Franchise Q&A [Bio] Cathryn Hayes


is head of compliance and finance at the British Franchise Association


Q: As a prospective franchisee, what funds should I expect to putting upfront?


A: A franchisor will expect you to have funds to invest in the business. For an established franchise, banks can lend up to 70 per cent of the start-up costs, for new franchises the figure will probably be around 50 per cent. There will be a range of items you will need to pay for when starting up a franchise, the specifics of which depend on what type of business you are going into. Some franchisors will include the initial training and marketing launch costs within the franchise fee – others will charge those separately.


The key is to make sure you are kept fully informed about what the upfront and ongoing costs will be, how long it could take to reach break-even, what living costs you will need until the business can support you and how long it should / could take to recover your initial costs.


You may be asked to pay a deposit. This is fairly standard procedure but you should take great care to ensure that you are fully aware of the conditions for a refund and what costs might be deducted. Bfa rules state that member franchisors must return any deposit taken, if the prospective franchisee does not go ahead – some incurred expenses can be deducted but these should be fully disclosed and should not include indirect or ‘lost opportunity’ costs. Non-bfa franchisors may take a different approach to refunds, so be careful. You need to carry out due diligence


to ensure that you know what you are buying into and what financial returns are achievable. Speak to existing franchisees to find out whether the initial projections given were realistic and how their business is currently doing against budgets.


[Bio] Vicki Mitman is a solicitor at Leathes Prior


Q: Why is it important to take advice from solicitors and other professionals experienced in franchising?


A: Franchising is a niche, and slightly quirky, area for many professions. Not all commercial solicitors are familiar with the franchise arrangement or used to advising on franchise agreements. It is, therefore, important to take advice from a franchise specialist solicitor that knows what is common in the market and the relevant industry and, preferably, one who is affiliated to the bfa. Importantly, such solicitors should be able to advise on the bfa’s code of ethics and any terms of the franchise agreement that do not comply with the code. Bfa-affiliated solicitors will often charge more competitive rates (or fixed fees) for reviewing agreements


than non-franchise specialists who may charge on an hourly-rate basis. Furthermore, franchise-specialist law firms may also be able to provide assistance on premises acquisition, company set-up and employment advice to dovetail with its advice on the franchise agreement. Similarly, it is important to use banks and financial advisors that have a dedicated franchise team. Several bfa-affiliated professionals advise franchisors and franchisees and therefore understand both sides of the relationship. It is advisable to find out the extent of the services provided and to find professionals with whom you feel comfortable working. n


March 2015 | Businessfranchise.com | 31


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