The word “franchise” derives from the French word for privilege which is why franchise has two meanings in law, namely the right to vote and the right to run a business or operate a service. This post is concerned with franchising in the second sense and in particular with business format franchising. A business format franchise confers the right to run a business in the name, colours and trading style of an established business to the extent that the franchised business appears to be a branch of the franchisor. This relationship involves some very complex legal relations and the purpose of this post is to explain what is involved in taking a franchise in everyday language.
What You Get
If you want to serve hamburgers there are few better names than McDonalds. If you want to sell wedding dresses you have to go a long way to beat Pronuptia. The pulling power of those brands is enormous. If you take a franchise from McDonalds or Pronuptia you become McDonalds or Pronuptia in your local area so far as the public is concerned. A franchise therefore entitles you to trade under the McDonalds or Pronuptia trade marks selling their products in their trading style using their marketing, technology and know-how. Not only that but you are part of a chain and you benefit not only from your own efforts and those of your franchisor but from every other franchisee in the chain. That is a terrific head start over competitors seeking to establish a reputation for their own or for some other branded hamburgers or wedding dresses in their local area.
What You Give Up
Because consumers tend to be astute as to very slight differences in quality between establishments you have to submit to very rigorous control by your franchisor. You have to sell its specified products even if there are better and cheaper generic ones. That can be very frustrating if your competitors can stock those items and you cannot. You have to adhere to the franchisor’s detailed rules on such matters as colour schemes, dress and even sales patter. You have to make time for conferences and sales meetings. You have to put up with audits and inspections. And above all you have to come up with the money that you agreed to pay, when you agreed to pay, it whether you have it or not. If you fail to come up to scratch you are out and someone else benefits from your hard work and investment. If you still have any resources left over to start a new business you will find that restrictive covenants in your franchise agreement limit greatly the things that you can do.
What You Should Do
Because franchising requires a lot of investment and involves a lot of risk you should do a lot of research, give a lot of thought and take a lot of advice from specialist lawyers, accountants and other professionals before you commit yourselves. There is no one-stop shop for this advice and you should never rely on one source even if it comes from a reliable organization like the specialist franchising department of one of the clearing banks.
A good place to start looking for impartial advice is the “Buy a Franchise” section on the Business Link website. You can also check out the “About Franchising” and “Help & Advice” pages of the British Franchising Association’s website and The Franchise Magazine.
Make sure you have the basic business and technical skills needed to set up and manage a franchise such as bookkeeping, computing, sales and marketing. Most importantly ask yourself frankly whether you and your family are entirely committed to the project. You have to be highly organized capable of juggling personal and business commitments as and when they arise. If you have children or other dependants, satisfy yourself that you have adequate childcare and other arrangements in place including reliable back-up if something goes wrong. The customer really does come first. If he or she needs something right now that customer is not likely to be impressed by the excuse that you had to collect your youngest from the nursery.
Take professional advice as soon as possible from a lawyer who is used to dealing with franchise agreements. nipc® members have a lot of experience of franchising issues and we have panels of specialist solicitors, patent and trade mark attorneys and foreign lawyers, particularly in Yorkshire and the North-West who work with us closely.