Franchising from both sides of the fence

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Franchising from both sides of the fence

Hand-picked contributors offer their advice on Buying a Franchise and Franchising a Business

Plus: sample franchise and master franchise contracts

A must read to understand the nuances of franchising

About Franchise World Franchise World, founded in 1978, is the UK’s first dedicated franchise magazine and became acknowledged throughout the sector as the most ● First edition cover newsworthy and authoritative in its field.

| https: //www.FranchiseWorld.co.uk

Franchising from both sides of the fence

Hand-picked contributors offer their advice on Buying a Franchise and Franchising a Business

Publishing regular leading-edge articles on the issues of the day, reporting on the latest franchise launches, covering the British Franchise Association (BFA) news and supported exhibitions, to offering advisory articles to those new to the franchise sector.

Plus: sample franchise and master franchise contracts

A must read to understand the nuances of franchising

Published by Franchise World, Highlands House, 165 The Broadway, Wimbledon, London SW19 1NE

The magazine realised the popularity and growth of franchising which has become a sector contributing over £17bn to the UK economy (according to the latest BFA franchise survey).

Editor Nick Riding Tel. 020 8941 4833 info@franchiseworld.co.uk www.franchiseworld.co.uk

Archived issues From its first printed edition over 40 years ago, Franchise World has today become an online publisher where readers have access to informative content, franchise news and events, read about featured franchise opportunities and view archived issues of the magazine online.

© 1978 - 2023 Franchise World Franchise World ISSN 0144-0543 Readers should seek advice from a qualified accountant and solicitor before parting with money, or entering into financial or contractual commitments. The publisher does not give any warranty, representation or assurance that statements, conclusions and opinions expressed or implied are accurate or valid.

For further information contact Nick Riding, editor, at nick@franchiseworld.co.uk. n 2

| https: //www.FranchiseWorld.co.uk

Franchising from both sides of the fence

Hand-picked contributors offer their advice on Buying a Franchise and Franchising a Business

A

must read to franchising for aspiring franchisees and franchisors, Franchising from both sides of the fence, offers advice from leading advisors in the sector on essential topics, such as:

A particularly valuable section provides a sample of a conventional franchise agreement (between the franchisor and franchisee), and an international master franchise agreement (between the franchisor and an investor taking the franchise for an entire country, acting as a virtual franchisor). n

For prospective franchisees; the basics of franchising, understanding the franchisor’s projections, rights and obligations in a franchise agreement, benefits of buying a franchise resale, and advice if the franchisee/franchisor relationship fails.

For prospective franchisors; turning a business into a franchise, recruiting franchisees, setting performance targets and fees for franchisees, preparing the operations manual, and expanding internationally.

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Contents Buying a Franchise 6

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Q&A to put you on the right track to buying a franchise

Are post-termination restrictive covenants in franchise agreements enforceable?

Author: Nick Riding, Editor, Franchise World magazine

Author: Gordon Drakes 46

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How franchising works: the two sides of the story

The advantages of buying a franchise resale

Author: Cathryn Hayes, Franchise Director, Revive! Auto

Author: Emma Ozenbrook, Operations Manager, Franchise Resales

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48

How to sell a franchise that has started to fail due to unforeseen circumstances

How to be sure a franchise adds up Author: Gillian Morris, UK Head of Franchising, HSBC

Author: John Hatt, Managing Director, Business Partnership

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51

Make sure your business plan packs a winning punch

If it must come to parting, try to make it amicable

Author: Suki Dehal, Head of Franchising, Lloyds Bank

Author: Nicola Broadhurst, Partner at law firm, Stevens & Bolton

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The core principles of a franchise agreement

Author: Gordon Drakes, Partner and co-head of the franchising and commercial team at European law firm, Fieldfisher

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Franchising a Business 57

97

Turning your business into a franchise

Create the operations manual your franchisees need to succeed

Author: Dugan Aylen, Co-Owner, Director and Head of Franchise Recruitment at Europe's largest franchise consultancy firm, The Franchising Centre

Author: Penny Hopkinson, Founder of Manual Writers International 107

Role of disclosure in reducing risk for both parties

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Financial considerations when franchising your business

Author: Mark Abell, International Franchise Consultant

Author: Carl Reader, Chairman at d&t, a leading franchise financial specialists

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From domestic to global: the key to successful franchise international expansion

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How do I recruit franchisees?

Author: Suzie McCafferty, Founder of consultancy firm, Platinum Wave Franchising

Author: Farrah Rose, International Franchise Consultant at The Franchising Centre

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125

The term ‘Franchise owner’ may be cuddly, but is it safe?

