There are many forms of business relationships available to business owners. Franchising is most definitely an efficient strategy for growth as it allows businesses to expand rapidly and potentially become a national or worldwide name.

Franchising is the act of one person (the franchisor), granting to another (the franchisee) a license to operate the franchisor’s business by using their brand, products and method of operation in exchange for a fee.

As for any new business model, there are various elements to take into consideration when becoming a franchisor.

1. Becoming a franchisor

To become a successful franchisor, it is important to consider the following steps:

Business model evaluation: it is important for a business to assess whether its business model is achievable as well as ensuring that its brand has the required market appeal.

Business plan: franchisees must understand a franchisor’s business. To facilitate this, developing a strong business plan is highly recommended. This is so a franchisor can detail the structure of the business, the roles and responsibilities of both franchisor and franchisee. This would also allow a franchisor to set out estimates in terms of finance and marketing strategy.

Operations manual: developing a detailed operations manual is one of the most important aspects of the franchising process. The manual will govern the way the franchisee will conduct the franchise business in setting out instructions for the day-to-day operations of the business. This manual should ultimately be classified as confidential as it will contain the business’ know-how and the secrets of its success.

Pre-contract disclosure: a franchisor is no obliged to make pre-contract disclosures. However, on the franchisee’s point of view, it would be more prudent for the franchisee to undertaken due diligence in order to understand the franchise and gather information on its success to make an informed decision before getting into business.

Intellectual Property rights: as a franchisor will have developed know-how and created some brand awareness, intellectual property rights would more than likely have significance when franchising a business. It would be advisable for franchisors to seek to protect such intellectual property rights.

Often, patent protection is unlikely to be necessary as franchises will not use a patented process. Copyright and trademarks are on the other hand of significance. Copyright will give protection to original literary and artistic works which can cover advertising slogans. Trademarks will bear the greater significance as it will protect the brand name and image of the franchising business. Before registering for a trademark, franchisors should consider the following:

• • It is important for franchisors to do a search on the mark they are looking to register to ensure that the mark is not already registered or used for the same and/or similar product or service.
  • It is preferable for a mark to be distinctive in order to avoid potential dispute and infringement.
  • The Registry will search for similar marks on application for registration together with checking definitions of the words used in the mark. There is however a possibility that the Registry may make an objection, albeit the best way for franchisors to defeat the objection would be to show that the mark has been used to a great extent and has become distinctive for potential customers.

Selection of franchisees: it is important that franchisors undertake a rigorous selection of franchisees to ensure each candidate’s suitability.

Training of franchisees: it is crucial for franchisors to have in place a strong training and support system for franchisees as this will provide franchisees with the required skills and knowledge to run the business effectively and successfully.

2. Advantages of becoming a franchisor

There are many benefits of franchising a business. Here is a list of some of these advantages.

Business growth: franchising a business allows to facilitate the expansion of a business and its network more easily without having to invest a lot upfront. By setting up a franchise, franchisors can focus on developing new ideas while franchisees manage the day-to-day operations of the business.

Brand development: franchisors would gain access to new territories by allocating various locations to franchisees which will promote the brand as well as the business’ reputation.

Constant cash flow: franchisors will benefit from steady income with minimum risks from the franchise fees and ongoing royalties.

Risk mitigation: financial and operational risks are always a concern when expanding a business. However, in the case of franchise, these will be shared with the franchisees.

3. Disadvantages of becoming a franchisor

Although the disadvantages of becoming a franchisor are lesser than the benefits, these still need to be considered.

Reputation: a franchisor’s reputation, and by extension its business, can be affected by franchisees. This can be due to poor performance or staff behaviour, which is why the franchisee selection process is a crucial step when creating a franchise.

Shared profit: as mentioned above, it is a benefit that the risks are shared between franchisors and franchisees. However, this also means that profit from franchisors’ idea is shared with franchisees.

Sharing confidential information: franchisors need to ensure that their franchisees are committed to the brand and business and do not disclose confidential information. It is therefore highly recommended to have in place watertight contracts to protect trade secrets.

Management: franchisors’ guidelines, practices and overall instructions do restrict what franchisees can do. However, they are not the franchisors’ employees and therefore, franchisors do not have management control over them. As a result, having a rigorous franchisee selection process, proper training and clear operations manual is critical for the good performance of the business.

