Franchise Your Business
fundamental breach of the agreement by the franchisor. In the case of the franchisor it could terminate the agreement, for example, if the franchisee repeatedly breaches the agreement or enters into some form of insolvent event, like administration or liquidation
• Effect of termination: the agreement will set out what is to happen on termination of the franchisee, including an obligation on the franchisee to cease using any trademarks or trade name associated with the franchise, pay any sums due to the franchisor and transfer to them any customer or client contracts. There would also normally be a right for the franchisor to buy the business back from the franchisee.
The franchise agreement must be very clear that the franchisee is allowed to and shall be responsible for operating their own business. However, it is integral that the franchisee is required to operate their franchise business in accordance with the franchisor’s blueprint. A franchise agreement will also, by
its nature, be one-sided in favour of the franchisor, which may seem unfair. However, if you are a franchisee, then you do want the franchisor to have a firm control over the network. This is because if you are paying the franchisor substantial sums to utilise the brand, then you want to ensure that they have the ability to control any other rogue franchisees within the network in order to maintain the high standard and reputation of that brand. The other key aspect of the franchise
agreement is its relationship with the manual. The agreement is signed at the outset and does not change for the initial period of the franchise. However, the franchisor wants to make sure that the franchise is dynamic, and this is achieved through the manual. Within the franchise agreement there are a number of references to the manual and obligations on the franchisee to comply with certain parts of it, which the franchisor can then update. Again, it seems slightly unfair on the franchisee to have to comply with a document that will be updated during the course of the franchise, but this is ultimately good for the franchisees, as they can be part of and enjoy the benefit of a dynamic franchise system.
All franchisors need to have sight of their franchisees’ performance, and the easiest way to do this is to have access to trading activity, whether this is daily sales in a retail situation or monthly returns in the case of a consultancy or other long-sales cycle product. The thorny question is: do you trust your franchisees to accurately record activity, and therefore revenue? Or, do you specify a system to take
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that responsibility away from the franchisee? By making it quite clear from the outset that the franchisor is providing an accountancy package that satisfies all the franchisee’s needs, while taking away the onerous task of reporting and satisfying statutory requirements, like HMRC and vat, then this is sold as a benefit of the franchise. In a retail situation, where the franchisee is buying stock through the franchisor and using an electronic point of sale (EPOS) system, and also has a requirement for payroll services, then it is sensible for the franchisor to nominate
a supplier of equipment and an accountant to undertake all these functions. This puts an element of control into the system, especially where it is a cash business, and it is used to determine ongoing management service fees. It also allows the franchisor real-time access to outlets to ensure that any problems, such running out of stock, outlets not opening or an imbalance between stock purchased and sold, are dealt with quickly. The criteria are: • Cost: this is likely to be passed on to the franchisee and must be seen to be
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