When it comes to becoming your own boss, there are really two main options – you either set up your own business or you can invest in a franchise which is a popular choice for many. According to the 2018 BFA NatWest Franchise Survey, in just 3 years from 2015 to 2018 the number of people employed by franchised businesses increased by 14% and 4,400 new franchised businesses were opened during that period.
Whilst there will never be a perfect time to leave a job, make a career change or take the plunge into self-employment we cannot ignore the fact that how we live and how we do business has changed dramatically over the past two years. So, in addition to the standard due diligence franchisees should carry out before signing on the dotted line, you should also consider the following:
Insurance
Check what insurance you will need to have in place and then investigate what cover you can obtain. Ensure that you do read the terms and conditions carefully and check for any exclusions. Some insurance companies no longer provide cover for COVID-19 related claims or exclude pandemic or epidemic altogether.
Franchise Agreement
You should always obtain advice from a specialist franchise solicitor on the terms of the franchise agreement. Although franchise agreements are usually presented on the basis of being non-negotiable, it is nevertheless essential that you understand what you are signing up to.
The purpose of obtaining legal advice is not necessarily about requesting changes to the agreement but rather having a clear understanding of both party’s rights and obligations. For example, what support can you expect to receive from your franchisor or the wider network – in our experience, these extended relationships have been invaluable over the pandemic. Is that limited to remote support only or does it extend to support in the field?
A franchise solicitor will advise you on whether the obligations you are about to accept are standard or whether there are any provisions which are onerous, unfair or unworkable.
Fees
You will be expected to pay certain monthly fees like the ongoing franchise fee. This could be expressed as a fixed amount or it could be a percentage of your turnover, or a combination of both.
Check what other fees you might be liable for, for example, are you expected to contribute a minimum amount to a marketing fee or commit to spend a minimum amount on local marketing within your territory? If your business involves goods, are you committed to purchasing these from your franchisor or specific suppliers and if so on what terms? This is not only about price but also about supply and availability.
What happens if your franchisor or supplier from whom you have to purchase from is not able to provide the product as we have seen with recent supply-chain crises – make sure this is covered and clear.
Technology
The use of technology by franchised businesses has exploded since the start of 2020 and being “connected” is something that is now expected. What investment has the franchisor made in technology and what are the plans for the future or is this something that is left to each franchisee? This may also provide an insight into how resilient the business will be in the face of unforeseen future restrictions.
Force Majeure
Sometimes unpredictable and unexpected events happen, and it is always best to be prepared. What does the franchise agreement say about events outside of each party’s control? Are the aftereffects of the current pandemic properly covered and fair? Will you be expected to continue to pay fees to the franchisor or will such obligations be suspended? If so, for how long? What about the right of the franchisor to terminate the agreement?
Like any relationship, a successful franchise relationship is about expectations and reality being aligned. A reputable franchisor will welcome the opportunity to engage in a dialogue, so don’t be afraid to raise questions. Clarifying these points now will ensure both parties can build trust more easily and get on with the primary object – growing the business!
