Aspiring entrepreneurs frequently inquire about the ins and outs of franchising within Australia. Herein, we aim to clarify the concept, shed light on the franchise business model’s significance in Australia, and unravel its intricate working mechanisms.

In a nutshell, franchising is a strategic business model. It entails a symbiotic agreement between two parties: the franchisor, who owns the brand, and the franchisee, who operates under the franchisor’s brand for a predetermined period. This format enables individuals to experience the perks of entrepreneurship, coupled with the safety net of an established brand.

Australia’s franchising industry has evolved into a dynamic and influential segment of the broader economy, changing the retail landscape fundamentally. Originating from American fast-food chains’ expansion in the 1970s, the franchising model has expanded its reach to myriad industries. Today, home-grown franchises account for 90% of the available opportunities, underscoring their dominance and showcasing the opportunities for international growth.

As per the Franchise Council of Australia’s data, the franchising industry is currently valued at $182 billion, supporting over 80,000 businesses. By 2020, the industry forecast included employment for 508,000 individuals across approximately 90,500 franchise units.

Australian franchising is governed by a strict Code of Conduct to ensure fair practices between franchisors and franchisees. This code necessitates:

• Disclosure Requirements: The franchisor must provide pertinent information and documentation to the franchisee during a new agreement or renewal.
• Good Faith Obligation: Both parties are obligated to act honestly and without hidden agendas.
• Dispute Resolution Mechanism: If no internal complaint handling procedure is defined, the Code’s mechanism must be employed.
• Cooling-off Period: A seven-day cooling-off period must be included for new franchise agreements.
• Ending Agreement Procedures: The Code requires procedures for ending franchise agreements.

In addition to adhering to the Code of Conduct, franchisors and franchisees must abide by other pieces of legislation, including the Fair Work Act, the Australian Securities and Investments Act, Australia’s tax laws, and state and territory licensing schemes.

Franchising in Australia typically follows four models, each catering to different industry sectors. These models are Manufacturer-Retailer, Manufacturer-Wholesaler, Wholesaler-Retailer, and Retailer-Retailer. The latter is the most common, also known as the ‘business format franchising’ model.

This format necessitates that franchisees follow certain guidelines to maintain the brand integrity, including location, business image, quality control, and operation guidelines. By doing so, the franchisees contribute to the quality assurance of the brand, and subsequently, their potential success is higher due to the franchisor’s provided resources, such as marketing, training, and ongoing support.