An introductory guide to digital marketing for franchisors and franchisees

Author: Mark Abell, International Franchise Consultant

Author: John Paiva, Mayfly Internet Marketing

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Setting performance targets for franchisees

135

Author: John Pratt, Partner at legal firm, Hamilton Pratt

Sample franchise contract

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147

Author: Mark Abell

Sample master franchise contract

Setting franchise fees both initial and ongoing

Author: Mark Abell

Author: Steve Felmingham, Senior Franchise Consultant at The Franchising Centre

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Buying a Franchise

Q&A to put you on the right track to buying a franchise

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his Q&A seeks to address the fundamental issues of franchising for the beginner.

up, whereas it is the franchisee who funds the branches, usually through bank loans.

The other big advantage to the franchisor is that it can expect that, as you have invested your own money, you will be more motivated and committed over the long term to make the business successful than an employee.

Author: Nick Riding, Editor of Franchise World magazine Q What is franchising?

It is simply a system for marketing goods/services that is not unlike dealerships, agencies or concessions.

The franchisor sells you, the franchisee, the rights to set up your own local branch, or cluster of branches, to market the company’s goods/services.

Q What is it going to cost me?

This, of course, depends on the franchise.

A business that you can run from home, for example, will obviously cost a lot less to set up than one that needs premises, particularly in the high street.

Q Would the company not be better off owning its own branches?

Yes, in terms of operating profits, but it would have to find the money to set them

You pay an initial fee to cover your training, and the rights to use the brand and the business system for the period of the franchise contract.

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Also you will pay regular ongoing fees, a fixed fee, or based on a percentage of your turnover, or a mark-up on the goods that you are obliged to buy from your franchisor. There may also be an advertising/marketing levy, again based on a fixed fee or turnover.

If the figures are impressive and you are prepared to work equally as hard as the franchisees you have met, you should be able to look forward to similar profits. After all, you will have had the same training and help that they did so on that basis, given your location offers similar potential to theirs, whether you succeed or not at the end of the day is down to you.

Q Will the initial fee be higher for the larger, 'better known' franchises?

Not necessarily. The franchisor shouldn’t be setting out to make a profit from the initial fee, but from the ongoing fees. This is one of the important principles of the system because it creates the incentive for the franchisor to help you build your business and continue to develop it.

Putting it simply, in order for the franchisor to succeed, you most first succeed.

Q Would it be better for me to go it alone in a conventional business and not have regular fees to pay?

You would miss the many benefits of being a franchisee, such as training, the use of the franchisor’s proven business system and branded, marketing and ongoing development.

You would also face much less risk than you would if you were starting out on your own, particularly in a type of business in which you had no knowledge or experience.

Q What is likely to be the scale of my profits?

This will, of course, depend on the franchise you choose, the territory or location you buy, and particularly how hard you work.

With a franchise you have all the help you need to set up your own branch of a business in which success has been demonstrated by its existing franchisees.

The latter is critical. Franchising is not about investing money, sitting back and spending the profits. Launching and developing a new business, even with the back-up of a competent franchisor, is hard work.

Speak to them, and ask their opinion of aspects such as the standard of their initial training, the accuracy of the franchisor’s financial forecasts (income, outgoings, etc.) and the level of ongoing support they receive.

Franchisors are seldom looking for what are known as absentee investors. They need hard-working, fully committed franchisees.

Q Which franchise should I buy?

This is the big question only you can answer. It’s rather like asking what house or car should you buy? As with them, it depends on your personal situation, preferences and available finance.

The question can best be answered by looking at the franchisor’s projections for the business and asking current franchisees whether they found them to be realistic.

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What can you afford? What are your personal aptitudes and working background? What would you really like to do for the rest of your career? Would the business need the support and participation of your family? Would the franchise be profitable enough to support your lifestyle? Would it meet your work/lifestyle balance aspirations?

If you are highly ambitious, negotiate with your prospective franchisor at the buying stage to include in the agreement an option on extra territories/sites. Some franchisors particularly welcome franchisees who have aspirations to open a number of outlets and are particularly looking for candidates with the ambition to become multi-unit franchisees.

Before looking at these questions in-depth, you need to ask yourself whether you are, in fact, suited for self-employment, and whether you would be prepared to run the business according to the franchisor’s rules.

The benefits for the franchisor is that it doesn’t have to face the costs of recruiting and training the ambitious franchisee and, most importantly, knows that he is successful in the business. You suit them, and they suit you. Also financing extra units is easier as it can come from the profits of the earlier branches.

You will at the end of the day own your own business, but you must accept the fact that you are not entirely your own boss as you must run it according to the franchisor’s system.

True entrepreneurs are, however, unlikely to be fulfilled in conforming to what they increasingly see as restraints imposed by the franchisor and they may, in fact, be better suited to starting a conventional business from scratch and go on to develop it as a franchise system.

This is necessary to maintain the quality and integrity of the whole network. After all, you are buying into the system not just to benefit from the brand but also its proven business system so why try to change it?

Q What does the phrase, comfort zone mean in the context of franchising?

It describes the stage at which the franchisee’s business has become so profitable that he chooses not to develop it further. He has reached his ambition and is happy with his work/life balance.

