Top Tips For Budding Franchisees
LEGAL ADVICE THANKS TO FREETHS SOLICITORS
1. Unless it’s in the contract it’s not part of the deal
Once you have decided to take on a franchise, your formal appointment as a franchisee is recorded in a franchise contract. This contract should contain all the key details about your franchise. From the simple facts – the name – to the key points eg. your territory and fees. If something isn’t covered it can be quite difficult, (and in some cases impossible), and certainly very costly to make a franchisor honour promises made but not recorded in the contract.
TOP TIP – Before you sign up to a franchise contract make sure it contains everything that you have agreed with the franchisor.
2. You should know what you are signing up to
Your franchise contract is a lengthy document and tends on the whole to be more favourable for the franchisor. It is critical you understand what you are signing up to. Franchises are often granted for a minimum of 5 years and often you won’t be able to get out of it early even if you don’t like it/you can’t make it pay (unless you sell the business).
TOP TIP – Get a fixed fee review and report from a Bfa affiliated lawyer (lawyers that specialise in franchising vetted by the British Franchise Association). These lawyers won’t waste your time and money negotiating points that are standard in the industry.
3. You may have paid for, but might not own the content on your website
These days social networking is a key part of any marketing strategy. This also applies to franchises. Most businesses engage contractors to design their websites. If you do this, legally although you are paying for the work, the designer owns the content that it creates. This can cause all sorts of problems particularly when you want to sell your business.
TOP TIP – You can stop this happening by making sure you have a simple contract with the designer that makes you the owner of the rights in your website.
4. You are legally responsible for the actions of your staff
As a franchisee, if you have staff you are responsible for their actions. If staff use customer data improperly or abuse social networking sites to damage your brand not only can the franchisor terminate your contract but, you are often financially responsible for any damage caused.
TOP TIP – Make sure you have appropriate policies in place with staff. Make sure your employment contracts protect you if this happens.
5. You may have built the relationship but, you do not own your customers
When your franchise is successful it can be a really lucrative business. At that stage you may be tempted to let your contract expire and go it alone – setting up your own similar business (different name) and diverting your custom to it. Legally this would put you in hot water as most franchise contracts contain enforceable provisions that prevent you from doing this for a limited time (up to one year) and in the current climate franchisors are more than happy to enforce this.
TOP TIP – If you are tempted to do this get advice first – it could cost you a lot of money and a lot of heartache.
6. Do your homework
Speak to other franchisees in the same business – the ones put forward to speak to and spot check others. Check the financials and the funding you will need. Look to see who are the competitors already in your area. Will the locality stand another similar business?
TOP TIP – Take your time. If you are worried consider asking for an option to terminate after say 18 months.
7. Sort out your business plan and structure
If you want finance the banks will expect a coherent business plan and to interview you to be sure that you know what you are doing. Your franchisor may prepare you for this – otherwise consider consultancy advice. Consider what business structure to use. A Limited Company protects against access to your personal assets so in a worse case scenario, only the money you have invested in the company and any personal guarantees are at risk.
TOP TIP – Getting finance is harder. Check out which banks support franchising and ask for their specialist franchise team.
8. Get sector specialist advice
Some franchises operate in heavily regulated sectors – eg. the Care Sector. You will need to make sure your franchise complies with applicable legislation or you risk losing your franchise and paying hefty fines.
TOP TIP – Avoid heavy fines and penalties get advice from lawyers that specialise in the sector.
9. Grow slow
Successful franchisees often operate a number of different franchises. Whilst this is a lucrative revenue option it is important to iron out any problems with your current franchise before taking on more.
TOP TIP – Get it right first – then expand. Expansion will highlight any glaring issues.
10. Plan for Exit
Setting up your franchise properly from the outset will save you problems when you want to sell. Having the right systems, policies and structure in place help to ease what can be a tricky process.
Top Tip – Make your franchise resale easier by having the right systems and processes in place from the start. Cutting corners will not save you money in the long run.
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