Making the most of your business through franchising
Franchising is often seen as the preserve of large multinational businesses, yet it can be a very efficient way of growing a small business as well.
In recent years it has become much more established as an alternative way to fund growth and expansion, particularly in periods when traditional bank lending has been difficult to obtain on reasonable terms. The primary advantage is that much of the funding for a franchise operation will come from the franchisee, who is effectively buying into the right to operate the franchised business.
What is franchising?
A franchise is essentially the granting by one person (the franchisor) to another (the franchisee) of the right to operate a business using the franchisor’s brand name and business model. The franchisor will already have proved their business model is successful. The franchisee is required to strictly follow the business model, procedures and guidance established by the franchisor.
The key benefits for the franchisor are:
- Using the franchisee’s capital to expand the franchisor’s business.
- Franchisees share in the success of the franchised business and therefore tend to be more motivated than employees.
- Regular payments from franchisee to franchisor can provide robust cash flow.
- Can potentially give the franchisor a quicker return on investment than if it tried to grow the business organically.
The key benefits for the franchisee are:
- Access to a proven, successful business model.
- Access to an established brand.
- All new businesses make mistakes, but franchisees benefit from the franchisor having made those mistakes already and having worked out how to avoid them in future.
- It is commonly said that 90% of new businesses fail within five years, however franchise businesses are significantly less likely to fail over this period.
It can work just as well for providers of services as it can for sellers of goods. If a potential franchisee would be in a better position by paying for a franchise than they would be if they set up their own business, then the franchising model may be a good option for growth.
As an alternative to a full business format franchise, it is also possible for a business to licence or outsource part of its functions to a third party licensee – for example, a business could licence out its sales function so that it can concentrate on other functions such as manufacturing or marketing.
Our expertise in franchising
LCF Law’s team has significant experience in advising franchisors of all sizes. Working alongside franchise consultants or directly with the franchisor, we have advised on the establishment and roll-out of the franchise and licensing operations in many varied sectors including: estate agency, renewable energy solutions, loss adjusting, student employment/placement services, business transfer services, residential letting, packaging solutions, digital media, the restaurant/café sector, life coaching, tax advice and dental consultancy.
Our legal advice services include:
- Drafting and advising on robust yet commercial franchise agreements which, once drafted, can be used throughout your franchise network.
- Drafting and advising on related and ancillary documentation such as: master franchise agreements (often used when appointing a master franchisee to develop the franchise in another country or territory); terms and conditions of business; pilot franchise side letters; and confidentiality agreements and non-disclosure agreements (NDAs) to protect the franchise concept when marketing the franchise to potential franchisees.
- Advising you on, and registering, any trademarks or other intellectual property rights relating to the franchised business.
LCF Law provides general commercial legal advice to franchisors including advice on leases and property arrangements, raising finance and selling a franchise business. We advise clients on disputes relating to franchising and, particularly, the enforcement of franchise agreements.
Avoiding risks for both sides
We are regularly instructed by franchisees across multiple sectors to advise on the terms of the franchise agreement they wish to enter. It is vital for both parties that franchisees understand their obligations in the relationship so that both parties can benefit from it.
We help both franchisors and franchisees enter into contracts with their “eyes fully open” to the risks and responsibilities involved, so helping to avoid disputes further down the line.
One of LCF Law’s franchisor clients recently commented on our expertise:
“I cannot praise the advice and work highly enough that James Sarjantson recently completed; in what was for us a complex matter. All of the complicated things were simplified for us and no stone was left unturned. Brilliant work, thanks James.”
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