Q Might the necessity to strictly follow the franchisor’s formula make the business insufficiently challenging?

This question is often overlooked. Some franchisees are, of course, more ambitious than others. There are those who are looking mainly for a comfortable work/life balance, rather than making large profits.

This causes two problems for the franchisor. Firstly, it puts a cap on the future royalties it receives from taking a percentage of the franchisee’s turnover.

Secondly, it gives competitors the opportunity to capture a greater share of the market.

However, franchising does offer the ambitious the opportunity to become a multi-unit franchisee with a significant regional chain of outlets.

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This situation is not easy for the franchisor to overcome. It can offer incentives, such as a reducing sliding scale of royalties for higher turnovers and persuading the franchisee to sell back part of his area to create an extra territory for a new franchisee. Ultimately, however, the franchisor may have to try and entice the franchisee to sell by offering to buy him out at an inflated price.

the more unusual entrepreneurial opportunities within franchising.

Q Are there any franchise laws to protect franchisees?

No, there are no laws in the UK specifically addressed to franchising, as there are in many countries, but the system is, of course, subject to commercial law.

The relatively few cases that have reached the courts have usually been brought by franchisees for misrepresentation. Has the franchisor misrepresented the profits the franchisee could expect? Has the forecast for the sales figures been exaggerated or the setting up costs reduced?

Q What are master and regional franchises?

A master franchise covers the whole of a country and a regional franchise, an individual region of the country. Such franchisees act similarly to a franchisor in respect to recruitment and control.

Q If there are things in the franchise contract I don’t like, can I change them?

No, not in a well-run franchise. The contract sets out the rules under which the business has to be operated and, like the rules of a game, they must be followed to the letter.

In return, they pay a percentage of their income from initial and ongoing service fees from their franchisees to the parent franchisor. The latter usually imposes a development target on the number of franchisees recruited over specific periods to ensure the holder develops the system.

The quality and reputation of the system will depend on its standardised business formula which is spelt out in the contract and the operating manuals you must follow.

Franchisors sell such franchises, rather than franchising directly, to avoid the cost and risk of piloting and developing their system in a country in which they have no experience of the market or culture.

If franchisees were allowed to make their own changes, standards would differ from outlet to outlet; the franchisor would lose control; and customers would not get the same service across the network.

They usually hedge their bet by including in the agreement a buy-back option that they can exercise after a period of time if the franchise proves successful.

As a result, the quality of the franchise and its brand would decline, and along with them the resale value of your business, when it comes to the stage you want to sell and make a substantial capital gain.

It is not unknown for a wealthy U.S. franchisee to take a master franchise for a foreign country in the system in which he has made his wealth. This is an example of 9

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The franchisor’s refusal to make changes is an indication of the strength of its system.

Conversely, if it allows changes to its formula it is a sign of weakness and often its desperation to recruit franchisees. One of the most essential jobs of the franchisor is to police its network effectively.

Whether you have no knowledge or experience in a business sector, franchising offers you the opportunity to start your own business, in which success has been demonstrated by existing franchisees.

Q If I can’t change the contract, do I need a solicitor?

Yes, the contract is complex and you need a solicitor specialising in franchising to explain it to you. It should set out in detail what the franchisor is going to do for you and what you will have to do in return. All this needs to be spelt out in the contract and, as it will govern how you run your business, you will need to understand it to the letter.

The many benefits include initial/ongoing training and support, the use of the franchisor’s proven business system and branded, marketing and ongoing development.

As the franchisor has to protect its interests and those of the network even beyond the point at which you may have left the franchise, the contract can still control the options available to you after the two of you have parted. A franchisee can’t take the sign down and continue trading as before but under a different name.

After all, it provided your training and its business system. It wouldn’t like you to become a competitor and will want to resell your territory to a new franchisee. n

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Buying a Franchise

How franchising works: the two sides of the story

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hen the word ‘franchise’ is mentioned, many people in the UK think of a series of blockbuster films or railway operations. But this article looks at the world of business-format franchising, from both sides – the franchisor and the franchisee.

and run it with continual assistance on a predetermined basis.

A strong and successful business-format franchise should provide: ● An established market for the franchisor’s

products or services.

Author: Cathryn Hayes, Franchise Director at Revive! Auto

● Proven sales, marketing, and operational

procedures. ● The benefit of an established business name. ● Training, ongoing support and help in running the business. ● Where appropriate, help in finding, fitting out and furnishing premises.

According to the British Franchise Association (BFA), business-format franchising, is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trademark/trade name of the franchisor and make use of an entire business package, comprising all the elements necessary to establish a previously untrained person in the business

In this article, I am going to look at the two sides of the franchise relationship. To be successful, both parties need to benefit from each other.

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It is important that a business planning to franchise has demonstrated that it is viable and profitable and has sufficient capital to expand, as even when franchising is done properly by a successful business, it could take some years to achieve a positive cash-flow and worthwhile profits.

