Franchising Objectives of Franchisees and Franchisors
July 17, 2013
WHAT IS FRANCHISING?
In its simplest form, franchising is the right granted to the Franchisee to operate or use the business model and intellectual property of the Franchisor for a fee and on certain terms and conditions.
Franchising can result in the successful operation of a business using the experience and security of the Franchisor’s system. However there is no guarantee of success when purchasing a franchise.
There are advantages and disadvantages of operating a franchise.
The advantages include:
being part of a business network of like-minded business people;
the benefit of the Franchisor’s business, marketing and management skills;
fit out advice and business location;
training and support;
product supply and pre-negotiated product supply costs.
The disadvantages include:
restrictions on your method of operation including the products and services you are able to deliver, marketing and advertising, geographic location and pricing;
the payment of franchise fees, royalties, start-up costs;
future upgrade costs and image standardisation;
restrictions on the sourcing of goods;
risk of termination in the event of breach
complex and or expensive exit arrangements
restrictions preventing you from responding to changes in the market and in business
Looking to take your business to the next level?
We can assist you with:
Preparation and drafting of all the relevant complex legal documents necessary to franchise your business;
negotiation with Franchisees;
litigating and dispute resolution;
recalcitrant and under performing franchisees ;
breach of agreement issues; and
contract renewal and termination.
Business is evolving. The systems and methods you develop now will probably be obsolete in 5 years. Franchisors need the flexibility to move forward with their new ideas and marketing concepts.
We prefer to journey into your business to better appreciate not only your current requirements, but to anticipate as best we can what they may be in the future. Our Agreements are designed with the future in mind.
A Franchisor will want to ensure:
protection of their:
intellectual property; and
the Franchise Agreement has the flexibility to change and improve their systems and regulate the conduct of the Franchisee.
that their practices, Agreements, Disclosures and legal documentation comply with all legislative requirements; and
uniformity and standardisation of its arrangements with Franchisees.
Franchising can be a marvellous business opportunity for the right people. It can also be a disaster for others irrespective of the amount of effort put into the undertaking. Like all businesses there is an element of risk.
A Franchisee will want to ensure:
that the Agreement properly reflects their understanding of the undertaking and their obligations;
they understand all of the costs associated with operation of the business including the right of the Franchisor to increase those costs and or demand upgrades;
they are aware of the risks in the Franchise Agreement and if not satisfied, seek to negotiate more favourable terms;
they understand the business risks involved including the taking of independent financial and accounting advice as well as consideration of the best tax structure;
they are aware of the level of training and support provided;
they have an exit strategy. We advise our clients that before they start the business they should also have planned their exit. The terms of sale or transfer of franchise in any agreement is important to understand.