Franchisor Frequently Asked Questions

For those considering franchising your business either domestically or overseas we offer tips and guidance in making your decision and getting your franchise up and running.

Here are some frequently asked questions for Franchisors.

What is franchising?

Franchising is essentially where the franchisor licences the franchisee to operate under a particular trade name in accordance with the franchisor’s blueprint or business system, in return for which the franchisee pays the franchisor certain fees including management service fees. In addition the franchisor provides the franchisee with ongoing support.

What are the advantages and disadvantages of franchising?

There are a number of advantages to franchising. However, the key advantage is that it enables your business to expand even when you have limited capital resources.

Likewise, there are a number of downsides to franchising that you must be aware of and manage. Probably the most cited concern is that you lose control of your brand. However, this can be mitigated where you have the appropriate controls and procedures in place, coupled with a robust business and legal framework.

When should I seek advice?

If you are considering franchising for the first time it is certainly never too early to take advice. Any franchising project should be planned carefully and an understanding of franchising a whole is essential. If you are considering franchising please do not hesitate to contact us as we have an affiliated franchise consultancy business, Ashtons Franchise Consulting, which can guide you in your first steps in franchising. In addition the consultancy regularly runs free seminars for would-be franchisors.

What documentation do I need to prepare in anticipation for franchising my business?

The primary document that you will need to put in place from a legal perspective is a franchise agreement which will govern the relationship between you and your franchisees. In addition, franchisors often prepare an information document known as a Franchise Information Memorandum to provide to prospective franchisees setting out details of all aspects of their business. Our affiliated franchise consultancy, which Ashtons Franchise Consulting can assist you with this. There are a number of other ancillary documents that you need as part of your franchise offering which we can prepare for you including a confidentiality agreement and deposit letter.

Should I allow potential franchisees to negotiate the terms of the franchise agreement?

No, the franchise agreement is by and large a non-negotiable document. You may, however, depending on circumstances, allow the franchisee to vary a few aspects within the agreement and any changes are normally set out in a side letter.

In the event of dispute with the franchisee, should I seek legal advice?

Certainly. Although the best way to resolve a dispute with a franchisee is always by negotiation, it is sensible to take legal advice at an early stage to understand your position and to make sure that you do not do anything to jeopardise or weaken your negotiating or legal position.

Is it possible to expand and grow my franchise business overseas?

There are a number of brands in the UK that have successful overseas operations and in an ever globalised market is certainly a rewarding and exciting opportunity. However, franchising overseas does not come without its risks and ensuring that you have a sound and stable UK operation first is good advice. If you are considering franchising overseas please do contact us as there are a number of specific franchise laws which apply in certain overseas jurisdictions which you need to be mindful of. (See below)

Do other countries have different franchise regulations or laws?

Yes, unlike the UK which has no specific laws which govern franchising, some overseas jurisdictions do have specific laws. Typically they would include an obligation to disclose certain information to a franchisee prior to the start of the relationship, as well as in some countries, an obligation to register the franchise documentation. Failure to comply with these could have detrimental consequences for you and therefore it is important to contact us before you are considering expanding abroad.

What are the key steps in selecting franchisees?

You must always be mindful that you are no looking to sell franchises rather you want to award a franchise to the right candidate. There is typically no perfect franchisee, but essentially you are looking for a partner who understands that they are responsible for operating their own business, are not overly entrepreneurial and will be prepared to follow your already successful system.

How do I protect my brand?

It is important that where you are looking to franchise your business you ensure that you have registered your trade mark. First, it will be easier for you to protect your brand on you and your franchisees behalf if someone seeks to infringe it and secondly, as the franchisee will be paying good money to licence the use of your trade mark, franchisees, before they enter into the relationship, will want to know that you have either had your trade mark registered, or at the very least the registration process is in progress.

What steps do I need to take when selling my business?

It is important if you are looking to exit that any issues within the business are, as far as possible, ironed out and that your documentation is up to date and complete to avoid the asking price of your business being eroded during the negotiation and due diligence phase, thus reducing the return to you. If you are considering selling your franchise network then please do contact us as we have assisted over the years a number of owners of franchise businesses to exit and reap the benefit of their years of hard work.

It is also important that you also take advice from accountants to truly understand what your business is worth so that you do not dispose of it at an under-value.

What are the main risks in buying an existing franchisor business?

Essentially, if you are buying a franchise business you are acquiring the revenue stream from the franchisees. Accordingly, you need to ensure that the franchise network is strong and stable. You also need to ensure that the legal agreements, which govern the relationship between the franchisor and franchisee, are as robust as possible and that the underlying business behind the franchise has longevity and has the potential to grow and develop. There is no point in buying an asset at the top of the market only to watch its value diminish after you buy it.

How can franchising be useful to develop or re-engineer a business?

Whilst it is important, if you are considering franchising, to have a very strong core business, franchising can be a way of taking that business to a new level either because you do not have sufficient capital do so or where you know there is a national demand but you are unable to service that demand due to geographical restrictions of your core business.

Do franchisors need to have their know-how and methods of operation in a written format?

Yes. A franchisor provides his franchisees with a manual. This normally consists of an operations manual detailing the processes which the franchisee needs to follow in its day to day operation of the business and secondly, a franchise owner’s manual which explains how the franchisees should run their business and interface with the franchisor.

Prior to entry into the franchise relationship, should a franchisor run a pilot operation?

Yes. It is always a good idea for a franchisor to run a pilot operation. That way you can test whether your existing business can be replicated. By piloting the agreement the franchisor can iron out any errors in the franchise system.

What information should a franchisor request from a franchisee?

When you are entering into any business relationship it is crucial that you do your due diligence. You should find out as much about your franchisees as possible at an early stage. This would include asking them for details financial resources as well as their long-term aspirations and income expectations.

What information should a franchisor give to a prospective franchisee?

A franchisor should likewise give as much information as possible to a franchisee including information about the network as a whole, the management team and the likely operating costs of the franchise. Where you have provided prospective franchisees with an indication of the likely turnover then it is extremely important not to overstate likely turnover. All of this information should be documented in some form of memorandum which we often refer to as a Franchise Information Memorandum. If you would like assistance with this please do contact us as our affiliated consultancy business, Ashtons Franchise Consulting, can assist you with this.

What fees can be charged for a franchise?

Typically, a franchisor will charge an up front fee together with an ongoing management fee, which will be a percentage of the franchisee’s turnover. In addition, the franchisor may also charge a marketing levy which is an amount that is pooled from the franchisees and is spent on their behalf by the franchisor. The franchisor may also charge for ancillary products or services, say for example if the franchise is required to have certain equipment or if the franchisor requires the franchisee to have specific IT licences.