Franchising has its origins in the Middle Ages; well before McDonalds!
Franchising is a business relationship that allows the use of a firm’s business model and brand for a prescribed period of time for a fee. Franchising has been around since the Middle Ages but rose to prominence in the 1960s in America with McDonalds and other fast food franchises.
In Australia, franchising is regulated by the Franchising Code of Conduct, a mandatory code of conduct under the Trade Practices Act 1974. This code requires franchisors to produce a disclosure document and also regulates the content of franchise agreements – for example in relation to marketing funds, a cooling-off period, termination, and the resolution of disputes by mediation.
The advantages of franchising your business and being the franchisor include:
- Faster expansion – Franchised networks can be expanded more quickly than company run networks due to simplified management and the franchisee financing the investment costs.
- Franchisees finance the business expansion – Each new franchisee makes an initial payment to purchase the franchise and then pays ongoing franchise fees (usually as a percentage of their revenue).
- Simpler management – Each franchisee is responsible for the day-to-day running of their business in accordance with the franchise agreement and operations manual.
- Better market penetration – Franchisees are normally well established as part of the local community, either on a personal level or as a result of their past business activities.
- Greater commitment – Franchisees have invested upfront to acquire their franchise business and so are very committed.
Further information on franchising is available from the Franchise Council of Australia at Franchise.