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How to Open and Operate a Franchise in a Different Country

Do you want to buy or sell a franchise in a different country? If YES, here is a detailed guide on how to open and operate a franchise in a different country. Franchising, is not a business, but rather a way of doing business. It’s a unique and highly effective method of distribution for all kinds of products, goods, and services.

It’s also an industry that generates in direct and indirect economic impact, over $2.3 trillion in annual sales. Franchised businesses demand products and services from other businesses and provide income to their workers and owners, who then spend their income and create still more income for other parties.

Aside from statistics on business success, prospective business owners are partial to franchise models due to their brand recognition, consistent service, developed and proven operating system, and security.

Steps to Open and Operate a Franchise in a Different Country

Step 1. Create a Solid Business Model

Ideally, if you are looking towards opening and operating a franchise, you should have an existing business that you want to scale up. It can be harder to sell a franchise model if you cannot point to an existing business. When you already have a profitable business, it is easier to show that you have a proven formula.

Nevertheless, you do not always need your own business model. Perhaps you are bringing an international brand into your country, acting as the local franchisor and buying the right to issue sub-franchises within the country. If so, you would be setting up shop as a ‘master franchisee’.

Step 2. Conduct Your Market Survey and Feasibility Studies (Research)

You are expected to conduct your market survey and feasibility studies. Your research should cover the following areas;

  • Who Your competitors are
  • Whether there are similar franchises already and what your point of distinction is; and
  • Which laws are likely to apply to your franchises (such as food safety laws for fast-food franchises).
  • A strong understanding of the market will allow you to pre-empt any potential issues and adapt your model accordingly.

Step 3. Speak to the Experts

When it comes to opening and operating a franchise, you would need the services of experts. You are expected to get legal, accounting and business advice on the best framework for owning and operating your franchise business. By describing your expectations about how you want the business to run, you can get feedback on whether your vision can work within the confines of Australian law and receive input on how to meet your business goals.

By consulting with professionals who have assisted other franchisors, you can hear their stories and learn what will work best for your particular type of franchise. Different industries favor different franchising models, as do premises-based versus mobile franchises.

Keep in mind that franchisors have ongoing legal and accounting obligations. If you get good advice from the start, you can set up best practices that will minimize long-term headaches.

Step 4. Arrange for Recruitment

Take your time to develop a strategy for recruiting and assessing potential franchisees. Consider what your ideal franchisee looks like, where you will find them and how you will attract them. Strong recruitment processes are essential, especially for your early franchisees.

These franchisees will be pioneers for your business model. Some franchisors recruit their existing employees as their first franchisees.

Given that your network’s reputation depends on your franchisees’ success, it is also important to build trust and cooperation from your very first franchisee. You want to be bringing franchisees on board who buy-in to your vision and are committed to high standards.

Step 5. Implement Training Standards

However, maintaining high standards does not end with recruiting the right franchisee. You should also create training materials that give your franchisees the knowledge they need to make their business a success.

For example, is there specialized equipment that your franchisees will be operating, or a particular recipe to be followed? Consider what information your franchisees will need to be successful. You should also be ready to update these training materials when there are changes in applicable laws or industry developments.

Many franchisors recently found themselves doing this in response to the Vulnerable Workers Legislation, which makes franchisors more responsible for ensuring franchisees comply with employment laws.

Step 6. Create Successful Business Model

Reflect on your conversations with the experts and think about what you want your franchise system to look like. It is important to take the time to carefully reflect on the details of what you will offer your franchisees, and what you expect of them in return.

With more detailed systems and processes, you will be in a better position to maintain high standards throughout your network and therefore work towards providing the best possible product or service for your customers. For example, you should consider:

  • Whether franchisees will be able to operate in exclusive areas;
  • What your rules around marketing will be and whether you will be operating a marketing fund;
  • How much ongoing support you plan to offer franchisees;
  • What the minimum requirements franchisees will need to meet before they are allowed to operate a business will be; and
  • Whether franchisees will need to obtain licences or provide you with a police check.

Step 7. Settle on Fees

In the process of opening and operating a franchise, you should consider all the fees involved and settle on fees that will be acceptable. A key part of fostering this profitability is ensuring that the fees you charge franchisees are reasonable.