Franchising from the franchisor’s perspective

how your franchisee must operate, they need to comply with your rules in terms of how the business operates.

Franchising has grown considerably in the UK over the last thirty years and is now established in many business sectors, especially the fast-food and service industries. It can be a great way for a business to expand across the UK and beyond, without the potentially huge capital investment needed to grow a wholly-owned operation.

As a franchisor, you will award a licence (franchise) to local operators to sell your products or services, trade using your brand, using your trademarks and logos for a specific period.

The franchisee will have a personal stake in the business and own their business so you can expect them to be more motivated to grow and make it a success than employed managers. However, you specify exactly

There will be costs involved at the outset to develop your franchise operation, but franchisees will pay you an initial fee that will, over time, help to reimburse these costs. When franchisees have launched and are trading, you will receive a regular income from them by charging a management service fee or marking-up the price of goods you may supply.

At first glance, it may seem too good to be true, but as well as benefits, franchising can have its drawbacks which we will explore.

The development of a successful franchise network requires careful planning, ongoing monitoring, plus advice and support from professionals, such as a franchise consultant, accountant, franchise lawyer and specialist banking teams.

About the author

Cathryn Hayes is Franchise Director at Revive! Auto Innovations and has over 25 years of franchising experience.

Previously Head of Franchising at HSBC, followed by a shortterm senior role at the British Franchise Association, Hayes has a high profile within the sector, contributing regular articles to the franchise press and other business media. cathryn.hayes@revive-uk.com www.revivefranchise.com 121

It is important that a business planning to franchise has demonstrated that it is viable and profitable and has sufficient capital to expand, as even when franchising is done properly by a successful business, it could take some years to achieve a positive cashflow and worthwhile profits.

management and financial resources to develop and support a franchise network.

The advantages ● You can achieve faster business growth

without large-scale capital investment because each franchisee will finance their own business. ● You can quickly grow the number of outlets under your brand, distributing your products or supplying your services. ● Instead of high numbers of staff and managers for a wholly company-owned operation, you would have only a small head office with a few highly skilled staff to support your franchisees. ● Franchisees invest their own money in their new business, so they are more likely to be highly motivated, and keen to minimise costs and maximise sales. ● As they are running their business locally, franchisees will often have considerable local knowledge and may already be involved in local community life, which is likely to help the business. ● Franchisees are responsible for financing and maintaining their units and for the employment and management of any staff.

This article offers a brief overview of the aspects a business needs to consider when expanding through franchising.

What is franchising?

Franchising is a “joint venture” between an independent person (the franchisee) and a business (the franchisor) which wishes to expand its activities.

The venture is governed by a legal contract. This gives the franchisee the right to operate using the franchisor’s trade name/trademark, in accordance with a business-format or “blueprint”. All aspects of the franchisee’s business are strictly controlled including image, products or service, systems, and administration. This method is usually known as businessformat franchising.

As a franchisor you will: -

The disadvantages

● Allow franchisees to use your trading

● Developing a franchise network can be

names, logos, business style and format.

expensive at the outset, both in terms of management time and capital outlay. ● Your investment won’t be recovered until franchisees are appointed and you receive initial fees and then a regular income from them as their businesses grow. ● You receive only a part of the profit made by the outlet, instead of all the profit if they were owned by you.

● Help franchisees establish their own

businesses to a pre-determined format. ● Provide continuing training and support

to enable franchisees to operate and develop their businesses successfully.

If you are planning to franchise, you should already operate a successful business with a good track record and have sufficient 13

● Franchisees own their own businesses so

operation together. I recommend that you use a BFA-affiliated consultant, speaking to two or more to ensure you chose the right one for your business.

you need to persuade and influence them rather than issue instructions as you would to your own staff. Communication and people management skills are vital for franchisors. ● To protect your brand and company reputation you need to monitor not just the sales performance of each franchisee, but also their quality standards and customer service as well as brand standards. ● Some franchisees may cause you difficulties issues as you grow. They will gain in-depth knowledge of your business through your support and training and may subsequently try to use it to set up as competitors. Some may try to reduce the amount they pay in management service fees by not disclosing all their income. ● Therefore, recruiting the right people and having a rigorous vetting process is vital. You must also be sure that the people you select as franchisees can accept the responsibility and stress of running a business.

The next big step is to set up one or more pilot operations – a vital ingredient in creating a franchise that will have a longterm future. The benefits of the pilot units are: ● They will demonstrate whether the

business is viable on a stand-alone basis. ● It will enable you to identify any

problems and put them right.

Franchisees, who have parted with their hard-earned savings to buy your franchise, expect to receive a tried and tested format in which any difficulties and problems have been ironed out. ● Part of the pilot process is to put together a comprehensive operations manual. This will be one of the methods of ensuring that franchisees follow your systems and procedures. ● The pilot will give you a better idea of how much the setting-up costs for the business will be, what sales are required for break-even, and what level of profits franchisees could expect.

