Franchises can provide great opportunities to own your own business, with the benefit of support and guidance being provided by an established brand. In this note, Ben Ironmonger takes a look at some of the key points you should consider before making the decision to invest in a franchise.
- Legal obligations: Franchise agreements can be long and complex, and it is important to fully understand how the legal obligations will impact on you. You should always consider seeking legal advice from experienced commercial solicitors before signing any contracts.
- Franchise fees and ongoing costs: Franchise fees can be quite expensive, and there may be ongoing costs to consider such as royalties, advertising fees, and other expenses such as equipment maintenance costs that may be payable to the franchisor. Franchisees should ensure they fully understand the financial commitment before signing up. It is worth liaising with an experienced business accountant prior to signing a franchise agreement.
- Training and support: An often significant benefit of taking on a franchise is the training and support provided by the franchisor. You should carefully consider whether the type and frequency of training and ongoing support offered will meet your needs, or whether additional business training will be required. Think about what cost such additional training may incur.
- Brand reputation: The success of a franchise often depends on the strength of the brand. A new franchisee will often first be drawn to the idea of the franchise business by having known the brand. Research the reputation of the franchise and consider whether it aligns with your own values and goals. Consider also whether the brand is properly protected by the franchisor, so that you know you are buying something that cannot be easily replicated.
- Restrictions: Franchisors may seek to restrict the territory in which you can operate your business. They may also seek to limit your ability to compete with the franchise should you not wish to renew after the initial term, or if the franchise agreement is terminated. Make sure you understand the limitations within the franchise agreement and how they may affect your ability to grow your business, but also to trade or work after your involvement with the franchise ends. Contrary to popular “pub law” belief, properly drafted post termination restrictions are binding, and can be enforced in court!
- Personal suitability and resources: Finally, it is important to consider whether you are personally suited to running a franchise. Franchise owners, like any other entrepreneurs, must be motivated and hardworking. However, they also have to work as part of a bigger system. Make sure you have the necessary skills and temperament, and finances to support you through your first few months or year, before making the commitment.
If you are considering taking on a franchise, the commercial team at Scott Bailey LLP can help. Our commercial lawyers in Hampshire, can review your proposed franchise agreement and advise you of the pros and cons, as well as being able to negotiate with the franchisor on your behalf should you wish. Our business solicitors offer fixed fees for contract reviews so that you have the benefit of knowing the extent of your fees before we put pen to paper.
Should your franchise require offices, shops, warehouses or other premises, our commercial property solicitors can be at your disposal.