Franchise advice
The more you know...
Roz Goldstein of Goldstein Legal elaborates on what you need to consider before signing on the dotted line
I
t is the franchisor’s job to convince you that their franchise offering will bring you success. But remember, when you take
on a franchise it is a business-to-business agreement; there is no consumer law to protect you, so your legal remedies may be very limited. It is your responsibility to check what you are being told, and not take every sales pitch at face value. Don’t forget the age-old saying: if it
sounds too good to be true, it probably is…
Proceed with caution When choosing a franchise, you should check thoroughly whether the figures in the franchisor’s projections add up (remember to print off and file safely each and every piece of franchise marketing material that the franchisor has given you). It would be wise to speak to other existing franchisees; if the franchisor only allows you to speak to a certain handful, this should immediately ring alarm bells. Research your market to establish whether there is already a proven customer demand for your product or service in your chosen territory.
Track record and business network You should consider whether your franchisor already has a proven track record of success. Being realistic, you are taking on much more risk with a new franchise than you are with an established one. You should discuss the business opportunity with your business network to get their thoughts and feedback. They may give you a more objective view than close friends or family members. In addition, it is also wise to search the
internet for comments or information about your franchisor. This should reveal whether there are a lot of happy customers out there or a large number of complaints!
Membership of the bfa Check whether the franchisor is a member of the British Franchise Association. Although membership can never be a guarantee of success (likewise, lack of membership does not denote failure) – and should never replace your own research – it can give you confidence that the franchisor has passed some minimum standards.
Is the franchise right for you? Establish whether the franchise plays to your personal strengths. No matter what franchise you choose, it will involve hard work, and this will only be satisfying if it is something that you are passionate about.
Negotiation
Don’t miss an opportunity to negotiate. Competition among franchisors to find franchisees is often fierce. If you are one of the franchisor’s first five prospective franchisees, you may have more scope to negotiate on fees than you think.
Form of franchise agreement There are two forms of franchise agreement: one for individual franchisees and one for franchisees who have incorporated a limited company for the operation of their franchise. Make sure that you understand and
have agreed well in advance which route you will be taking. In the latter it is likely that a guarantor or principal will be asked to sign a deed guaranteeing the performance of the limited company. If you sign as the guarantor or principal, this will make you personally liable for the obligations of the limited company should it fail to comply with its obligations in the franchise agreement. Usually, you do not have any contractual right to terminate your franchise agreement
before the end of your contract term. If you abandon the franchise, you could be held liable for damages, including all the fees that you would have paid through to the end of the contract term.
The franchise agreement Franchise agreements are always very one-sided in favour of the franchisor. It’s important to be aware that this, like it or not, is the nature of business format franchising. There are lots of obligations on the franchisee, with numerous grounds on which the franchisor can terminate. But there are very few obligations on the part of the franchisor, and if the franchisor does not do what they initially promised, you may well have no recourse against them.
Legal advice Unfortunately, legal disputes that arise between franchisors and franchisees are often not about the wording of the franchise agreement itself, but about errors or omissions in the way that the agreement was completed or signed. When you buy a franchise, you are taking on significant commitments and liabilities that could affect your personal livelihood should something go wrong. Get your franchise agreement reviewed
by a bfa-affiliated lawyer. This is not about negotiating the terms of your franchise agreement – it is about making sure you understand what you are committing to before you sign on the dotted line. Nevertheless, franchising may be the way
to success for you. You will have the chance to operate your very own established brand and receive support along the way. l
Roz Goldstein is founder of Goldstein Legal, a specialist franchising and commercial law firm
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