Where to start The first step is to find out more about franchising and see how you can use the experiences of others to avoid mistakes.

Contact the BFA as they have a wealth of experience and offer franchisor training and support. A visit to a franchise exhibition will be a good introduction to the sector and you can attend the free seminars, hearing from professionals in the market.

The franchise agreement Again, I strongly recommend you use a BFA-affiliated specialist franchise lawyer to draw up your legal contract. This important document will set out the terms under which you are selling the franchise, your obligations, and those of the franchisee. It must accurately reflect the promises you have made in your franchise prospectus and marketing material, and it should be fair. However, it also needs to include the

Think about appointing a franchise consultant to help you put your franchise 14

controls that are necessary to protect both you and the franchisee.

● As mentioned earlier, you should

prepare a comprehensive operations manual, covering all aspects of the dayto-day operation of the business. ● Consider applying to join the BFA. It has established a code of business conduct for its franchisor members and is a source of information for both prospective franchisees and franchisors.

Preparing for launch When the pilot is running successfully, you will be ready to prepare for the launch of the franchise. These are some of the things you will need to do: ● Prepare a prospectus to attract suitable

Recruiting franchisees Bringing in suitable franchisees will be key to your success as a franchisor so ensuring you recruit people with the right skills and attitudes is vital. The reputation of your business and the future of your franchise network could be at stake.

franchisees. This should give clear, concise, and accurate information about your business and promote a strong company image. Be careful with any claims of income and profits, these should be backed up with the results from your pilot operations. You do not want to bring people into your franchise with misleading information. ● Make sure you have plans for a comprehensive training programme for your franchisees. You could include practical experience for them in one or two of your outlets/stores or with your own staff. ● Consider whether you will have sales areas or territories for each franchisee, this is usual with many franchise operations to ensure that a franchisee knows they can grow their business within set boundaries. ● Decide how to calculate the initial franchise fee, management services fees, advertising fees, mark-ups, and any other payments that the franchisees will be making. ● You may need to prepare projected cash-flow forecasts and profit projections, based on your pilot operations, taking care not to promise that franchisees will reach specific profit figures.

Spend some time at the outset thinking about what will make a good franchisee in your business. Will they need sales skills, is there particular technical expertise they need, what experience and attributes will help them to be successful? Plan your interviewing/vetting procedures to ensure that candidates have these skills.

Don’t rush this part of the process. When you launch your franchise, you will be keen to get things moving as quickly as possible, and to start recouping some of your initial outlay. However, if you lower your standards and recruit the wrong people as franchisees, this will lead to problems in the longer term.

Popular recruitment methods include leads from your own website, exhibiting at franchise shows, advertising on specialist websites, and in franchise magazines and trade magazines covering your business sector – a mix of all, or several of these.

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A well-established franchise should provide all the essential elements for a successful business, except the most vital piece, the person who will run the business. The missing piece is you – the dedicated and motivated franchisee.

Franchisee finance Depending on the start-up costs, franchisees will probably need to borrow to buy into your franchise and will have to put in some cash as well. In the early days of your franchise operation, banks will probably lend around 50 per cent of the costs, but when your franchise network is well-established with a good track record, new franchisees may be able to borrow up to two-thirds of the costs.

reduce those risks and give you a greater chance of success.

As a franchisee, you have the opportunity to own and run a business under an established brand with a proven business format and market. A well-established franchise should provide all the essential elements for a successful business, except the most vital piece, the person who will run the business. The missing piece is you – the dedicated and motivated franchisee.

There are several banks with specialist franchise departments and if you provide them with information about your franchise network, they can begin to build up a profile of your franchise. This is used to support lending managers when they are considering a request for finance from one of your franchisees and means that the bank will have a better understanding of the business.

Advantages ● You own your individual business but

have the benefit of a recognised brand name and a blueprint to follow. ● A good franchise offers business systems and products/services which have been market tested and proved to work. As a result, the risk of your business failing is usually greatly reduced. ● The franchise package you receive at the outset will normally include training, operations manuals, book-keeping and accounting systems, marketing guidance and ongoing support. You will, therefore, not have to spend time or money developing these. ● You should also receive practical help in setting up and launching your new business, so you are more likely to avoid any major teething problems. ● Depending on the type of franchise you are buying, you should benefit from bulk

Franchisees will need to prepare a business plan, together with financial forecasts to support their request for finance. You will probably need to help with this, but the franchisee should understand the figures and “own” the business plan.

Franchising from the franchisee’s perspective Starting a business on your own can be risky and there are a large number which fail. However, buying a franchise can 16

buying and the negotiating capacity of the franchisor, and have an established, reliable source of supply. ● Your business will also benefit from the franchisor’s advertising and promotional campaigns.

cautious if the franchisor attempts to deny you the time to do your research and tries to rush you into a decision.

