If you are contemplating entering into a franchise or considering franchising your business, I have set out below some brief information which you may find useful. However, there is no substitute for actual legal advice tailored to your specific requirements! Remember, it is essential to get things right at the beginning, as every aspect of your business and business relationship(s) will be controlled and regulated by this Agreement.
A Franchise Agreement is the granting of rights from one party to another in return for a sum of money. Other than making extra money, the main reason people grant franchises is to market their business and have an outlet for their business in the required areas of the country; however the liability of that business would fall with the person taking on the franchise (the Franchisee). Franchising can allow for greater growth and coverage in a faster time than organic growth. It is also a way of adding value to a brand and generating income for the Franchisor.
As a Franchisor you need to ensure that you have a degree of control of the Franchisee to ensure uniformity in the delivery of the product.
The advantage of franchising out is to expand the number of outlets for the brand with minimal capital costs and minimal liability as the Franchisee is self employed. The main disadvantage is control and co-ordination of the network of the Franchisees.
The Franchisor effectively becomes policy and monitoring entity as opposed to an employer. It is important to have all the right documentation including terms and conditions in place to ensure that the brand is protected and franchisees work within the ethos of the company in the best interests of the brand.
The advantage of becoming a Franchisee is buying a business under a brand that has successful goodwill behind the name.
The Franchisee should receive full training assistance and support in setting up the business. The main potential disadvantage to the Franchisee is that there is little room for entrepreneurship; the Franchisee must follow the instructions of the Franchisors. The Franchisor will take responsibility for ongoing promotion of the brand and any new product development.
As a Franchisee you need to ensure that you receive what you are paying for including relevant training, stationary and set up materials and on going promotional items, such as flyers and details of offers for you to start and grow the business.
In addition, you need to ensure that the Franchisor has the relevant legal rights to grant you the franchise and the materials under the franchise including any use of trademarks and the lease of a property (if applicable).