It is undeniable that franchising a business comes with many benefits and would be one of the most effective ways to expand a business successfully. Nevertheless, this is not a process which can be hurried, and it is highly recommended to seek legal advice to fully understand a franchisor’s rights and obligations. Our commercial team has a wide range of experience in advising franchisors and would be delighted to assist individuals and businesses with any queries.

For further advice and assistance, please contact our Commercial Solicitors on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

There are various ways an individual or a company may enter the world of business ownership, such as becoming a franchisee. A franchise is the acquisition by a buyer (the franchisee) of the rights to operate a business from the original owner (the franchisor). The franchisor grants the franchisee the right to use its brand rights, know-how and business model within a specific territory, in exchange for payment of a fee.

As exciting as it is to become a franchisee, there are factors to take into consideration before entering a franchise. These include how to become a franchisee, as well as the benefits and risks of becoming a franchisee.

1. How to become a franchisee

It is important for an individual or a business to consider whether it is financially ready for this type of commitment. Franchisees often have to pay various fees to the franchisor with ultimately no guarantee that the business will be successful. This is why good planning is essential.

A potential franchisee must conduct thorough research on the franchises and industries it would be considering. In particular, it is recommended to consider various factors such as:

• the market;
• the franchisor’s reputation;
• financial performance;
• fees involved with becoming a franchisee;
• the expectations put on the franchisee; and/or
• the investment options.

2. Advantages

There are many advantages that come from buying a franchise. Here is a list of some of these advantages.

• Brand recognition would be the main advantage to become a franchisee. Franchises are mostly well-known businesses and have a client base already established.
• The business risks of becoming a franchisee are lower than setting up your own business. As part of the due diligence, the franchisor will likely have proven the success of the business. A franchisee will also benefit from the franchisor’s existing brand and operate under a business model which has provided results.
• Franchisors usually have an obligation to provide ongoing training to their franchisees and staff members. It is invaluable to get support from an industry expert in order to grow the business and navigate the challenges that can arise. This can also take the form of expertise in relation to the market.
• Entering into a franchise allows a franchisee to form contracts with external suppliers easily as a franchisee may benefit from the franchisor’s established relationships with its suppliers.
• A franchisee will have to incur costs and franchise fees. However, the return on investment is often much higher compared to independent businesses.
• Lenders tend to be more willing to provide loans and general financing for businesses’ start-up costs due to the higher chance of success of buying a franchise.

3. Disadvantages

Notwithstanding the above advantages, potential franchisees should also consider the following disadvantages of becoming a franchisee.

• The cost of purchasing a franchise can be substantial, including the franchise fee, equipment, inventory, and real estate. Additionally, ongoing royalties and marketing fees can be incurred.
• Franchisors are protective of their business and want to ensure that it will not suffer any damage. Franchisees must therefore adhere to the franchisor’s operational guidelines, limiting their ability to make independent business decisions.
• The success of a franchise can be affected by the overall performance or reputation of the franchisor and other franchisees. Negative publicity or poor performance at other locations can impact your business.
• Franchise agreements are typically for a fixed term. It is therefore important to understand the terms of renewal and conditions under which the agreement can be terminated.
• Potential conflicts need to be considered as well. Relationships between the franchisor and the franchisee may sour over time and disputes may arise. It is therefore important for the franchisee to do its due diligence before buying a franchise.

Becoming a franchisee offers a structured path to business ownership with the support of an established brand. However, thorough research is important before buying a franchise as well as seeking legal advice, and fully understanding the commitments involved. Our commercial team has a wide range of experience in advising franchisees and would be happy to assist both individuals and businesses with any issues and queries they may have.

For further advice and assistance, please contact our Commercial Solicitors on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Entering into a franchise agreement is an exciting time. The promise of what is ahead with commercial returns for both the franchisor and franchisee leading both parties to enter into the relationship on an understandably enthusiastic basis. 

From such a positive start, the dynamics can change as the business relationship unfolds with disputes surrounding the following areas high on the agenda:-

• The relationship between franchisor (the person with the existing business and franchise) and franchisee (the person taking on the new franchise).
• Differences in expectations and commitment.
• Details provided prior to the franchise agreement being entered into around performance and returns not as anticipated.

The Franchise Agreement

As with any business there are always risks. Taking on a franchise is like any other business and whilst it may be of benefit to have a brand that is already established, there can still be challenges. 

Franchising itself is not regulated in the UK and as a result there are no regulations to guide both parties, meaning that any company can set up as a franchisor.