There are two types of fees to consider: initial and ongoing. The initial fee is what the franchisee pays to purchase the business. Ongoing fees give the franchisee the right to use your franchise system and brand. Ongoing fees can also take the form of marketing levies and ancillary fees for items such as software.

When drawing up your fees, you want to ensure that franchisees see value from what they are spending. For example, you may provide ongoing assistance and continual improvements to the franchise system. You also need to strike a balance with making sure that you are able to cover your own costs of running the network.

Step 8. Protect Your Intellectual Property (IP)

It is important that in the process of opening and operating a franchise, you should consider registering each type of IP relevant to your franchise. Every franchise will benefit from having their logo as a registered trade mark and having a registered business name.

One aspect of building a strong brand is protecting your right to use your trade marks and other IP. As part of setting up your franchise, you give franchisees a license to use your IP for as long as they are franchisees. To keep your franchise consistent, you can also prohibit franchisees from using any other symbols, logos or business names.

Step 9. Develop Your Operations Manual

It is a fact that you cannot open and operate a franchise without developing your own operations manual. An operations manual is a go-to guide that shows your franchisees exactly how to run their business. It will cover everything from how to interact with customers to the format in which franchisees must give you regular reports.

Ideally, the manual should be very detailed. The more guidance you give franchisees, the greater your ability to maintain quality throughout the franchise. Due to being highly detailed, the operations manual will contain confidential information.

Typically, the manual will be provided to a franchisee after they have entered into the franchise contract, or signed a document agreeing not to disclose the contents of the manual. You should also be careful to make sure that your manual matches up with the terms of your franchise agreement and other documents.

Step 10. Create Your Franchise Documents

Aside from the operations manual, you would also need a comprehensive document. At a minimum, you will need to prepare a franchise agreement and a disclosure document. You can also require franchisees to sign other documents, including:

  • Property licenses
  • Confidentiality agreements
  • Non-compete deeds
  • Personal guarantees.

Do not take shortcuts when it comes to your legal documents. You should take the time to consult with franchising lawyers. Franchising is a highly regulated area in Australia, with rules about what you can — and cannot — include in your franchise agreement.

There are also strict rules around how franchisees are to enter into a franchise agreement. For example, you must give franchisees a copy of the Franchising Code of Conduct along with the franchise agreement. You must also provide the franchisee with all relevant documents at least 14 days before they sign the agreement.

Opening and Operating a Franchise in Australia as a Foreigner

In Australia, if you are considering opening and operating a franchise, there are laws you must follow, including the Franchise Code of Conduct and the Australian Consumer Law (ACL). But these laws can’t guarantee your success – a franchise can fail, just like any other business.

a. You Make Sure You Understand The Costs Of:

  • The upfront fees
  • Establishing and maintaining the franchised business
  • Any significant expenditure you might have to pay

b. Comply with the Franchising Code

All franchise participants, including franchisors and franchisees, must comply with the mandatory industry Franchising Code of Conduct.

The Franchising Code:

  • Regulates actions of franchising participants
  • Aims to make sure you are properly informed about a franchise agreement before you enter into it
  • Aims to provide a cost-effective dispute resolution scheme for franchisees and franchisors

While the Franchising Code determines minimum standards of disclosure and conduct, it’s not intended to replace independent legal, business or accounting advice before entering into a franchise agreement. Seek advice from a professional business adviser, accountant or solicitor with franchising experience before entering into a franchise agreement.

As a franchisee, the Franchising Code details:

  • Your minimum rights and obligations
  • The information franchisors must disclose to you
  • The elements a franchise agreement must contain
  • A mediation procedure for disputes

c. Enforcing the Franchising Code and ACL

The Australian Competition and Consumer Commission (ACCC) administers and enforces the Australian Consumer Law and Franchising Code of Conduct.

They also provide guidance on your rights and obligations under these laws. Check the ACCC’s information for small businesses buying a franchise or extending or renewing a franchise agreement.

d. Buy a Franchise (Become a Franchisee)

Buying a franchise means you are going to be buying the rights to run a business under an already established brand name. Often these rights are subject to conditions that are set out in a franchise agreement.

Before you buy a franchise, consider the same issues as you would if you were purchasing or starting any other business. Do your research and understand how it works. Also, consider the issues specific to franchises, such as what happens if the franchise or franchisor fails.

