Fiona Boswell – Senior Associate Solicitor, Freeth Cartwright LLP
We have looked back over the last year and set out below our Top 5 lessons learnt to aid the smooth operation of your franchise business.
Our Top 5 Lessons for the Smooth Operation of your Franchise
1. Watch out for extra layers of admin when growing overseas
If you want to grow a business overseas by franchising there may be more to it than finding a business partner and signing them up. Certain countries eg France and Germany – require franchisors to comply with strict disclosure requirements prior to launching a network in that country. These include eg providing 5 year histories of your business, providing bank details, providing a description of your market share and competitors, providing details of your franchise and your development forecast plus your expenses and investments to the appropriate authorities and may also involve registration of the franchise contract with relevant government bodies.
Previously unless these disclosure requirements were required by law franchisors could avoid this requirement – now based on guidelines provided by trade bodies such as the BFA, it is prudent to carry out a disclosure process irrespective of legislative requirement.
Disclosure Requirements vary from country to country so take appropriate local advice prior to entry. In my experience complying with these requirements can substantially delay the process of starting to franchise so make sure your timeline for launching a pilot takes this into consideration.
2. Be fair
As one commentator stated – a new culture of franchising is starting now. Franchisors have long held the upper hand with franchisees when it comes to the contract process. Recent legal developments are starting to redress the balance and franchisors should take heed and act reasonably towards its franchisees. What does this mean in practice? It means for eg. 1) not imposing unrealistic sales targets 2) not having overly restrictive criteria for subsequent buyers of the franchise. 3) Working with franchisees to resolve problems 4) providing the support you promised.
Franchisors can no longer fall back on the “it’s in the contract” argument. If it is unreasonable or unfair franchisees will challenge it successfully – so you might want to think about updating you franchise contracts to reflect the new regime. This will help in being able to enforce your contract and in attracting new franchisees at a time when their expectations are increasing.
3. Make sure you know what you are signing up to
Before you invest in a franchise make sure it is a genuinely proven concept in the country or region where you intend to operate it not just elsewhere. The UK is proving an attractive destination for those looking to grow franchises that have been successful overseas – some concepts simply don’t work here though and before investing make sure that you are satisfied the concept will work here or at least negotiate a reduced contract term and fee payment that takes into consideration the risk involved. Some concepts just may not be suitable – for climate or other reasons and once you are committed you can’t just back out because you can’t
make it work.
4) Grow Slow
Successful franchising takes time and involves the development of a support team to manage the demands of a growing network.
Whilst your proposition might be attractive responding to demand by opening stores too quickly before the concept is fully finalised replicates problems not successes and can lead to the failure of the franchise.
Franchisees now have a wealth of ways to quickly and easily bad mouth your brand to the marketplace so keeping your network happy should be of paramount concern. That said even when they tick all the boxes things can still go wrong in which case make sure that your contracts contain the appropriate tools to enable you to step in to operate the business if they walk away.
Likewise Franchisees – do not take on another franchise before you have successfully operated your existing one – do not succumb to pressure from the franchisor to expand into a purportedly more lucrative area if you are already failing in your current one. This won’t solve the problem it will only make it worse.
5) It is all about the Brand
Franchising is all about your brand. If you are using a brand in your franchise business register it in each country where it is used and where you intend to grow and be consistent in how you and your franchise network use it. If you change and/or update your brand in anyway – you will need to register it again otherwise there is no point in having bothered to get the registration in the first place as you won’t be able to legally defend your right to use the mark or prevent others from using it.
So 1. Register 2. Use 3. Be consistent and 4. Police your network to ensure that they remain consistent too.