The most common type of franchise dispute is misrepresentation. This arises when the franchisee alleges that the franchisor was misleading with information or documentation provided to encourage them to enter into the franchise agreement. 

The franchisee has to show that in entering into the franchise agreement they relied upon statements of fact presented to them by the franchisor which later proved to be untrue or could not have been reasonably held.  Perhaps understandably in this category, those claims tend to focus on financial projections relating to the financial returns of operating the business and its running costs and expenses.

The franchise agreement itself can be drafted in a way to favour the franchisor with many obligations falling on the franchisee including a personal liability if the franchisee does not deliver on certain performance or financial requirements. Ensuring that the franchise agreement has been properly drafted and that the parties were aware of their own rights and obligations is critical, as it will enable both parties to operate their part of the agreement effectively and efficiently.

Preparing well in advance for managing the franchisee will assist the franchisor to support this new extension of its existing business.  The program of engaging with the start-up franchise from the outset through to being up and running is important and can head off any potential areas of conflict. This means ensuring that the right levels of support and training are in place.

Handling disputes

The majority of franchise agreements will include a clause as to how disputes between the parties should be handled. This is the first point of call if communication between the parties has broken down.

Mediation can be part of that process, or other facilitated face-to-face meetings, if both parties are represented by solicitors and their direct communications have been unsuccessful. Arbitration or litigation can lead to an assessed outcome for the parties however this can be lengthy and expensive.  Many court cases can take up to 2 years if they exceed small claims limit of £10,000 which makes mediation and its ability to resolve a dispute within a day at much less cost an attractive alternative.

Franklins Solicitors LLP have assisted many franchises in the following areas and just some examples are set out below:-

• Claims for misrepresentation over sale and performance figures provided during the peak pre-contract trial negotiations.
• Alleged breaches of a restrictive covenant by the franchisee following the termination of a franchise agreement
• Disputes over the terms and basis for terminating a franchise agreement
• Alleged misrepresentation and misstatements made at the outset which were relied upon and induced the franchise or to take out the franchise

Following an assessment of the legal position, we discuss with you the options and then best strategic approach in your dispute.

If you have the franchise dispute or have issues with a franchise oral franchisee relationship, please our Dispute Resolution team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.

Running a Franchise and having a dispute with your Franchisor can be extremely stressful. The time, energy and money invested into your business means any dispute with your Franchisor should be handled carefully.

What sort of disputes can arise between Franchisor and Franchisee?

The types of disputes that can arise are as follows:

1. Upon making enquiries with the Franchisor, the Franchisee now believes the profit being made is not what was promised at the outset;
2. The Franchisee feels there is lack of or no support from the Franchisor which again was promised at the outset and outlined in the terms of the Franchise Agreement;
3. The Franchisor has concerns that the Franchisee is not following the protocol required which is having a detrimental effect on the performance of the business and profits made.

All of the above can lead to claims for a breach of contract and/or misrepresentation.

I am Franchisee and I have a dispute, what should I do?

As a Franchisee you should always maintain dialogue with the Franchisor and aim to resolve the dispute as swiftly as possible.

It would be prudent to obtain legal advice as soon as possible. This is so dialogue can be initiated straight away and your Franchise Agreement reviewed.

The Franchise Agreement is the legal document which governs your relationship between you and your Franchisor. There will be a series of clauses which set out what your respective duties and obligations are to one another.

I have a dispute, you have my Franchise Agreement, what next, Court?

Not necessarily.

In the terms of the Franchise Agreement there ordinarily is a clause which sets out what steps are to be taken in the event there is a dispute. Such steps would suggest the parties consider Alternative Dispute Resolution such as arbitration and mediation to ensure the dispute can be resolved promptly and cost effectively.

If, however, such steps come to no avail then recourse to the Courts may be your only option left.

The last thing any Franchisee wants is to have dispute with their Franchisor. Disputes of this nature can strain relationships between commercial partners whilst they still have obligations to each other. It can also transform a fully functioning and profitable business into a stressful place affecting all the associated stakeholders. Therefore, careful thought and planning must be put into finding a resolution to avoid such a strain and more importantly prevent costs spiralling out of control.

Here at Franklins Solicitors LLP we understand that you want a quick resolution that is also cost effective. We will work with you to provide specialist advice and ensure a full case plan is prepared to outline your options and next steps. For advice and further information, contact the Dispute Resolution team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.