The BFA offers a free online training course which will help you to learn about important legal and financial considerations, as well as what franchisors look for in a prospective franchisee. www.thebfa.org/free-online-training

Disadvantages ● There will be costs to pay for the franchise licence and other start up costs which you will have to fund. ● The franchise is governed by a legal contract which will outline your obligations in detail and means that you must run your business in strict compliance with the franchisor’s specifications. ● As the success of your business grows you may want to expand and grow further, your neighbouring areas may already be occupied by other franchisees. ● If other franchisees damage the brand name or image of the franchise, this could have an impact on your business too.

Research Review financial information on the franchisor, including its audited accounts.

In the case of a new franchise, you should look carefully at the performance of the pilot operations. If there are no pilots, you are entitled to ask what you are getting for the franchise fee and how the franchisor can demonstrate the feasibility of the franchise.

Talk to the franchisor about the performance of existing franchisees and the franchisor should be willing to let you have a list of franchisees to contact.

So, how do you check out a franchise?

The first step is to assess the franchisor and its business. When you take up a franchise you are entering into a long-term business relationship, so it is very important that you spend some time looking into the background and performance of your prospective “partner”. You should check how long the franchisor has been in business and in franchising.

You should do some research into the market for the products/services in your chosen area and what the future growth could be. The franchisor may have carried out market research in your area, but you should also do your own, ensuring that you understand what the business potential is and can identify and understand the strength of your competition.

Support Critical to your likely success or failure is the level of support and training provided by the franchisor, both at start-up and on an ongoing basis.

A good franchisor wants you to be happy and confident that you are making the right decision and will welcome your enquiries as evidence of your good sense. Be 17

Support from the franchisor can include accountancy packages and advice, national and local advertising, regular communication and meetings with other franchisees, new products, service and market information, and ongoing training.

Most franchisors will put on annual national conferences, and some have franchisee associations.

legal advice on the contract from a solicitor specialising in franchise agreements.

You would not normally expect a franchisor to amend the terms of the contract to suit you as franchisors generally prefer to have a standard contract for all their franchisees.

However, having the contact vetted is not a waste of time as it is important that you fully understand its terms and limitations. If you do not like the contract, you are, of course, free to walk away.

There should be a comprehensive operations manual, which gives you guidance on all aspects of running your operation. An important aspect to consider is what help, if any, does the franchisor give in respect of any staff recruitment and staff training you may have to undertake.

Financing The next step is to examine the financial aspects of the franchise. These broadly speaking fall into two categories – the startup costs and the projected income and profits. Looking at the start-up costs first, it is important that you identify the total amount of money required to get the business going, including any working capital you will need.

Some franchisors will train your staff for you while others will train you to train them, and many will provide some training and guidance about general employment issues. You will also need to consider the legal and regulatory issues, particularly in relation to the public and employees, such as insurance, health and safety, tax.

Against the costs will be set the amount of cash you can put into the venture, leaving the sum you will need to borrow. It makes sense to do a full review of your own personal financial situation, ensuring you know how much you need to take out of the business regularly to pay yourself.

Your franchisor should be able to signpost you to some support services if necessary and should keep up to date with any changes that may occur from time-to-time in the laws and rules that could affect your business.

You must be prepared to take a realistic view of what type of franchise you can afford as you will need to put in a stake yourself, the bank will not lend 100 per cent of the funds required.

Franchise contract The next step is to consider the legal implications of the franchise contract. This is a very important document as it sets out the rights and obligations of both you as a franchisee, and your franchisor. You should receive a copy well in advance. It is strongly recommended that you seek independent

Having established the start-up costs and your borrowing needs, you will then have to look at the potential earning power of the business on a realistic basis. Does it 18

justify the level of investment that it calls for and how long will it take you to recover the investment?

● How much will you be able to borrow?

Prepare a full list of your personal expenditure: mortgage, car finance, household bills, etc. This will show how much money you will need to take out of the business for living expenses. ● What security can you offer to back up your loan? You might, for example, have a life policy with some value, or have equity in your home. ● Start preparing your business plan. This is a vital document to obtain finance from the bank. Your chosen franchisor will often help you with this. As part of your business plan, you will need to prepare cash-flow forecasts for the first couple of years. Your franchisor will help, but you need to be sure that you understand the figures, what they are based on, and how much turnover needed to break-even.

Projections You will need to ensure that any profit and cash-flow forecasts prepared by the franchisor for your franchise cover all the likely costs, including borrowing and that they are based on realistic figures, normally the performance of existing franchisees.

This is also a good opportunity to look at fees you need to pay on an ongoing basis.

Borrowing money Deciding to start a franchise is a big step and one of the hurdles for many, is approaching the bank for finance. Of course, there is a lot of work to do to before you, or your bank, part with any money. You will need to research your chosen franchise thoroughly, making sure that it is the right one for you and that you are fully aware of what is involved.

