Sherrards continue to work with long standing clients Winkworth Franchising Ltd
They continue to undertake a wide variety of work including advising on acquisitions and disposals, reviewing and updating the full suite of franchise agreements for roll-out across the network.
The Sherrards Employment team also support their head office with their employment law and HR needs, as well as advising on matters involving the franchisees.
This year the Franchising team have worked closely with Winkworth to update their internal new and renewal processes for franchisees in their network with the planned roll out of a new franchise agreements to their network of franchisees (circa 110) in their network.
To find out more, please contact Leigh Head.
Why the franchise agreement is so important
Franchise agreements are often compared to prenups, they are only reviewed when you want to get divorced! However, the franchise agreement is possibly the most important document in the franchise system. If the relationship between franchisor and franchisee breaks down or a franchisee is not compliant, the agreement plays an important part to make sure both parties are protected. It should set out what is expected of both parties from the outset and, most importantly, define their future relationship and set out the terms that will bind them for the duration of the franchise contract.
What should your franchise agreement include?
While there are no set rules on what should be included, the franchise agreement defines the legal relationship between franchisor and franchisee, and it should look to achieve three essential objectives:
1) The “grant” and general terms – It should clearly set out what is being “granted” and licenced from the franchisor to the franchisee, as well as the operating terms that apply to the grant;
2) The brand/ Intellectual Property (IP) – It should protect both franchisor and franchisee, the franchisor’s brand, IP and know-how; and
3) The rules- It should cover the rules the parties are expected to follow in the operation of the franchised business.
The “Grant” and terms
There is no special law for franchising, and if difficulties should arise the franchise agreement will determine what rights and obligations have been set out.
Below sets out what is expected from the “grant” and are also some essential operating terms that should be covered:
- The rights granted to and the obligations of franchisee – the licence to operate the franchised business;
- The rights either retained or granted to and the obligations of the franchisor;
- The goods/services to be provided to the franchisee (if any);
- Payment terms by the franchisee;
- The overall duration of the agreement;
- The franchisee’s use of the franchisors brand identity including trade name, trademark, signs, logos etc.;
- The procedure to renew the agreement;
- The conditions of terminating the agreement and what is to happen when the franchising relationship ends;
- The terms for if and when the franchisee can sell the operating franchise business and the franchisor’s pre-emption rights;
- The franchisor’s right to change the operating manual (the “rules” – referred to below) and franchise system.
The brand/ IP
The franchise agreement must have provisions in place to protect the franchisor’s brand (including trade name, logo etc.) know-how, system, the manual and confidential information. The Intellectual property rights set out how the franchisee can use trade names, trademarks, and copyrights.
It is in the best interest of both the franchisor and franchisee to ensure that no third party or ex-franchisee infringes these intellectual property rights and does not allow for any external use of trademarks, trade names or copyrighted materials.
All franchisees should ideally be treated as a family so there should be no room for favourites. All prospective franchisees should be offered the same terms with no special deals.
A franchisee is, therefore, invariably invited by the franchisor to “take it or leave it”. If a franchise agreement is not negotiable then it is crucial, from the franchisee’s point of view, that it is not only sound from a legal point of view but also workable in terms of the rights and obligations.
The vast majority of the rules will ordinarily be captured under the operating manual – something that you will not have access to until you have entered into the franchise agreement due to it being so confidential – it is, therefore, critical that access is granted to existing franchisees so that any prospective franchisee has the ability to assess how the franchisor operates, how the rules are applied and to understand how the “family” works.
When it comes to entering into a franchise agreement, there are many legal considerations to be aware of, not just covering the above. The franchise agreement is a crucial document in the relationship, and you should completely be understood before signing it.
To find out more, please contact Leigh Head.
Is Franchising The Right Model For The Growth of Your Business?
Franchising has been lauded as a tried and tested way of growing a business by using the entrepreneurial skills and capital (without incurring debt or interest charges) of others. It has also sometimes misguidedly been promoted as a solution for ailing businesses. Leigh Head, gives his Top 10 Tips for any aspiring Franchisor and what they should look out for to grow a business.
1. Competition – Find out who is likely to be competing with you for franchisees. This means researching to see who is franchising not only a business which is similar to yours, but also what other franchises are available for sale at the sort of price you are proposing to charge for your franchise. Not all prospective franchises are wedded to the idea of only selling goods or services of the type being provided by your franchise. Many are concerned with starting their own business and approach franchising with an open mind, but with a good idea of what they can afford. They will therefore be looking at franchises within their price range.
2. Franchisee selection – Establish and stick to your criteria for those whom you consider to be suited to operate your franchise – do not lower your standards in a moment of weakness. The temptation is very great to lower standards when recruiting the first few franchisees or when the growth in your network is not keeping pace with your expectations. If you are forced to do so for sound commercial reasons, do so in the full knowledge that it is highly likely that these franchisees will become troublesome in the future.
3. The future – Ask yourself what are you doing now that will make your franchisees want to renew their franchise agreements when they expire. Franchising is a long-term proposition and franchisors who do not look to the future will find that their franchise network will diminish in the longer term.
4. Two Businesses – As a franchisor you have two businesses. The first consists of supplying goods or services to your customers via your company-owned units. The second is that of franchising. Do not forget that your franchisees are your customers and that your obligations as franchisor to your franchisees are different and a good deal more onerous than those to your customers. Remember also that the customers of your franchisees are your customers too, albeit indirectly.
5. Management skills – Improve your management skills and those of your staff. The management of a franchise network is an art – not a science. The big challenge your staff (who will be employed) will face is managing franchisees who are not your employees, but independent business people in their own right. Managing them as managers of a branch business will not bring the best out of your franchisees and will lead to confrontation.
6. Support – One of the key obligations of a franchisor is to support its franchisees to the extent that it is necessary to sustain them in their business. To avoid disappointment and accusations that you fail to keep your promises, always under-promise and over-deliver. In this way you will gain a reputation for doing what you promise and more often than not, more than what you promise. Whatever you do, do not fail to deliver what you promise.
7. Exclusive Territories – If you are granting exclusive territories, ensure that you have the necessary protocols and mechanisms in place for dealing with turf wars which can break out amongst franchisees.
8. Performance Targets – If you impose minimum performance targets you must be able to justify their imposition and the basis upon which they are calculated. Make sure that they are reasonably achievable and be prepared to impose such sanctions as you may have reserved in the event that they are not reached, otherwise you will lose credibility and have problems in enforcing targets when others fail to reach them.
9. Standards – Do not tolerate sub-standard franchisees – they affect the whole network and certainly their neighbouring franchisees. Failure by a franchisee to comply with your “system” is a mortal sin. Uniformity is the key. The key to your success and that of your franchisees is uniformity of business practices, uniformity of marketing image and uniformity of the quality and manner in which products and services are delivered to customers.
10. Bad may be good – Remember that it does not necessarily follow that the most demanding franchisees are the worst franchisees. Often, it is the most demanding franchisees who are also the best in your network. That may be a coincidence or it may be that it is precisely because they are demanding of themselves and good at what they do, that they are demanding. Better to have a very demanding franchisee who is firing on all cylinders and growing his or her business like topsy, than to have a quiet, compliant franchisee who merely chugs along with a tendency to use you as a crutch.
Contact Leigh Head for more information.