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What could franchising offer you?

What could franchising offer you?

Take advantage of this proven business model and build your own career

Franchising in the UK has an impressive track record of creating profitable businesses across a diverse range of industry sectors. For a business looking to expand it can offer the opportunity to establish a national network of franchise owners operating under a common brand.

One of the cornerstones of a franchise is the right for all of the franchisees to trade uniformly under the franchisor’s brand name and corporate image. The licence of the franchisor’s intellectual property must be dealt with in a well-drafted franchise agreement if the franchisor is to retain control and be able to regulate the brand’s future use.

In return for the right to distribute the chosen product or service using the franchisor’s “system”, the franchisees are required to pay an initial franchise fee, together with ongoing fees, usually described as management or continuing fees calculated either as a percentage of the franchisee’s gross turnover or a fixed fee.

The initial fee is paid by the new franchisee in return for training and support in launching the new business. The management or continuing fees are paid in consideration of the provision by the franchisor of continuing support, training and advice throughout the term of the franchise agreement.

In addition, the franchisor will usually charge an advertising fee, which is then used by the franchisor to promote the brand through regional and national advertising for the benefit of the whole network.

Generating substantial revenue

Properly structured, the franchise model can generate substantial revenue for the franchisor, while offering franchisees a proven formula to operate their own independent business under the licence granted by the franchisor. The franchise agreement should set out clearly the responsibilities and obligations of both parties, while protecting the franchisor’s business system from abuse, both during and after the term of the franchise agreement.

The prospective business owner considering investing in a franchise must accept that although franchisees remain independent legal entities, distinct from the franchisor, the franchisee is required to observe the rules and regulations of the franchise business model, as set out in the franchise agreement and manual.

A franchise agreement has features that distinguish it from other forms of distribution agreements. The licence to use the franchisor’s brand enables all outlets to operate under a common name and brand.

A franchise agreement is not a form of employment contract and this enables the franchisor to control the franchisee’s activities once the agreement has come to an end in a way that an employee may otherwise argue is an unfair restraint of trade. The scope of the post-termination restrictions is an area where advice should be taken if the scope is too wide it runs the risk of being held unenforceable.

The author

Jane Masih is managing director at Owen White Solicitors.

 

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