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PANEL OF EXPERTS
Q: Do franchisees need business insurance?
CHRIS LITTLE Business contents covers the cost of replacing or repairing trade
Franchise director, Premierline Direct contents and stock in the event of an incident such as a fire, malicious
A: Insurance is essential for any franchise, and it can damage or theft. However, it’s important to take security precautions as
often be tailored to the specific type of business such most insurers will require a minimum level of security, such as a certain
as pubs, restaurants and retailers. type of alarm and locks on external doors. Failure to comply with these
Employer’s liability is a legal requirement for any requirements can invalidate the policy.
franchise advice
business that employs staff, even if they’re temporary or on work Business interruption covers a business for loss of income as a result
experience. It covers legal costs and awarded damages if the business of an insured event such as a fire or flood. Statistics show seven out of
is found to be legally responsible for an employee being injured or 10 small firms would go out of business if they experienced a major
contracting a disease while working. emergency.
Public and products liability protects businesses in the event of There are various channels available for purchasing business
the public being injured or their property damaged, or for damage or insurance. Businesses that buy direct can ensure the insurance company
injury caused by defects in the business’s products. This is invaluable is provided with accurate information about their firm. Perhaps most
when the business provides a service or goods to the public. importantly, going direct may mean a business can get a better deal.
ÉLISE BILLY The types of insurance required will vary by franchise and
Principal solicitor, EXB Legal business type, but will often include insurances such as public
A: Most franchise agreements require the liability, professional indemnity (if applicable), employers’
franchisee to take out insurance. Some set out the liability, product liability and so on. Most of the insurance would
minimum levels of insurance and the types of be prudent for a business owner even if not required by the
insurance required, others will be more general. franchise agreement, so although a franchisee may be tempted to
Many franchisors require their interests to be noted regard the insurance as unnecessary, this could be regretted in a
on your insurance policies (the franchise department at the claim situation.
insurers should be familiar with this) and may require copies of Some franchisors will offer access to a group policy, or will
the policies and proof of premiums having been paid. It will often insist on a particular insurer being used. Others will allow
be a breach of your franchise agreement (which can ultimately a franchisee to select their own insurer, but may have useful
lead to termination) not to obtain and maintain the minimum suggestions. This should be checked with the franchisor and in
insurance levels. the franchise agreement.
Q: If you’ve had a failed business before, does
this count against you?
CLIVE SAWYER that you do not fail again, while using the positive business skills
Managing Director, Business Options and experience you picked up in your past business. Often
A: Business failure is now becoming more business failure can be the best training ground for running a
acceptable in the UK as it has been in the US for successful business as you have experienced what it is really like to
many years. Having said this both franchisors and run a business and you are not entering into the venture with rose
the banks still look more closely at people with tinted glasses with the unrealistic notion that it will be easy.
business failure behind them. The best approach is to be open and Taking on the right person who has experience of business failure
upfront. Explain the reasons for the failure and it may be that it should be viewed in a positive light and embraced by franchisors.
can be turned in your favour. Becoming a franchisee with the Taking on the wrong person who has experience of business
backing of any established franchisor could be the way to ensure failure should be avoided like the plague.
CATHRYN HAYES However, if a director has acted irresponsibly resulting in the
Head of Franchising, HSBC failure, they can be disqualified from being a company director for up
A: The best possible course of action is to talk to to 15 years. In the case of sole traders and partnerships the owner/
your bank if you have had a previous business partners will be personally liable for any business debt and can be made
failure. They may be able to help, particularly if the personally bankrupt. This will badly affect their credit rating and they
debt has been repaid or an agreement with creditors will probably find it difficult to borrow money in the future. Until a
has been reached. bankruptcy is discharged (usually after 12 months) the individual cannot
Business failures impact their owners in different ways depending on act as a company director, effectively preventing them from setting up
the type of business. A limited company is a separate legal entity and if any new business.
unable to meet its financial obligations as and when they fall due, it is
said to be insolvent and will eventually cease to exist. The director is not
Email your questions for the panel to:
personally liable for company debt apart from their initial shareholding,
editor@businessfranchise.com
unless they have given a personal guarantee to the lender.
www.businessfranchise.com December/January 2010
BF066-067_Q&A_Dec/Jan09 .indd 2 19/11/2009 11:45
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