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To Franchise or Not to Franchise – A Legal Perspective

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This has been submitted by Slater and Gordon 

Many businesses may be looking to grow but are cautious of expanding in an uncertain political and economic climate.  There are many options available to business owners looking to increase reach, when perhaps a business does not have immediate access to sufficient capital to fund growth internally.

Many people have heard of the term “franchising” and know of its association with well-known international brands such as McDonald’s or Subway. However, for many business owners the opportunities within franchising and how it operates are a mystery.

What is franchising?

Franchising is the process of granting a license to another enabling that person to run a business under the same brand, and utilising the same processes, in exchange for a one off franchise fee to enter the network and a monthly fee (usually a percentage of turnover).  A franchisor provides training, ongoing support and access to a wider network.  A franchisor will not need to be involved in setting up and running the business, or daily tasks such as dealing with staff; freeing up time to grow.

I am thinking of franchising my business, what next?

Franchising is a not a “cheap” or quick way to expand and is not an opportunity to rescue a failing business.  Franchising involves a significant investment of time and money but done properly the financial rewards can be substantial.

Before seeking to roll out a franchise, look at piloting to troubleshoot and determine if your business can adapt to the franchise model.  Pilots provide invaluable practical lessons that can be built in to your Manual and highlight problems.

Consider also a number of practical points:

  1. What is my brand and is it legally protected?
  2. What aspects of selling the service or product do I require to be uniform?
  3. What will set my business apart from other franchises, and can my success be replicated?
  4. What training will I need to deliver at the outset and throughout the relationship?
  5. What processes will form part of the Operations Manual?
  6. What am I looking for in a franchisee?
  7. How will the franchise be funded, both upfront and on an ongoing basis?

Seek professional advice

Speak with other franchisors about how they entered the market and their experiences.

You should also seek professional advice, including at least on the following:

Legal advice on:

Franchise agreement

Operations Manual

Non-disclosure agreement

Marketing materials

Brand protection

Financial advice on access to funding

Accountancy advice

There is a wealth of resources available online  that provide useful tools and guides to prospective franchisors, including the British Franchise Association (bfa.org).

Once established, you will also have a network of franchisees to call upon.

Are there alternatives to franchising?

Franchising will not always be an appropriate business model for growth.  If, for instance, your business is closely aligned to your personal skills or is a business servicing a niche market in a limited geographical location, it may be an unsuitable option.

If you’re a small business owner and would like advice on expanding your business, you should seek expert legal advice immediately. Slater and Gordon’s business services solicitors in Cardiff have many years’ experience in helping businesses in this area.

Carys Murphy is a Business Services Solicitor at Slater and Gordon Lawyers UK.

 

 

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