You may wish to expand your business, but you do not want to achieve that growth yourself. If you start a business, you may wish the relative security of a tried-and tested commercial ‘formula’. In either case, your solution may be a franchise: in the first, you would be a franchisor; in the second, a franchisee.

Franchise Agreement
A franchise relationship should be governed by a Franchise Agreement, covering, at least, the following:

• The nature of the franchise / need for compliance
• Territory of the franchise, i.e. the area it covers
• The extent of the initial payment
• To what does initial payment entitle the franchisee
• The split of the initial payment split (e.g. fee? advertising? etc.)
• Franchisee’s liability for royalty payments?
• Minimum Guarantees, if relevant
• Intellectual Property (“IP”) issues (Please see also our IP section)
• Conditions for termination
• That the franchisee is satisfied with the elements the franchisor contracts to provide
• The premises
• How extensive the right of audit by the franchisor is.
• The position after the initial period of the franchise / transfer of the business
• Restrictive covenants, i.e. restrictions after the franchise is ended

Advantages of a franchise

• Franchisee has no requirement to develop the business concept.
• Despite its costs, franchising gives a recognised ‘brand’ (name & logo) from day one.
• Training, strategy and methods are tried-and-tested – so the start-up risk is lower.
• Franchisee’s advertising forms part of a much larger campaign than he / she could afford.
• The up-front financial commitment results in higher franchisee motivation.
• Franchisee may be able to gain from franchisor’s bulk buying potential (e.g. computers)
• Probable, on-going guidance from the franchisor - compared with a stand-alone operation.

• High, initial expenditure before franchisee receives any income stream.
• Non-returnable, monthly payments are required - even if business is insufficient / nil.
• Franchisee finances the franchisor’s market growth (fine, provided franchise has income).
• Franchisor may have a ‘take it / leave it’ attitude to contract changes asked by franchisee.
• The franchise business never truly belongs to the franchisee.
• If contract terminates, franchisee is time-barred from similar enterprise, in same area.

If you feel that a franchise is the right business model for your aims, we would be delighted to assist you.

For more information about this please contact Graham Mott on gm@wdavies.com or David Main on dm@wdavies.com