Franchising

Franchising is a method of expanding your business by licensing your intellectual property rights such as trade mark or trade name to a franchisee who pays you a certain amounts of fee to operate the business using your specific business system or know how at a specified period of time. The franchisee shall conduct its business operations in accordance with proven standards and specifications that have been well established.

The advantages are:

• Franchising will allow you to expand your business without expending significant capital per unit.
• Franchising also allows you to grow your business at a more rapid pace than you would generally be able to do on your own.
• Franchising reduces your exposure to risks relating to signing leases, additional financing and vicarious liability for employee acts.

Before embarking on a franchise, a business owner should always consult a franchise consultant to conduct a Franchise Readiness Audit on his business to determine its franchise readiness.

The FRA is not a compulsory exercise but it is advisable to be done. FRA does not only provide a gauge of the readiness of your business, but it will also give an insight into what franchising entails and this is important as it prepares you for the process ahead.

Yes, the registration of Franchise is compulsory by virtue of Section 6(2) of the Franchise Act 1998. The section provides that all franchises must be registered with the Registrar of Franchise before the Franchisor can offer to sell it in or outside Malaysia. Failure to comply with this provision is an offence under the Act.

Pursuant to Franchise Act 1998, before a franchisor is legally allowed to offer to sell its franchise within Malaysia or outside Malaysia, he is required to submit the disclosure document with the Ministry of Domestic Trade and Consumer Affairs (MDTCA). The purpose of this FDD is to show to the potential franchisee useful information to assist the franchisee to make an investment decision as to whether or not to purchase the franchise.

The FDD is conceptually similar to a prospectus in which it provides sufficient and accurate information such as history of the franchisor and its founders, types of products or services offered under the franchise, a description of the initial franchise fees and all other anticipated fees, kinds of assistance from the franchisor, an explanation of the system standards for advertising development and placement, site selection; size and scope of the territory granted to the franchisee and so on.

A Franchise Royalty Fee is an ongoing fee that the franchisee pays to the franchisor as part of the term stipulated in their franchising agreement. The fee is typically paid on a monthly basis and is calculated as a percentage of gross sales.

One of the main reasons of considering buying a ready franchise instead of starting your own new business is that the franchise business can offer you the opportunity to go into business for yourself with a much higher chance of success. This is because most franchises offer a proven business model and recognized the brand as well as provide training and management and other technical assistance and guidance.