Despite today’s high streets facing commercial and economic difficulty, franchising continues to soar in popularity. From McDonalds to Starbucks there are over 22,000 franchise establishments in the UK – it’s a multi-billion-pound industry.
As we enter one of the most challenging times faced by the UK economy, we take a look at the highs and lows of franchising.
How does it work?
The franchisor has typically developed an established and proven business model and grants the franchisee the right to use that model together with its trademark or trade name and its associated business systems and processes.
The franchisee is typically responsible for its own staff and internal operations, but will usually operate with the support and guidance of the franchisor on matters such as marketing, financial planning and HR.
Attractions of a franchise
– Proven business model: The franchisor has established the brand and reputation, meaning that the franchisee acquires a proven business, ready to trade.
– Fees: The initial investment required to acquire a franchise can be less than that required by a new start-up.
– Support system: Franchisees often become part of a larger, more powerful network, meaning that guidance, training and central support is available.
– Training: In-depth training, such as shadowing a current franchisee, gives the insight needed to operate successfully.
– Exclusivity: Franchises are typically allocated on an exclusive territory basis, meaning that there is no risk of competition from others operating the same franchise.
– Portfolio Expansion: Once you have one franchise successfully up and running, can make it easier to open additional franchises in different territories.
Pitfalls and what to be aware of
– Fees and charges: Franchisees will pay a fee to start their business and, thereafter, monthly royalties. Start-up fees can be significant, especially with well-known brands. After the initial fixed term of the franchise, a further payment will typically be required by the franchisor to permit continued operation under the franchise brand.
– Abide by the rules: Policies and procedures will be set by the franchisor – not adhering to these can result in termination of the franchise agreement, so it’s important to get appropriate contractual advice before signing any agreement .
– Unbalanced terms can exist in agreements: Terms in franchise agreements will often be written in favour of the franchisor and are often largely non-negotiable, so it is especially important to take specialist legal advice to ensure you fully understand the agreement.
– Control over the business: There will be an element of control that will be retained by the franchisor concerning the use of the franchise brand, so you will not necessarily have the freedom to run the business exactly how you would like to.
– Termination of the franchise: Termination of the franchise can often take place if a breach of the franchise agreement takes place so, again, fully understanding the terms of the agreement
– Selling your franchise can be problematic: The sale of a franchise is often prohibited by the terms of the franchise agreement. Therefore, unless the franchisor agrees to a sale, there may be no straightforward way of exiting the business and realising its value (e.g. on retirement).
Whether you are thinking of taking on a franchise, an existing franchisee seeking advice, or are a business owner considering offering franchises for the first time, the Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to provide professional and friendly advice on all aspects of franchising, or any other aspects of company, commercial and business legal matters.
For an initial no obligation discussion about any business legal matters, including franchising, contact Duncan Crowther on 01536 218888 or by email at firstname.lastname@example.org.