Due diligence is always king when it comes to overseas growth, so here are some key steps to take before embarking on Australian franchise expansion.
So, you’re thinking of expanding into Australia. Before you do, there are some financial aspects for you to consider. Before we start, here is a brief overview of the regulatory environment in Australia:
• ASIC – The corporate watchdog. The Australian Investment and Securities Commission (ASIC) is known as the corporate watchdog. Its role is to register each company in Australia and hold on public record details of the office holders of each company
• ATO – The tax collector. The Australian Taxation Office (ATO) collects the tax revenue in Australia. There are numerous taxes in Australia, including Income Tax and the GST (Goods and Services Tax). The states also apply various state-based taxes. Careful attention should be paid to the various taxes your business may be exposed to
• ABN – The identification number. Each business that operates in Australia must have an Australian Business Number (ABN). It identifies each business and allows the ATO to keep track of all businesses trading in Australia. This means you will need to obtain an ABN for your business in Australia
“Utilize social media in a big way. Hit your target markets and target locations. Tell the world you are here, ready to go, and looking for business”
• Franchising: The way you operate your franchise in Australia is governed by the Franchising Code of Conduct. You will be required to comply with the Code when you operate in Australia. This will have a financial impact on your business as you not only customize your documentation to comply but also as you continue to operate.
Before you launch in Australia, there are a number of pre-launch activities you will need to undertake. Each of these have a financial impact which you need to be aware of:
• Establishment and registrations: It is important to set up a company to establish your presence. An Australian resident needs to be an office holder of your company. The company will need to be registered with ASIC, the ATO and obtain an ABN (Australian Business Number) to operate
• Relationships: It will be prudent to establish various relationships with local banks and advisers, such as legal, accounting, and insurance to assist with the range of issues you will encounter
• Documentation: Your franchise documentation will need to be customized to Australia, so it is relevant to the locals while complying with Australian franchise legislation
• Financial modeling: As part of your expansion plans, you will need financial modeling of the potential for your business in Australia. It makes sense to check this with local firms to test the reasonableness of assumptions used
• Initial employees/ representatives: Once you have decided to launch in Australia, you will need people to represent your business. These could either be locals, or your own people who have transferred over. Either way, they will need to be registered with the ATO as employees of your organization. You will then have ongoing employer obligations and responsibilities for them under the various Australian workplace laws and regulations
• Premises: You should also consider whether to take on-premises for your operations in Australia. There are various models which can be used, ranging from serviced offices, which provide an address and phone answering services, up to properties that are available for rent. Each one has its own requirements for up-front payments and directors commitments
• Marketing and promotions: Once you’re committed to expanding into Australia, some initial work with marketing and promotions needs to be done before you launch. The goal is to generate interest so that when the ‘doors open’, some activity is already underway
• Collaborate: A key part of your pre-launch activity will be to identify and build associations with local businesses that are already selling to franchise prospects. There are a number of businesses that currently promote franchises for sale in both print and online. Establishing connections with these businesses before you launch is critical.
Now the big day has arrived and you’re ready to launch. The first objective is to sell some franchises. It’s important to build on the associations you’ve made with those businesses that are selling franchises. Now is the time to meet with them, network and work closely with them.
Utilize social media in a big way. Hit your target markets and locations. Tell the world you are here, ready to go, and looking for business. This will likely incur significant costs, as you get the message out and generate interest in your brand. From a financial perspective, you will also need to factor in recruitment costs, marketing and advertising costs, as well as discovery day resources and collateral.
Assuming your franchise is a success, and you achieve high growth, this may create pressures on working capital to fund this growth.
It’s the classic case of needing to invest before you get the return. You will need to invest in:
• Staff, which involves their recruitment, induction and training
• Infrastructure, which includes additional technology, subscriptions, licenses and hardware,
• New or expanded premises. This will likely involve relocation costs, fit out, packing, moving and downtime for the move.
There will also be the costs involved to advise customers, suppliers and the regulators, i.e. ASIC and the ATO. It is likely your initial systems will be stretched and you may need to upgrade. This will involve additional costs of the upgrade, implementation and training.
As you can see, there are a number of financial factors to be considered before you expand into Australia. But with good planning, you can be well placed to make the most of the opportunity.
FIVE FINANCIAL CONSIDERATIONS FOR BRANDS EXPANDING INTO AUSTRALIA
1. PRE-LAUNCH. This includes the initial set up of your company, registration with Australian regulators and the ‘Australianization’ of your documentation
2. SET-UP. This involves your initial employees, premises, marketing and promotions
3. LAUNCH. This involves marketing and promotions, social media, recruitment costs, as well as discovery day resources and collateral
4. TAKE-OFF. This involves working capital to fund growth, new staff, new infrastructure and premises
5. FINANCIAL MODELING. This is your forecast into the future, including your budget and cash flow forecast as you navigate this new market
Peter Knight is one of Australia’s leading franchise accountants, assisting franchises with the financial aspects of their business, from due diligence through to the establishment and running of their business.