Franchising can be a successful route to growing your business; however the process can be long and complex. Here Rebecca Kelly, an associate in the commercial team at the Leeds office of hlw Keeble Hawson, offers a checklist of some of the legal and business considerations to help business owners avoid common pitfalls when franchising their business.
1. Business Plan
A sound business plan is essential and should consider the reasons for setting up your franchise, confirm that your product or service is suitable for franchising and detail your proposed management structure.
2. Setting up the Franchise System
Choose a trade mark and trade name; register trade marks, register any company names, purchase domain names and ensure your intellectual property is properly protected. This will help avoid people trying to trade under the same or similar names as you, and passing themselves off as being connected with your business (and benefitting from the goodwill in your reputation).
Set up a pilot franchise to trial the franchise. Review the results to assess if the franchise of your business is viable.
Compile an operations manual detailing how the business should be run.
Advertise for franchisees.
3. Drafting the Franchise Agreement
Engage a solicitor to prepare your template franchise agreement which you will enter into with franchisees. Questions you will need to consider and address with your solicitor include the following:
Is the franchisee to be a limited company? If so consider whether a guarantee from the main director or shareholder, guaranteeing the company’s obligations, is required.
What will be the initial fee and continuing fees payable by franchisees for the franchise?
Will you require franchisees to make a contribution in respect of your advertising costs. This will depend on whether advertising is to be regional, national or simply carried out by the franchisees in their own locality.
How long will the term franchise agreement run for initially and what will be the terms for renewing the franchise?
What accounts do you require the franchisees to prepare and how regularly do those accounts have to be handed to you?
What insurances do you require the franchisee to have in place?
Will you allow the franchisee to sell their franchise or transfer the franchise? What happens if the franchisee dies or becomes ill?
What is to be the geographic territory in which the franchisee will operate?
4. Overseas Expansion
• Seek advice and information on foreign laws and in particular any laws relating to franchising overseas in the jurisdiction in which you are considering setting up.
• Consider the use of a master franchise agreement, setting up a branch or subsidiary, or forming a joint venture.
5. Ensure you take proper financial and tax advice from your accountant or an appropriate specialist in relation to the proposed franchise of your business.
6. Make sure that you have appropriate insurance in place in your position as franchisor.
7. Consider what on-going support is to be provided to the franchisees particularly in relation to database management, training, data protection, customer service and company ethics.
8. What materials and equipment will be made available to the franchisee as part of their start up package, for example will they need specialist equipment, IT systems, stationery or uniforms?
9. You may want to consider having an ethics and anti-bribery policy to ensure that the ethical standards for operation of the franchise are written down and recorded properly.
10. Will you require the franchisee to have a public relations launch for their franchise – how will that be funded and how will you support this?
With appropriate planning and the right advice, savvy entrepreneurs can reap the rewards from successfully franchising their business.
The team here at hlw Keeble Hawson specialises in advising franchisors in realising their plans for franchising, and franchisees contemplating taking on a franchise. If you would like to speak to one of our team about franchising, pleas speak to Rebecca Kelly or Deborah Niven on 0114 2765555