I Am Transferring A Franchise – What Transfer Fees Will I Pay?

If you’re considering franchising your business in New Zealand, it’s likely that you have a successful business model ready for expansion, or perhaps a brilliant concept that’s perfect for multiple locations. Seeking the right guidance is crucial.

You need to understand the franchise laws in New Zealand, what to consider before franchising, the steps to franchise your business, and the necessary franchise documents required.

At Sprintlaw, we have the expertise to assist you, beginning with this comprehensive guide to franchising in New Zealand.

What Is Franchising?

Franchising is a business model where one party (the franchisor) grants another party (the franchisee) the right to operate a business under its brand. The franchisor retains ownership of the business name, branding, systems, and intellectual property but allows the franchisee to sell its goods or services.

This relationship is mutually beneficial. The franchisor earns fees by providing support, guidance, training, and structures, while gaining brand recognition and potential rapid growth. The success of the franchise often hinges on the goodwill between the franchisor and franchisee.

Franchising can offer significant benefits. Consider the success stories of global brands! In New Zealand, franchised businesses make a substantial contribution to the economy and can be an effective strategy for scaling your business if done correctly.

There are numerous factors to consider when looking to franchise your business.

• Understand what’s involved before you franchise.
• Be prepared with the right processes and structures.
• Know the legal requirements.

The following considerations are essential to begin your franchising journey well-prepared and poised for success.

Before You Franchise Your Business…

Assess Your Business Model

Before considering franchising, ensure you have a robust business model. A franchisee will look for a business that is well-managed, with a proven track record or credible owner credentials. Having clear, logical, and transparent structures and processes is vital.

You may not have created the business model; perhaps you’ve acquired the rights to distribute a product or service from overseas. Regardless, those credentials must be evident.

Perfect The Product

The product must be marketable. Address any necessary tweaks or updates before considering franchising. It should have value, appeal, and purpose.

Franchising a product with a track record of sales is more likely to succeed than one with unproven market appeal. Ensure there’s demand in the markets you intend to franchise into.

Know The Competition

Competition is inevitable, so understand your competitors and be able to articulate your product’s unique selling points to potential franchisees. Comprehensive research is crucial.

Think Geographically

Franchises should be distributed based on market demand, often geographically. Plan your network to be fair to franchisees and to optimise market coverage. Even if starting small, plan for expansion to avoid future conflicts.

Consider future growth to prevent territorial disputes later on.

Envisage Your Ideal Franchisee Candidates

Knowing your product and target market, you should have an idea of the qualities you seek in a franchisee. Don’t compromise, as the success of your expansion is at stake. List desired attributes and recruit with care, as your reputation is on the line.

Consider selling to employees who understand your business. Evaluate the importance of industry experience, their network, and business management history. Assess if their skills translate to likely success in your franchise and if they will be effective brand ambassadors.

Get The Finances Right

An accountant’s assistance is often necessary to ensure the financials are sound. There are two types of fees:

1. The initial buy-in fee
2. The ongoing fees for the support you provide

The franchisee must see value for their investment, but you also need to cover costs, allow for improvements, and make a profit. The success of each franchise increases the likelihood of attracting more franchisees and expanding your network.

Setting the fees correctly from the outset can prevent disputes and save money.

Set Up Support And Training

The success of your franchise depends on your franchisees’ success. Provide comprehensive training, guidance, and support. Consider creating an operations manual, offering technical infrastructure, promotional materials, and any necessary company-wide hardware to enhance the likelihood of success.

Balance the costs to avoid diminishing earnings, aiming for a successful formula.

Start With A Culture Of Goodwill

Franchising is about relationships. Establishing a professional yet friendly tone from the beginning can be beneficial. Mutual respect, a supportive attitude, and shared goals create a fertile environment for growth.

Understanding New Zealand’s legal requirements for franchising is crucial. The following provides a guide, but seeking legal advice is highly recommended.

Franchise Laws In New Zealand

Establishing a franchise in New Zealand is a legal process, and there are specific legal documents required. You will need to:

• provide a disclosure document and a copy of the franchise agreement to prospective franchisees before they enter into an agreement,
• comply with the Fair Trading Act 1986, ensuring you’re not misleading or deceptive in your dealings, and
• adhere to specific industry regulations that may apply to your franchise.

For example, you may need to consider employment relations and health and safety obligations under the Employment Relations Act 2000 and the Health and Safety at Work Act 2015, or tax obligations.

Disclosure Document

This document provides detailed information about the franchisor, their history, financial background, and all potential payments and fees. It must disclose any litigation, reasons for franchisees leaving, supply arrangements, and other critical information a franchisee should know.

Failure to disclose necessary information can lead to disputes and legal consequences.

Franchise Agreement

This is the primary legally binding contract between the franchisor and franchisee, outlining both parties’ rights and obligations specific to the franchise. Each franchise agreement is unique and should be carefully drafted with legal expertise.

Complying With The Law

It’s essential to act in good faith, with honesty and cooperation. While New Zealand does not have a specific Franchise Code of Conduct like Australia, franchisors and franchisees are expected to adhere to the principles of fair trading and good business practices.

Seek advice when unsure, and refer to the wealth of documentation available to support you in complying with New Zealand law.

Frequently Asked Questions

What is a franchise?

A franchise is an agreement where a business (franchisor) allows another person or business (franchisee) to sell goods or services under the franchisor’s brand, for a fee.

How do I create a franchise agreement?

It’s advisable to seek legal advice to draft this legally binding document that defines the franchise relationship.

How do I turn my business into a franchise?

Research thoroughly, develop a business plan, and seek legal advice. You’ll need to compile key financial and background information and provide potential franchisees with mandatory documentation, such as a disclosure document and a franchise agreement.

Franchising Resources

The laws surrounding franchising can be complex, and it’s an area that benefits from expert legal assistance. We have numerous resources to guide you through various stages of the franchising process, such as:

• Selling A Franchise
• What To Do At The End Of A Franchise
• Legal Documents You Need For Franchising
• Franchise Agreements
• What Fees The Franchisee Has To Pay
• Terminating A Franchise Agreement
• What To Do With A Bad Franchisee
• Franchisees’ Legal Obligations
• What Are Franchising Royalties
• Franchise Grant Process

Need Help?

Franchising may seem daunting, but with a step-by-step approach, your dream is within reach.

It’s crucial to seek legal advice before setting up a franchise. Sprintlaw has specialist lawyers who can offer affordable advice.

Don’t hesitate to give our team a call on 0800 002 184 or email us at [email protected]. We’re here to help!

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