are some of the most frequently asked


questions about franchising.

1. What is a Franchise?
A franchise is a business that operates under a system. It
involves one party (the Franchisor) granting another party
(the franchisee) the right to operate a replicated business,
usually under a recognised registered name, and to use
established management methods, marketing systems, and
operating procedures. In return the franchisee commits to
paying the franchisor an initial fee, and further ongoing fees
(royalties). The Franchisee also agrees to comply with
franchise systems, policies and procedures.

2. What is a Franchisor?
The person or company who owns the operating systems,
trademarks, and procedures.

3. What is a Franchisee?
The person or company which pays the Franchisor for the
right to use the systems, products and processes which are
owned by the Franchisor.

4. What are Royalties?


Royalties are paid for the continuous use of a piece of work,
such as the payments made to an author for a book that is on
the market. These expenses are in addition to any one time
initial fees. The payments are usually lower than upfront fees
since they are a continuous regular expense. With regard to
franchise royalty payments, the franchisee earns daily sales as
their main source of revenue. The regular monthly income
that the Franchisor earns is based on royalty payments from
each franchisee.

5. What is a Franchise agreement?


The franchise agreement is the cornerstone document of the
FranchiseeFranchisor relationship. It is this document that is legally
binding on both parties, laying out the rights and obligations of each
party. For an agreement to comply under the code it must contain four
elements:
an agreement between the parties, which may be written, oral or
implied
substantial or material association with a trademark, advertising or
commercial symbol
a grant by the Franchisor to the franchisee of the right to carry on the
business agreement by the franchisee to pay the Franchisor, or an
associate, an amount in return for the grant of these rights and usages.

6. What is a Disclosure Document?


A Disclosure Document is the document (or documents)
which provide detailed information about a franchise and the
Franchisor. Disclosure Documents are required to be given by
the Franchisor to potential and existing franchisees, at various
points in the Franchisor/Franchisee relationship.

7. What is the Franchising Code of Conduct?


The code has the force of law and requires Franchisors to
disclose specific information about a franchise to both
potential and existing franchisees. It regulates the dealings
between both parties in a franchise relationship and provides
for dispute resolution mechanisms. For a copy see
http://www.accc.gov.au/business/industry-codes/franchisingcode-of-conduct

8. Do I have to get professional advice before entering into a franchise


agreement?
Yes. It is important to get professional legal and financial advice before
you enter into a franchise agreement. Acquiring or selling a franchised
business is a significant decision and often involves a significant financial
decision and commitment, so having good independent advice is highly
recommended.
When acquiring a franchised business, you will need to provide the
Franchisor with a statement saying that you have sought advice from a
legal adviser, business adviser and/or accountant.
If you choose not to seek this advice, you will have to provide your
Franchisor with a statement saying that you have been told you should
seek advice, but you elected not to do so.
These documents must be provided to the Franchisor before entering
into any franchise agreement.

9. Is there any restriction on who I can sell my franchise to?


The Franchisor is able to determine who is a suitable operator of the
business. When selling a franchised business, it is necessary for the
franchisee to request the franchisors consent for a transfer of the
franchise. This must be done in writing. If the Franchisor does not
respond within 42 days, consent is taken as having been granted.
The Franchisor cannot unreasonably withhold consent.
Often there are conditions attached to your transfer. Such as a transfer
or assignment fee
Ian Salter
Specialist Franchise Business Broker
Benchmark Business Sales & Valuations

Contact Info:
Address:
Broker Support Centre, Suite 104, Bermuda
Point, 20 Lake Orr Drive. Varsity Lakes, QLD
4227 Australia
Phone number:
1300 366 521 (toll-free)
+61 7 5562 2711 (international)
07 5562 2744 (fax)
E-mail:
admin@benchmarkbusiness.com.au

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