Setting up shop - The Lawyer's perspective
As a franchisee, you need to cover off on the basics before signing up for a franchise. Research prior to entering into your franchise agreement is crucial to the success of your business.
Prior to sign up, you should:
1. Get the right advice and read the franchise agreement - You need to understand the business you are buying and the terms of the franchise agreement.
• A lawyer will highlight key clauses, legal risks and implications of the franchise agreement.
• An accountant will assist you with financial models to see if your franchise business will be profitable.
2. Check out the market – If you are buying in a shopping centre go at different times of the day and week to check out foot traffic numbers – how many are potential customers?
If you are buying a mobile business, factor in travel time, and count customer and competitor numbers in your area.
3. Talk to existing franchisees – Tell the franchisor you are doing this beforehand. Speak to as many franchisees as you can and remember that each franchise system has good and bad businesses. Success is based more on the skill of the franchisee and location, rather than actions of the franchisor.
4. Get the trading entity right – Do you want to operate as a sole trader, partnership, company or trust? Different set up costs apply for each of these options, and you need to weigh this against taxation benefits you will receive.
5. Get an ABN – An ABN is only required if your business will turnover $75,000 or more. However, an ABN will allow you to claim GST credits and not be charged withholding tax. You can register for an ABN at www.ato.gov.au.
6. Licences – Ensure that you have all the licences and qualifications to run the business. Your state Office of Fair Trading is a useful starting point for this information.
7. Register your business name – If you are trading under a name that is not your own name, you need to register that name as a business name. Follow the prompts at www.asic.gov.au to register your business name.
DCS Lawyers specialises in the practise of commercial law in all matters specific to and associated with franchising. They advise on franchise documents with a 3-business day turnaround for a fixed fee of $1650 plus GST and on sales and purchases of existing franchise businesses.
Charlene Hunt is a Senior Associate at DCS Lawyers. She has extensive experience in commercial law relating to franchsing including business sale agreements, review of franchise documents and the preparation legal of documentation required to establish your business.