What are the legal considerations for franchisors preparing to scale up?

Fiona Boswell identifies the key points that all franchisors need to address before attempting to take their business to the next level.

What are the legal considerations for franchisors preparing to scale up?

Is my house in order?

Before making preparations to grow the business, it is vital that franchisors review their existing network. They must ensure that it is already running as smoothly and as efficiently as possible. Do they enjoy good network engagement? Are franchisees compliant and profitable? It is imperative that the franchisors’ head office team is fully supportive of their business partners. Is the contractual documentation both robust and enforceable? If the franchisor can tick all of these boxes, then the potential for scaling-up is positive. If some boxes are left un-ticked, then it is important to rectify the problems before attempting to grow, otherwise these issues will simply scale-up as well.

Where next?

If interested in overseas expansion, then the franchisor must identify the best possible countries for undertaking this challenging process. It is vital that a country’s culture will happily adopt your concept and products. The franchisor must also fully understand the legal system that operates within that nation. Is there a franchising industry already well established in a particular country or alternatively even completely absent? Legal requirements vary from country to country. In most countries, there are additional disclosure and registration requirements that apply. And, most vital of all, align yourself with trusted partners. These are companies which have experience of successfully taking brands to other countries and cultures.

Embrace the management or multi-unit model

For those with a successful established network, maybe the time has arrived to embrace a new type of franchisee. You may need to re-position the brand to attract new investors – not just operators. Encourage growth by promoting multiple-unit operations, among already successful business partners. You may need to tweak, adjust or introduce new documentation to cover these changes. Existing fee structures will probably also have to be updated.

Diversify revenue

Consider ways to future proof the business by introducing additional revenue streams. A premises-based franchise could develop the property side of the business. This would allow the franchisor to benefit from both lease revenue and franchise fees.  Leveraging these assets needs to be documented properly and may require tweaks to current franchise agreements.

Preparing for exit

It may be part of a franchisor’s future plans to build and prepare the business for sale. Is the franchisor intending to grow by acquisition? Or do they seek private equity investment or perhaps hoping to list the business on the stock market? Always align with advisors that have experience of taking businesses on that journey.

Whatever the next step, always conduct an audit to identify the opportunities that are available. Seek out strategic and legal advice to give the business the best possible chance of growing and scaling-up successfully

Fiona Boswell
Fiona Boswell