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Are you a successful business owner? Are you thinking about expanding your business but not sure where to start? Franchising might be the answer for you. The main advantage of franchising is that you can leverage someone else’s labour and capital in order to expand your brand. You don’t hold any liability for your franchisee, and you do not have to worry about the day to day running of the franchisees, only the business as a whole. However, as this article will explain, there are a few tips to make sure that the process of franchising your business is successful. 

Draw Up a Foolproof Franchise Document

The key to ensuring your business is protected when franchising is to draw up a comprehensive franchise agreement. The franchise agreement is a legal document that will underpin the relationship between the franchisor and the franchisee. Some of the key items that your franchise agreement should contain are:

  • ownership;
  • fees and royalties;
  • standards of operation; 
  • costs;
  • disputes procedures;
  • coverage/territory;
  • security;
  • responsibilities;
  • training and support; and
  • the conditions that may require you to terminate a franchise agreement.

As with any legal document, it is wise to consult a lawyer when drawing up a franchise document.

Work With a Franchise Lawyer

As previously stated, it is essential that you work with someone who is experienced in starting and selling franchises, such as a franchise lawyer. Your most important legal asset as a franchisor is your franchise agreement, so you want to make sure this is foolproof. 

If you decide to sell your franchise system in the future to private investors or end up going public, you will want to make sure that you did not cut any corners and have upheld all of your legal obligations.

A good franchise lawyer will be able to help you every step of the way and will offer tips to help ensure the process of franchising your business is a success.

Include a Termination Clause

If you end up franchising your business, then it is always prudent to have a backup plan if things go wrong. This is why you should include a termination clause. As the name suggests, a termination clause will allow you to cancel your franchise agreement if the franchisee has broken the specified terms. For example, if your franchisee modifies branding on their franchise, this could entitle you to terminate the franchise if it is in the agreement. 

Generally, you can resolve disputes with your franchisee through dispute resolution methods, such as negotiation or mediation. However, beware that your franchisee is also entitled to terminate the agreement if you break a provision in the franchise agreement.

Is Your Business Suitable for Franchising?

The biggest mistake that businesses make is that they franchise their business either too early or are just in the wrong industry for franchising. When deciding whether to franchise, you should consider if you have:

  • a proven track record;
  • the ability to clone your business in a different location;
  • the time and money to develop the franchise system;
  • limitations on your business due to geographical, cultural or other barriers;
  • a strong and recognisable brand that will attract franchisees; and
  • established and reliable supply chains.

You may not know the answer to all of these at present. However, it is still important to think about them before you decide to franchise your business. Look to the market to see whether other businesses in your industry have successfully franchised their business. At the end of the day, your finances will be the clearest indicator of whether your business is ready to be franchised. Therefore, you should always make sure your numbers are positive before you franchise.

Key Takeaways

Franchising is a great and easy way to grow your business without having to worry about raising equity or debt. However, like with any business decisions, you should do a few things to make sure that your business is secure. These include:

  • having a foolproof franchise agreement;
  • using a franchise lawyer;
  • including a termination clause; and
  • deciding whether your business is suitable for franchising;

Always do your due diligence before making a decision and consider these tips for franchising your business. If you are looking to franchise your business and need to talk to a lawyer, contact LegalVision’s franchise lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Is franchising the best option for expanding your business?

It depends on your type of business and whether it would suit franchising. Overall, franchising is a great way to grow your brand because you are able to leverage other people’s capital and labour.

Do I have to include a termination clause?

All franchise agreements will have a termination clause. This is to protect both the franchisee and the franchisor if one party was to not comply with the franchise agreement.

How much control will I have over my franchisee?

This depends on the terms in your franchise agreement. You can choose to exercise more or less control depending on how much time you will have to oversee the franchisees.

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