The Cube

Franchise agreements. What you need to know

25 Nov, 2014

Some of the most well known brands on the high street are franchises. The reason that they’re often a more popular business choice rather than starting an enterprise from scratch is that a franchise already has a high degree of brand recognition. So as far as the marketing aspect is concerned, someone has already effectively done the hard work for you.

But franchises can be fraught with difficulties and franchisees need to go into the process with their eyes wide open. At Cubism Law we have one simple rule – don’t just buy into the hype! Companies offering franchise businesses are keen for you to invest your time and your money into their established enterprise, but they’re not in this purely for altruistic reasons – they’re just as keen that the business is a success as you are. So not only do you need to be sure that you are investing in the right type of franchise, but you also need to look at a few other elements as well. Here are our top five tips for anyone about to review a franchise agreement:

  1. How strongly established is the franchise brand?
    Buying into a franchise isn’t an instant guarantee for success. You need to ensure that the brand has strong, well-established trademarks, a successful business model and a powerful advertising and promotional campaign. In the digital age, don’t underestimate the importance of the online profile too – how high profile on Twitter or Facebook is the brand? And how potent is the competition?
  2. What kind of support is being offered?
    Part of a franchise agreement is the support you’ll get from the franchise supplier. So look at what kind of training and ongoing support is offered – do you have to do your own market research and generate your own leads from day one, or does the franchise supplier provide you with a ‘kick-start’ to get you going?
  3. Feedback from existing franchisees
    This is the best way to find out how you, as a franchise, will be treated by the parent company. Find out what their experience of the process has been and whether they are eager to sell their franchise (and why!).
  4. Take a good, hard look at the numbers
    You’re investing both time and money into the enterprise, so it’s crucial to ensure that the parent company is financially stable. All companies in the UK have to submit annual accounts, which should be accessible to the public. Check with Companies House and if necessary ask an accountant to take a look at the numbers and find out whether the parent company is in a strong financial position – or is desperate for your franchise money simply to keep them afloat for another month or two.
  5. Look very carefully at the small print.
    This could mean employing a solicitor that’s experienced in dealing with franchises such as Cubism Law, to ensure that you’re not effectively in a trait-jacket from the start. Go through details such as:- Whether there are specific restrictions on how you run the franchise
    - How many franchises the parent company has, and how many are in your immediate area
    - Whether there are any additional expenses on top of the franchise fee, such as financing premises yourself, equipment, the level of starting capital required and any costs for training
    - Who pays for the advertising and promotional materials

In summary, franchise ‘smart’. Go in with your eyes wide open and armed with not just information and research, but some hard-hitting questions that will establish your position as a serious franchisee. And if you’re not happy with the answers you get, don’t be afraid to simply walk away. There are always plenty more franchise opportunities out there to choose from.