Once you enter into a franchise agreement, you are legally committing to run the business according to the requirements set out in the franchise agreement and the franchise operating manuals. If your franchise agreement is a standard form agreement, you should also consider if unfair contract term laws apply.

A standard form contract is one that has been prepared by the other party and you have little opportunity to negotiate the terms. The ACCC website has more information on unfair contract terms and buying a franchise.

e. Enter a Franchise Agreement

The franchise agreement is a legally binding document that details the rights and responsibilities of both the franchisor and franchisee. Before you sign a franchise agreement, obtain as much information about the franchise as possible and make sure you understand the risks.

As soon as you show a genuine interest in a franchise, franchisors must give you a short information sheet outlining the risks and rewards of franchising. At least 14 days before you sign a franchise agreement or make a non-refundable payment, franchisors must give you:

  • A copy of the Franchising Code
  • A disclosure document
  • The franchise agreement in its final form

As a prospective franchisee, it is important to understand what is being offered and your rights and obligations under the Franchising Code. You should also be aware that a franchise agreement only gives you the right to operate the business for the life of the franchise agreement. There is no guarantee that the agreement will be renewed, unless specifically negotiated under the agreement.

f.  Franchise your own business (Become a Franchisor)

If you have a successful business that you want to expand, you can consider franchising. If managed well, it can open your product or service to new markets and extend your brand’s reach.

Before you franchise your business, make sure you have a successful and proven franchise model. Operating your own franchise model before selling a franchise to someone else can help prove your concept, establish demand and create sound processes and systems that can be repeated in each new franchise.

There is no specific franchise registration or approval process, but establishing a franchise is a legal process and can take some time. It’s important that you plan thoroughly and seek professional advice from an accountant, solicitor or franchise consultant with franchising experience.

As a franchisor in Australia, you must comply with the Franchising Code of Conduct and Australian Consumer Law. Check the ACCC website for other laws you may have to comply with. Under the Australian Consumer Law you must not use misleading, deceptive or unconscionable conduct in your business dealings.

If you decide to franchise your business, it’s vital that you have a good working relationship with the franchisees. Take care when you select a franchisee to ensure they are a good fit for your franchise business. Under the Franchising Code you must act in good faith in your business dealings with each other.

If you breach certain provisions of the Franchising Code, you risk financial penalties and infringement notices.

g. Understand Your Franchise Tax Obligations

Your tax obligations will depend on whether you are a franchisee or franchisor.

  • Franchisee

Franchisee businesses can operate under different business structures. Like any business, your structure, earnings and assets will determine your taxation obligations. Ongoing franchise fees are often deductible in the year you pay them. You might be able to deduct other payments including training fees and loan interest from your taxable income. Check what you can deduct with your accountant.

When you buy, sell, transfer or terminate a franchise, taxes may apply, including capital gains tax (CGT) and goods and services tax (GST).

  • Franchisor

As a franchisor, you need to understand your tax obligations and how franchising fees are treated for tax purposes. It’s also important to review your income tax and goods and services tax (GST) reporting requirements. In most cases all payments you receive from a franchisee will be assessable income. They will also involve GST.

Opening and Operating a Franchise in USA as a Foreigner

In the United States of America, if you are considering opening and operating a franchise, there are laws you must follow and here are the simple steps you must follow;

Step 1. Conduct Self Evaluation:

You should be able to look inward and come up with the ideals that would want you to pursue franchising. You should be able to come up with a business structure that is already successful and one that can easily be duplicated with little or no supervision. The bottom line is that you must have a winning formula if indeed you want to go into franchising.

Step 2. Pick a Franchise Consultant to Assist You (Optional):

In spite of all of the information available online, it is still a good idea to hire the services of a franchise consultant to help guide you through the process.

A franchise consultant has industry-specific knowledge and can relate possibly complicated topics (including aspects of franchise agreements and disclosure documents) to you in a more understandable way. A franchise consultant could also potentially keep you from experiencing pitfalls that may happen without their expertise.

Step 3. Conduct Market Survey and Feasibility Studies (Research):

Market survey and feasibility studies will give an idea that will determine if your business idea can survive franchising. Interestingly, in the United States, Federal and state governments provide free access to statistics and other data. Use the info gathered to match your personal situation and the business environment of your area with a suitable franchise system.

