Essential information for prospective franchisees
Mark O'Shea, the commerce & technology partner at law firm Rawlison Butler, heads the company's franchising team.
With a client list that includes salon group lookfantastic and Rush, we thought he was the perfect person to turn to for advice on franchising.
Why buy a franchise?
"From a franchisee's perspective, the major advantage is that you are getting into something that's tried and tested, and it takes a lot of the risk element out of the business," Mark says.
The benefit of launching into a venture with ready-made brand power, as well as training and ongoing support, is huge. But, it's important to clarify the finer details of the deal prior to signing on the dotted line.
What should you look for in a franchise?
"The British Franchise Association (BFA) is an excellent kitemark and if a franchise is a member of the BFA then it's a good indicator that it has a good business model in place," advises Mark.
However, there are some excellent franchises available that aren't members, so don't rule anyone out just because they're not a member.
How important is the franchise agreement?
This is the most important document you will have. "You need to know that the company you're investing in is established and has a well-operated business.
"There needs to be a successful business model in place and, legally speaking, you should ensure there is a proper franchise agreement too," adds Mark.
As you would expect, a franchise agreement is mainly drafted in the favour of the franchisor, but Mark advises taking comfort in the fact that the company you're investing in has got everything covered.
Who is responsible for the building?
It's not unusual for the franchisor to have sole responsibility for the property and the leasehold.
"The franchisee is responsible for all the costs, but generally the franchisor will have the responsibility for the building," explains Mark.
The advantage of this is that they can often negotiate better deals with landlords. With the impending credit crunch, they have the financial history and spending power that many first-time salon owners may lack.
"The franchisor should be able to negotiate better deals than an individual who has no other properties," he says.
It is also paramount to clarify who is responsible for the upkeep of the building.
"In many cases, if something goes wrong it will be covered by insurance, but generally it is the occupier who is responsible for it," he says.
However, a franchisor won't want their building looking shabby, and if something is in need of repair and the franchisee can't cover it, then generally the franchisor would want to help them rectify the problem.
What costs are associated with buying a franchise?
"If you're investing in a new franchise, you will have to pay a franchise fee upfront, as well as all the legal costs, but the biggest cost is the refit," says Mark.
The cost of fitting the salon should be lower than if you did it independently. While you have to buy the furniture and fittings as specified in your franchise agreement, the franchisor should have contacts in place to negotiate better deals.
While the cost of the initial franchise fee is unlikely to be as high as the shop fitting, it's worth noting that the franchise cost will vary depending on how established the company is.
A newer company that has just started franchising is unlikely to charge as much as an established company that has been successfully franchising for many years.
Who pays for essentials like stationery, marketing, advertising or an emergency plumber?
Often the franchisor may buy items such as these on a bulk basis for the group, but this should be specified in the franchise agreement, particularly if they will want a regular contribution.
However, when it comes to any problems with the building that require maintenance, it's often nothing to do with the franchisor.
"Ultimately, if you need to call a plumber out, it is the franchisee's responsibility. It should be in the agreement who is responsible."
What else should be considered when buying a franchise?
"It's not a nice thought, but you must have something in the agreement that clarifies whatwill happen if someone dies," says Mark.
In fact, the exit procedure for all circumstances should be clear from the start and you should outline what would happen if either party wanted out for any reason.
What happens if the franchisee wants out? Can they take their clients with them?
Firstly, all branding and trademarks are owned by the franchisor, so you would have to change the business completely.
In terms of the client base, the goodwill that's established generally remains with the franchisor. It's the same principle as when you leave a salon, you're not entitled to take the clients with you. Having a franchise is no different.
"In employment law there is something called the Transfer of Undertakings/Protection of Employment (Tupe) regulations, and when you have a business being transferred, these are relevant.
"I would advise seeing an employment lawyer. Quite often there's a fear factor in seeing a lawyer, and people think it's very expensive. But compared to the cost of investing in a franchise, it's well worth getting the right legal advice from the very beginning," adds Mark.
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