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Why Establish a Franchise System?

Why Establish a Franchise System?

September 5, 2025

Sanicki Lawyers

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Published

5 September 2025

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Franchising, Commercial

If you have a solid profitable business with a recognised brand and reputation and looking to expand your brand into areas, you would not otherwise consider such as interstate you might consider establishing a franchise system.

The first step is to seek specialist advice from a Specialist Franchise Lawyer as we will carefully consider all options for expansion such as bringing on employees as minority shareholders, offering an employee share option plan (ESOP), bringing in investors and partners or appointing distributors or agents.  

Each model has its own pros and cons and although there is no perfect model, from discussing your objectives, we will be able to arrive at an expansion model that best suits you and your business objectives.

Many Licensing and distribution systems are in fact caught as a “franchise arrangement” under the Franchise Code (a mandatory Code in Australia) and if that is the case, there are mandatory disclosure requirements that must be met which we can assist you with to ensure your compliance.

The key benefits of franchising

The Key benefits of Franchising your business are the following:

  • Easier expansion into other territories: you can expand your brand presence into new markets and territories without using your own capital as the franchisee will meet the setup costs

 

  •  More rapid expansion: you can enter a market more quickly than if you did it through company organic growth and you had to cover the costs of expansion.

 

  • Increased Market Share: by leveraging off the efforts of franchisees, you can increase your market share and brand recognition.

 

  • Capital: Franchisees invest their own capital to establish the business leaving your working capital for your own business.

 

  • Revenue: Franchisors generate revenue from franchise fees and royalties on the franchisee’s gross turnover.  

 

  • Increased Business Value: by establishing a successful franchise model you build value in that franchise network which becomes an asset you can later sell.

 

  • Expertise and Support: by selecting the right franchisee you can leverage off their expertise and experience in specific regions or markets.  

 

  • Franchisees are more motivated: to succeed as they have a vested interest in the success of their business, leading to better performance.  

 

  • Reduced Management: Franchisors can focus on supporting the franchise system, marketing and development of new products or services without having to micro–manage employees or managers (hopefully!) This is not always the case which is why franchisee selection is vital for a happy and successful system.  

 

  • Innovation: Franchisors still need to deliver on innovation to stay ahead of their competition.  

 

  • Brand: A growing franchise network increases brand awareness and recognition, leading to greater customer loyalty.

What is successful franchising?

Successful franchising is when the franchise model works for the franchisee that is, they can take a reasonable salary for their hard work, cover their operating costs, fees and royalties and over time build an asset they can sell when they want to exit.

If the franchisee is successful, the Franchisor will also be successful financially as the franchisor generally receives a percentage of the franchisee’s gross turnover via royalties, rebates and possibly supply of goods or services

Now more than ever franchisors need to ensure the financial model works for the franchisee.

We help our franchisor clients establish a system that works for all parties for long term success which is achieved by:

a) Ensuring compliance with the Franchise Code.
b) Proper advice in structuring the franchise system and model, protecting IP and the business risks.
c) Ensuring the franchise opportunity gives franchisees a reasonable opportunity to make a return that is the financial model works for the franchisee.
d) Simplifying the franchise documents by removing those matters that aggravate the relationship.

 

Franchising is not for everyone and unfortunately, we have seen many systems fail over the years for a variety of reasons.

From our 40 years in the franchise sector advising Franchisors, Master franchisees, International Franchisors and Franchisees we have seen …. the good, the bad and the ugly and can provide strategic and commercial advice to support our clients.

Like building a house, the franchise system needs to be well considered and developed from the ground up which can take time and cost to develop but it is vital to do it right.

 

Getting the right advice from Franchise Specialists is a good investment!

Contact: Sanicki Franchise Licensing & Distribution Group

Robert Toth | Special Counsel | Accredited Commercial Law and Franchise Specialist robert@sanickilawyers.com.au | Mobile: 0412 673 757

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