1. Understanding Franchising

2. Who is HILL MAYOH ? HILL MAYOH are a team of CPA’s who understand Franchising. We assist people who are looking to buy a franchise, those who are looking to franchise their business & existing Franchisors who want specialist accounting & taxation advice. HILL MAYOH is a member of the Franchise Council of Australia with Brian having assisted via participation on the NSW Chapter committee of the FCA for the last 8 years, writing articles, presentations etc.

3. Our business …………… HILL MAYOH …specialist franchise work includes: Concept advice, Franchise Development strategies, Specialist Accounting & Taxation advice… eg Marketing Funds, Business Valuations, Business Structures Health checks, Documentation…….for Businesses looking to Franchise - including conversion of Contractor and Distributor models. Franchisors - existing. Prospective Franchisees – E valuation, Business Valuations, Structures Finance - assistance in sourcing.

4. Introduction Advantages and Disadvantages of Franchising Evaluating a Franchise Key Accounting & Management Issues Tax Considerations – Franchisee & Franchisor Can the Business be Franchised? The process of Franchising a business.

5. Because franchising offers solutions to:- Capital People Time Why Franchise ?

6. Reduced risk. Enhances cost savings and purchasing power. Improves Quality control / best purchasing. Increases brand exposure and market penetration. Provides a platform for asset growth. Is a solution to Contractors, Agent or Dealership issues. Exit Strategy. Advantages of franchising

7. Potential goal conflict. Share potential customer base. Corporate policies. Potential restrictions on sales/assignment. Disadvantages of franchising

8. Evaluating a Franchise Initial Enquiry Initial Meeting Start Work Decision Meeting Finance Approval Legal Advice Ready to Buy

9. Key Accounting & Mgt Issues Actual Trading Key Performance Indicators (KPI’s) Greenfield v Resale The Learning Curve Sales / Income levels Cost of Goods Sold & Labour Franchisor Ongoing Costs Contribution Margin Rent Equipment expenses Other expenses Owners Draw (living & financing expenses) Cash Flow Items – Initial Costs (Franchisor & other), Working Capital Borrowing – Serviceability & Security

10. Tax Considerations Business Structure Initial Franchisor Costs – capital v expense Marketing / other Funds – how to treat? Chart of Accounts – standard

11. The Five Essentials: Proven Business System – USP. Profitable with strong margins. Relatively easy to learn. Passion & long term Commitment. Investment Capital Can the business be Franchised?

12. ?

13. Franchising Model Begin with the end in mind’

14. The Process Feasibility System Design Legal Brief Franchise Documentation Ongoing Coaching / Consulting Project Completion Franchisor Training Legal Documentation

15. Stage One - Feasibility Study The Feasibility takes many hours studying the business including time with the management and staff. The subsequent report advises on issues such as; U.S.P.’s (Unique Selling Propositions) Intellectual property Examining the Current Distribution Model The ability to replicate the business unit Ongoing support requirements Splitting the Pie Equitable returns for all parties

16. So why conduct a Feasibility? To understand the business to be franchised. To determine if the business can be franchised. To determine the key structural elements of the business under a franchise system. To assess the financial feasibility of franchising

17. The Feasibility may, or may not, give the green light to franchising as the preferred development method. If a red light is revealed, an alternative development may be proposed. e.g. Licensing If a green light emerges, the process commences and we proceed to the Stage 2. Stage One outcomes

18. Stage Two – System Design Key Structural Components; Franchisee and Franchisor obligations Franchise model Franchise Support Structure Franchisor and Franchisee structures Income Streams Territorial delineations and protocols Franchise terms and renewals Systems and documentation

19. Some Forms of Franchising FRANCHISOR Single Unit Model FRANCHISEE

20. FRANCHISOR Some Forms of Franchising Master Franchising Model MASTER FRANCHISEE FRANCHISEE

21. Example of a Business Structure Licensor XYZ Trust Franchisor Trading Entity XYZ Pty Ltd atf XYZ Franchising Trust FRANCHISEE License Agreement Should not hold assets or build equity in its balance sheet Holds IP

22. Factors influencing System Design Market size Dispersion of demand for the business Complexity of the product/service offering Managerial implications of running the system under franchise Financial and managerial resources Personal and business objectives of the Principals

23. System Design financial modeling “Splitting the Pie” We will examine the following:- Discover the key business drivers Determine the environment for success Carry out a future value test Match or better the market on ROI for the franchisee Unit potentials Franchisee then Franchisor Capital requirements Income streams & operating costs Realistic G.P.’s, sales and costs for SUSTAINABLE net profit. Strike equity in profitability Growth rate

24. System Design financial modelling continued. Franchise terms and renewal Site selection procedures and supporting manual Territorial structures Communication and reporting structures Induction and ongoing training etc

25. Stage Three - Documentation Stage Three is the production of all the documents necessary under the Franchising Code of Conduct (Trade Practices Act). Legal Documents Confidentiality Agreement Disclosure Document, Franchise Agreement, Licence Agreement, Franchisee Advice Statement, We work directly with the lawyers - our experience assists to significantly shorten this process. We suggest a choice of experienced franchise lawyers and review all documents before the prospective franchisor sees them.

26. Stage Three - Operational Stage Three also provides the necessary documents and systems for a Franchisor and Franchisee to work effectively under a strictly defined system. Further systems documentation is developed according to your specific requirements. We organise the production of the Operations Manual/s which involves specialists working closely with client management and project mgt from HILL MAYOH. This stage of the project is intrusive and can sometimes impose upon daily business activities.

27. Documents Franchise Compliance Manual Operations Manual Site Selection Guide (if applicable) Franchisee Recruitment Manual Franchisee Selection Criteria Recruitment Brochure draft The following documents are normally required to enable the business to reach the point of readiness to recruit Franchisees:- Note: If other Manuals are required, such as technical manuals, these are quoted separately.

28. Stage Four involves the creation of a recruitment process and conducting training with management to ensure compliance with procedures. We also to develop a Franchisee selection criteria based upon :- Background and experience Personal attributes Financial stability Personal factors Technical requirements Stage Four

29. Stage Five Stage Five is our Project Completion where everything is reviewed to ensure a complete understanding of all aspects of the new franchised business by key management. The Franchisor is fully trained in all aspects of the business including The Operations Manual.

30. We say to the prospective Franchisor… Be prepared for this exercise to an investment in both time and money. Invest in professional help from Franchise Consultant (franchise structure and system) Specialist Lawyer (franchising experience and legal structure) Specialist Accountant (Business structure and tax advice) Franchise Division of a major Bank Be prepared that despite all the best planning, preparation and investment that the market may not automatically accept the concept. Conversely, be prepared to be hugely successful. This brings its own problems to the table – are you prepared?

31. Is that it allows people from all walks of life fulfill their dream of successfully owning and operating a small to medium business with little to no business management skills or experience! HEART OF FRANCHISING

32. Brian Mayoh - Principal  Initial 11 years in charted and commercial accounting.  6 years as a franchisor with Kwik-Kopy.  3 years in corporate marketing and general management.  15 years in franchise advisory & CPA with Franchise Systems, Franchise Alliance & Hill Mayoh.  Independent franchise and business consultancy work ongoing.  Brian holds a Diploma of Business (Franchising) and the qualification of FCA Fellow with the Franchise Council of Australia.  Brian is also a Certified Practicing Accountant.