Once you have been able to narrow your search down to a few strong contenders, request the franchise application from those franchises. Once the franchise decides that you could be a good match for their system, they will send you a copy of their franchise disclosure document (FDD). The FDD will give an even deeper look into their business system.

Step 4. Attend a ‘Discovery Day’:

A discovery day is an in-depth meeting between the franchisor and one or more potential franchisees. It can take place at a local outlet of the franchise, but will most likely happen at the company’s corporate office.

Often, the franchisees in attendance will see presentations about what the franchisor can offer in terms of support, and can ask questions. If done at the corporate office, a tour of the different departments and introductions to franchisee training and support personnel are common.

Step 5. Speak to Other Franchisees:

In business, you can never know it all hence the need to speak with business owners who are into franchising. Interestingly, within the FDD provided by the franchisor is a listing of all current franchisees in their system. Find a few that are close to you and pay them a visit.

Are they satisfied with the franchisor’s support? Is the reality of the business in line with prior expectations (financially and otherwise)? There’s no better teacher than someone in the middle of franchise ownership.

Step 6. Find a Suitable Location

If you intend buying the franchise of a company, you are expected to come with your plans and what the franchisor will be looking for is a good location that the business can thrive. The franchisor will delineate certain parameters for your territory in the FDD and franchise agreement.

In addition, most franchisors assist with site selection. In many cases, the franchisor will have to approve your location before you can move forward.

Step 7. Choose a Franchise and Secure Funding:

Opening and operating a franchise can be pretty expensive which is why you should be careful in selecting a franchise and when you are done, you should secure funding. Good enough some franchisor assists their franchisee to access funding.

There are numerous financing options out there for you to consider: bank loans, SBA (Small Business Administration) loans, HELOC (home equity line of credit), etc. Remember, you’ll need enough cash reserves to cover expenses until the business begins to turn a profit, which in some cases can be months after opening.

Step 8. Sign the Agreement:

It is important to note that quite a number of franchisors have rigid franchise agreements, some franchisors may be more flexible about negotiating terms in the agreement. If the franchisor is willing to negotiate certain terms, it’s a good idea to seek counsel from a lawyer with franchise-specific experience to find the best solutions for your particular situation.

If the franchisor does have a rigid franchise agreement, that isn’t a cause for concern. Remember, franchises are based upon a proven system and consistency of the brand. Conversely, if the franchise agreement for the brand you chose is overly negotiable, it could be cause for deeper investigation.

Step 9. Obtain All Necessary Permits and Insurance:

It is a fact that every industry has its own requirements for permits and insurance. Regulations by state, city, county, etc. will vary as well. The franchisor will likely have background knowledge of the permits and insurance needed to operate their business system.

However, it’s a good idea to check with local authorities to ensure compliance. Two good websites to use as a reference to what permits and insurance might be necessary for U.S. businesses to obtain are the Small Business Administration and FindLaw.

Step 10. Hire Staff and Attend Relevant Trainings:

The number of staff members needed to run the operation will depend on the type of franchise chosen. One of the most appealing aspects of franchising to those wanting to open a business is the training component. Franchisors usually provide training, in a combination of classroom and practical experiences, to at least the franchisee and another manager. A copy of the franchise operations manual is also typically presented at this time.

Step 11. Open Your Franchise Business:

If you have fulfilled step one to ten, then it is time for you to open and operate your franchise. Prior to opening your franchise, you will need to alert potential customers to their new marketplace option. Franchisors will often have defined processes for signage, ads, and other initiatives to be performed.

Estimates for these initiatives will usually be a part of the start-up costs quoted in the FDD. Please note that some franchisors will do a ‘soft opening’ before the ‘grand opening”.

A soft opening is designed to smooth out problems with the operation of the business before the big marketing blitz, and hopefully larger crowds that will come with the grand opening. Some franchisors also arrange for a corporate trainer to be on hand at the franchise location during the opening days.

If you intend opening and operating a franchise in any other country of the world, then the following steps is applicable to you but you must ensure that you visit the appropriate authority in your country to get specific instructions as it relates to unique permits and licenses et al