How do you know when it’s right to franchise your business?
Simply put, franchising is a business model that looks to expand a business idea and its goodwill by licensing the right to use its trademarks (IP) and brand to an independent entity, while also providing an operating system and support.
There are many benefits to franchising but what is involved and is it the right option for you?
It can be an effective way to grow your business brand when you do not have the capital or personnel to expand yourself. Accordingly, a franchisor can indirectly invest in its business and spread the financial risk, but share the gains and knowledge of a successful commercial idea. As such franchising can be a very cost-effective route for scaling-up a business, provided that you can demonstrate that your business is successful and that it can be replicated and effectively managed in different locations.
So you have an established business with good financial health and a strong brand. You have a tried and tested operating system in place which works and can be cloned. Through market research you have identified a territory, country or region, which is perfect for your franchise.
You will need to discuss the terms of the franchise and carefully document these in a contract ‘The Master Franchise Agreement’. What will you be offering and for how long? For example, will you permit assignments, do you need an option to purchase back the franchise under certain circumstances and will you be offer any help in sourcing retail space? It is useful to go through your liabilities and obligations with a specialist franchise solicitor from the outset to avoid the pitfalls that many franchisors encounter.
If you are discussing and providing confidential information such as client data, inventions or new ideas you should make sure that potential franchisees sign a non-disclosure agreement, which should help prevent leaks that would damage your valuable business.
Karen Holden is the founder of A City Law Firm.