Buying a franchise is a great way to take on an established business and be successful with most of the business infrastructure already in place. If you are looking to buy a franchise in Cheshire or to set-up a franchise business, here’s some of the legal aspects you might like to consider.
The Franchise Agreement
The rights to be granted to the franchisee should be clearly set out in the agreement; each party should be clear what it intends to achieve. How far these can be negotiated depends on the nature and strength of the franchise and what the franchisee has to offer in its development in the territory concerned. It is relatively unusual for a UK domestic franchisor to accept material changes to its standard franchise agreement.
The franchisee will normally ask for exclusivity, so that there are no competitor suppliers of the product in the territory, and the fanchise thus likely to be more successful.
The country or region in which the franchise is to operate should be clearly set out. The parties must understand the commercial, political and (particularly overseas) cultural factors involved, and ensure that the franchisee has sufficient skills and resources to develop the business there. A clear business plan at this stage is essential.
Initial questions when considering a franchise business.
- Is the business model franchisable? Some business models may not be suitable as franchises for example, a business that has low margins, or the business is confined to one particular area.
- Who is the ideal customer? The franchise model should allow businesses to scale up quickly therefore a franchisor must consider whether its ideal customer can be found in many locations.
- Has a PESTLE analysis been carried out? PESTLE being the acronym for the political, economic, socialogical, technological, legal and environmental aspects for the business.
- Has a SWOT analysis been carried out?
- The barriers to entry into the market and the cost of acquiring a market share.
- Who will fund the business?
- Will funding be by way of debt or equity finance?
- Is the proposed company or trading name free from trademark or passing off claims?
- Have all intellectual property rights associated with the franchise been acquired or protected?
- Has a business plan been prepared?
- Has a cash flow forecast been prepared?
- Has a pilot operation been undertaken?
- Has the franchise Operations Manual been written?
- What exit provisions are planned?
- Are the parties to the franchise agreement individuals, companies or other legal entities?
- Will the franchising arrangement comply with UK Competition law?
- Does the franchisor wish to grant exclusivity?
- Has the European Code of Ethics for Franchising been considered?
- On what basis will the royalty be calculated?
- What will the parties’ obligations be under the agreement?
- How will the franchisee be able to end the agreement?
- Will non-complete restrictions exceed two years?
- Will the franchisee be restricted from selling the products/service after termination?