Becoming a Franchisee

Franchising is generally regarded as one of the safer ways to start a business, although as with any business opportunity there are still risks. It is vital that anyone considering investing in a franchised business thoroughly researches the market and takes appropriate professional advice.

Franchising will not suit everyone. There are some aspects of franchising that won’t appeal to certain people. Before making your final decision you should ask yourself the following questions:

• Is the business right for you and do you have the necessary skills?
• Can you afford it and is the price right?
• Will I get on with the franchisor and can I operate within the franchise system?
• Have you taken the appropriate professional advice?
• Have you studied all the alternative options?

Alternatively you may have a great business idea that you want to franchise.

Becoming A Franchisor

Reasons for using franchising include:

• faster growth rate for the network
• outlets developed using franchisees’ financial and manpower resources
• far fewer staff needed than for a company-owned network
• franchisees often perform better than employed managers
• reduced need for involvement in daily operations of franchised outlets

Franchising presents different challenges from running company-owned outlets. Franchisees who have invested in their own business cannot be directed in the same way as employees - staff who deal with them need to learn new techniques of communication and control.

In adopting the franchising option there are a number of legal issues to consider - some entirely new. Instead of one company the franchisor is dealing with as many other legal entities as it has franchisees.
Issues such as pricing consistency across all outlets become less simple.

Franchisees are independent traders so competition laws come into play.
Although the franchisor may recommend prices and can fix maximum resale prices it cannot fix minimum prices. Competition laws affect such issues as territorial exclusivity, tying product supplies, sales restrictions, internet selling and non-compete obligations.

The package must take into account different legal issues depending on the nature of the business being franchised. Franchising always involves
the careful protection of intellectual property rights, including trade
marks, trade secrets, copyright etc. Some franchisors become involved
in the property chain - sub-letting to franchisees requires special attention and procedures.

All franchisors must take steps to protect themselves from liability for defaults by the franchisee. Finally, the sale of the “business opportunity” requires precautions against misrepresentation claims.
These are all complex issue that we can advise upon.  If you have a business that you want to franchise or if you are thinking of becoming a franchisee yourself, contact us for the best advice on the way forwards.