Legal counsel can be invaluable whether you’re expanding your business into a franchise or you want to invest in an existing franchise. Thriving franchises should also strive to update their legal structures to remain compliant and avoid run-ins with the law. A franchise attorney can help prospective franchise buyers or investors, and franchisors establish their businesses on the right footing.
Businesses partnerships, including franchises, are regulated by agreements that are drafted before commencing business. Word of mouth doesn’t work in business; if a dispute arises, it will be your word against theirs–and it’s legally unacceptable. A franchise agreement lawyer can provide legal counsel besides other services for thriving franchisor-franchisee relationships.
Avoiding Common Franchising Pitfalls
You don’t have to start a franchising business from scratch, it can be stressful–that’s why some prospective investors prefer existing franchises. On the other hand, franchisors need not bear the whole burden of risk when expanding their brands. Franchising can be an ideal solution to increase market share.
Franchising can be rewarding but it comes with unique problems that are never experienced by other types of businesses. A franchise operates like a marital union where the partners must work as one to achieve pre-set goals. Franchises must be strategically established and partners should strive to know & avoid the common pitfalls of franchising:
Starting a new business can cause fear of the unknown, even when venturing into successful businesses. Prospective franchisees pay a pre-agreed franchise fee before commencing business. However, capital (franchise fee) can vary by industry, jurisdiction, and much more; that’s why prospective investors are advised to do due diligence to avoid exploitation.
It’s important to research the average franchise fee payable in the industry you’re interested in. A prospective investor (franchisee) should also consider the amount they’re willing to risk and the anticipated return on investment.
Franchisors should cautiously approach franchising deals however mouth-watering they may appear. In practice, don’t just onboard any prospective franchisee because they are risking significant resources, such as finances, time, products, and much more. Besides, franchising involves handing part of your stake to a stranger who could compromise the business; you’re taking a big risk, in other words!
Franchisors shouldn’t be in a rush to onboard an investor; they should evaluate prospective franchisees on several qualities, including previous experience, success history, among other things. You should reject their application if an applicants’ qualifications don’t match your expectations.
- Consult other Partners in Existing Franchises
A franchisor will likely introduce a recruit (new franchisee) to other franchisees and it can be a perfect chance to learn more about the business, including what’s involved, benefits & downsides, support, and returns. However, you must be cautious to avoid exaggerated claims and false hopes. Some people are naturally malicious. A good approach would be to consult less successful investors to unearth red flags.
The standard advice being frank with prospective franchisees from the onset. Preliminary talks should make a way to learn about each other, the risk involved, and the capacity of the prospective franchisee. You must find out if prospective candidates are fit for the job and whether your personalities can affect your working relationship.
According to franchising laws, franchisors are expected to provide training and ongoing support to franchisees to ensure the business remains a going concern. However, the terms of your franchise agreement can vary and you might be required to pay for training and support. You’re entitled to quality training and support, particularly when you have to pay, to match your needs.
Training goes a long way to protecting brand outlook, reputation, and business interests. Providing support involves educating a franchisee about compliance and must be done regularly.
Fees and Costs
Some franchisors charge management fees besides the franchise fee you franchisees pay upfront. Management fees can either be collected when supplying raw materials or as a percentage of monthly sales. Others impose termination conditions, such as a termination fee to transfer business interests.
Franchises relationships are regulated by rules, contained in franchise agreements. A standard franchise agreement is a binding contract that runs for at least a minimum of 5 years and it can only be terminated according to franchising laws where the franchisor has two termination options.
Franchisors must wait for the expiry of an active term or transfer their business interests to another investor. The components of a franchise agreement can include:
- Franchise fee;
- Right and restrictions;
- Marketing strategies;
- Termination details;
- Dispute resolution.
Franchise agreements should the basis of a working relationship in a franchise, so, it’s in your best interest to draft a fair, just, and balanced franchise agreement to avoid constant disputes within the franchise.