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Franchising Offers Great Opportunities – JUST DO YOUR HOMEWORK FIRST!

04/09/2018

Once considered a mostly American model of business start-up and expansion, franchising has never been more popular here in the UK than it is today.

In the 10 years between 2006 and 2016, it is estimated that the number of people employed through franchised businesses increased by 70% and that with 45,000 franchises currently operating here in the UK, over 600,000 are employed in such enterprises.  Significantly, franchising now contributes £15bn to the UK economy each year!

 

The reasons for this growth are numerous, but as Stephen Burke, a franchising specialist within FBC Manby Bowdler’s Commercial Property team explains, it’s not without its pitfalls.   

“For those looking to launch themselves in to business ownership for the first time, there is a certain safety-net with franchising that they’re doing so within a proven and established business model, with a name and reputation which customers will already be familiar with and trust.  This lessens the risk of business failure which so often befalls start-ups.

“Indeed, for the franchisee, they are likely to receive a support package throughout the start-up period and have access to the franchisor when needed – albeit as part of the price they will have paid to take on the license of the business in the first place.   This often proves vital when the franchisee does not already have strong business or management skills

“Financing for a franchise business may also be more readily available to franchisees than to those setting up in business from scratch, as banks are often more prepared to lend against what is seemingly an already well-established business.

“Of course, for the original franchisor there are benefits to be enjoyed too.  Simply, it allows for their business to expand, thanks to the franchisee’s capital, more quickly than had they needed to wait and raise the funds themselves.  Not only does this expedite the growth process, but it also lessens the financial risk for the franchisor.

“The flip side of this, however, is that by allowing their business concept to be licensed, they lose a certain amount of control.  Not only will the franchisee ultimately act in their own interests, but they’ll also gain access to a certain amount of confidential information on how the franchisor has built, developed and run the business.  This could, if not planned for, leave the franchisor vulnerable in some respects.

“Of course, the simple solution to avoiding any such pitfalls – or at least to avoid being surprised by them – is to seek professional legal advice at the very outset.

“A meeting, early on, with someone familiar with the legal implications of either franchising your business model, or of becoming a franchisee will make you aware of any risks and the best practice to be followed before you fully commit.

“Once you’ve decided that franchising is definitely for you, then a solid franchise agreement is a must-have legal document to protect all concerned.  For the franchisor, confidentiality clauses relating to sensitive commercial information will add a layer of security to the value of the business that they created, whilst for the franchisee, the obligations relating to support from the franchisor will also be made clear. 

“Franchising has certainly become a significant part of the UK’s business landscape in 2018 and we welcome the opportunity to advise anyone considering this as their next commercial move.”

For more information about the world of Franchising, contact Stephen on s.burke@fbcmb.co.uk or 01952 208417

 

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