Franchising – A Guide to Franchising A Business

Starting a business can be challenging and if you are looking to mitigate the risks involved when starting from scratch, franchising could be the right solution for you. Buying a franchise takes some of the guesswork out of opening a brand-new business because it provides a proven model to follow and already has an established brand. A franchise also gives more reassurance of it being a success and therefore less of a risk.

When considering if you want to get involved with a franchise, it is important to do your research before starting the process. In this article, we will outline the advantages and disadvantages of becoming a franchisee and explore the potential challenges you might face.

A franchise is a business model where a company (the franchisor) grants the rights to operate under its established name, brand and business framework to another party (the franchisee). The franchisee typically pays an initial fee and ongoing royalties to run their business using these resources.

Opening a franchise will not be the best option for everyone looking to start a business but by identifying and understanding the pros and cons, it should help you to decide if franchising is the right choice for you. Some of the advantages include;

• An established business and brand
• Access to advertising and promotional resources
• Existing systems and procedures
• Business assistance from the franchisor
• Increased buying power
• Built-in customer base
• Lower risk of failure
• Quicker start-up time
• Be your own boss!

Although the benefits may tempt you into concluding that franchising is a way into business and the best route for you, it’s essential to consider the disadvantages too.

Being your own boss and running a business can be an extremely exciting concept, but you also need to consider the disadvantages and potential pitfalls involved in becoming a franchisee such as;

• Buying a franchise can be expensive at the outset
• Sharing profit (paying royalties to the franchisor)
• Finding the right franchisor can be difficult
• Less freedom and control to run it your way
• Being tied to suppliers
• It can be difficult to exit the business
• Potential damage to brand reputation by other franchisees
• Flooding the market with too many franchises
• Potential geographical restrictions
• Reliance on the franchisor’s success

Buying a franchise will involve an initial financial investment as well as significant time at the outset.

Before becoming involved in a franchise, you need to understand the legal aspects of being a franchisee.

1. Franchise Agreement – You will be required to sign a Franchise Agreement which is a legally binding document that sets out the fees, rights, responsibilities and includes clauses regarding termination between you the franchisee, and the franchisor. The agreement must also be drafted to avoid any breaches of UK competition law.
2. Employment Law – as with any business, you must adhere to any applicable employment laws. For more information on how we can help with this, visit our Employment Law for employers web page.
3. Finance & funding – Whether you are using personal savings, loans or bank financing to fund your franchise, ensure you do your research and speak to a professional about the right option for you.
4. Exit strategy & disputes – having the Franchise Agreement in place will cover resale rights, termination conditions and procedures that will help avoid future disputes.

Seeking professional legal advice is the best way to ensure you are fully aware of your commitment when you take on your franchise and any potential liabilities, particularly if you haven’t been through the process before.

Franchising a business, while exciting and a great opportunity to have a business, can bring various challenges. Multiple franchisees can lead to variations in customer experience, with other franchisees putting their own spin on the brand, and as a franchisee you have no control over how many franchises there are. Therefore, when you do your research, this should be a question to ask the franchisor.

Similarly, it would be beneficial to know how many other franchisees may be in proximity to your location, which ultimately could also affect your trade.

Finally, legal and regulatory compliance can be a significant challenge, so having a legal professional to advise you is always a good way to ensure you are compliant and to assist you with this process.

If you are considering buying a franchise, we can help. Our experts offer legal advice and can review the necessary legal agreements and help you to understand exactly what you are signing up for. Contact us today and book your free 30-minute consultation.

Tel:          01245 893400
Email:     info@backhouse-solicitors.co.uk
Visit:       17 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.