The bank will look at several things before agreeing to lend to your new franchise venture. Although they will all have their own requirements and approach, this is a broad outline of what a funder will look at:

You will also need to ensure you can afford the franchise you are interested in, and that the business offers a good return on your investment. Decisions on how much you are prepared to invest, and whether you will draw on savings or financial support from your family, should all be made before going to your bank.

Who are they lending the money to?

The bank will look at your qualifications and track record; your financial resources; and assess whether they think you can run the business. The franchisor will also have considered these qualities to ensure you are a suitable franchisee. The bank may ask to see statements from your personal bank and will need to see your identification documents such as a passport if you are not already a customer of theirs.

You will find that for an established franchise system most major banks will lend up to 70 per cent of the start-up costs, while for new franchises the figure will probably be around 50 to 60 per cent.

How much are you asking to borrow?

As well as considering how much you would like to borrow, the bank will also

You should approach your bank having considered or prepared the following: 19

consider the purpose for which the money will be used, including working capital, stock, premises, or vehicles and of course the franchise fee.

borrowing, banks will often ask for some security for the loan. This will only be used if the business fails to repay the borrowing but if you are providing a guarantee or a second mortgage over your property, you should take independent legal advice.

The funders will also consider whether there is sufficient demand for the product/service you will be offering and look at the type of finance you are looking for (overdraft, loan, or a package of financial services), as well as how much you are personally prepared to invest in the business.

As a potential franchisee, you should be in a better position than someone setting up a start-up business from scratch, especially if they have never been self-employed previously.

You have the backing of a proven business format, plus the track-record of how similar franchisees are successfully operating their businesses, to show the bank in support of your loan application.

Normally, you will be expected to contribute towards the total start-up costs from your own resources, but it is important to get the balance right. Often, start-up business owners underestimate how much they will need to borrow to make the business successful, so it is important to put a realistic case to your bank. Your franchisor will normally help with setting out details of the start-up funds required and the preparation of cash-flow forecasts.

So, there we have it – the two sides to franchising – a business in which both need to be fully committed to their responsibilities to each other and both need to succeed if the franchise is to survive and prosper.

Repayment: Funders will always look closely at how the business is planning to repay any borrowing so your plan should show how you plan to do this. Will repayment come from future trading profits, after allowing for all your other financial commitments, or from the sale of an asset? Does the cash-flow forecast show that you will be able to afford to repay the loan? What assumptions have been made in the cash-flow forecast? What level of sales are needed to break-even and are they achievable? Is there a contingency plan for any setbacks?

Take the time to look at all the different types of franchise available and think carefully about what you would like to do.

Running your own business is hard work, even with the support of a strong franchise network behind you so you should look for something that you will enjoy as you build your new future. n

Security: Depending on the amount of the 20

Buying a Franchise

How to be sure a franchise adds up

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understand the figures, so you can assess the franchise objectively.

Author: Gillian Morris, UK Head of Franchising, HSBC

Of course, you can always get help from your local accountant, but you need to have a basic personal understanding of the figures too.

Taking up a franchise is an exciting prospect. Ahead lies the prospect of building your own business, with the added assurance of a supportive network.

With a firm grasp from the start, you’ll be well equipped to make the best decision.

aster the numbers from the outset to ensure your franchise has the best prospects of success.

Here we explore the sets of figures you’re likely to come across in franchise presentations and prospectuses – and as you build and grow your franchise.

While you’re embarking on what should be a tried and tested business format, that doesn’t mean you should take the financial health of your prospective business for granted.

Cash-flow forecast The old adage has it right: cash is king. It’s essential to have ready working capital on hand to manage the everyday demands of your business.

The franchisor will give you valuable plans and projections – but don’t assume they’re accurate. Satisfy yourself that you 21

That means the cash-flow forecast is the most important document. It measures the anticipated flow of payments received, against the products or services you supply.

It’s not uncommon for businesses to show healthy profit levels and yet be strapped for cash, and for others which have healthy cash levels to show losses.

These predictions are critical because sometimes you may have to allow customers credit and wait for payment, which carries the risk of not being able to pay your own creditors.

One of the main reasons for this is that the accounts reflect the position at the end of the relevant accounting period as if all income had been received and all expenditure made. In reality, for example, you may have invoiced sales for which you haven’t received the cash, or used energy for which you haven’t yet been billed.

In a volatile economy, it’s especially important to be wary of assumptions about cash-flows. Many otherwise successful businesses have gone bankrupt, simply because they don’t have enough money to pay suppliers who are not prepared to wait.

It’s also worth bearing in mind that the accounts show the overall result of trading

About the author

Gillian Morris has over 25 years’ experience in the financial services sector and was appointed as UK Head of Franchising, HSBC UK in January 2022.

Morris joined HSBC in 2017, as part of HSBC’s Commercial team in Northern Ireland and in January 2019 became Head of Corporate Banking & Agriculture, Northern Ireland for HSBC UK. Prior to joining HSBC, she worked for Lloyds Banking Group, based in London, having joined as a graduate trainee. Her career to date has encompassed relationship banking, structured asset finance as well as strategy development and business performance.

She holds a Law degree from Queen’s University, Belfast and a BSc(Hons) in Banking and Finance from UMIST and is an Associate of the Chartered Institute of Bankers (ACIB). franchiseunit@hsbc.com www.https://www.business.hsbc.uk/en-gb/campaigns/hsbcfranchising 22

for a set period: they don’t necessarily reflect the current performance. This is a good reason for having quarterly, or even monthly, management accounts in addition to annual accounts.

You should do some investigation yourself, and not just take the figures as read. Check the business rent and rates in your area, if the franchise is premises-based. If you need to employ staff, what are typical wage rates, and how easy is it to recruit them?

Once you’re in business, avoid any unwelcome surprises. Planning ahead, with a clear understanding of cash-flows, while monitoring payment collection and reconciling the books in real time, will give a true understanding of your company’s cash position.

Often the projected profit and loss figures provided by the franchisor do not include any deductions for depreciation, borrowing costs or drawings/salaries, as these may vary. You should factor these costs back in when assessing whether you want to go ahead and buy the franchise.

Profit and loss forecast The profit and loss forecast matches the income and expenditure of a business to the period in which goods or services were provided.

By law, if your business is a limited company, you’ll need to produce a profit and loss account each financial year. Selfemployed sole traders and partnerships don’t need to do this, but they must complete a self-assessment tax return, which provides similar information.

However, it is a good idea to produce formal accounts, particularly if you need to borrow money, as the bank will usually ask for the figures.

Business plans often include monthly profit or loss forecasts for the first year of operation, followed by monthly or quarterly projections for two or three years.

This allows you, and potential investors, to assess whether the business is viable in the long term.

Break-even Break-even represents how much sales volume your business needs before it starts to make a profit.

Often, a franchisor will provide projections for two or three years’ trading, to give you an idea of how the business could progress. The franchisor should advise you how the figures have been reached – if not, you should ask.

The break-even point is important when looking at profit and loss projections. You should think about how realistic the projected break-even sales volumes might be: that is, can you expect to sell X number of units in an hour, day, week or month?

You may be given a range of figures, representing different levels of franchisee performance, or perhaps showing different sizes of outlet. The figures should be based on actual franchisee performance, or in the case of a new franchise on the operation of the pilot units.

To calculate your break-even point, split your figures to determine gross and net profit. Gross profit is the difference 23

owner’s capital. It’s a good indicator of a business’s financial strength, but only when viewed in relation to the size of the operation. A business with capital of £1m is very strong if its annual turnover is £500,000, but much weaker if its turnover is £100m. ● Gearing – The ratio of the borrowings of a business in relation to its capital (normally shareholder funds and any retained profits), expressed as a percentage. A business with a gearing greater than 100% is usually considered ‘highly geared’. A heavy reliance on borrowed money makes a business more vulnerable to increases in interest rates.

between the income from the sale of the goods and the actual cost of buying in the goods. Net profit is arrived at after deducting all other costs from the gross profit, including rates, heating and administration.

Balance sheet forecast A projected balance sheet is a statement of the assets and liabilities of the business. It shows what the business will own (fixed and current assets), against what it will owe (long-term and current liabilities), at a particular point in time. The liabilities are deducted from the assets; the figure that’s left is balanced by the owner’s capital in the business.

Accounting conventions can affect the way a balance sheet looks, so be sure you know how the figures are arrived at. For instance:

Fixed assets include property, equipment and vehicles, while current assets include cash, debtors and stock. Current liabilities include trade creditors and other shortterm creditors, such as rent and rates and bank overdrafts. Long-term liabilities will usually be in the form of loans or other borrowing over a period of more than 12 months.

● Freehold properties are often included

at the price at which they were bought many years earlier; the value today is likely to be much higher. This difference is referred to as a hidden reserve, because it only becomes apparent through a formal revaluation exercise. ● If an existing business has been purchased, an asset may appear in the balance sheet under goodwill. This recognises the existing level of business and numbers of customers. Goodwill is intangible and will certainly disappear if the business runs into difficulties, so it is often discounted when professionals are looking at the capital of a business. ● Stock can be overvalued or undervalued.

It is often valued on a conservative basis at cost, whereas its resale value might be a more realistic representation. Equally, the valuation might include a proportion

In limited companies, the owner’s capital is usually the issued share capital and the accumulated profit and loss account balance. For partnerships and sole traders, the owner’s capital will be the capital accounts after drawings.

Terms sometimes used by bankers in relation to balance sheets include: ● Liquidity – A business is liquid when its

current assets exceed its current liabilities. ● Capital position – This is the stake, or 24

of old stock that is in reality unsaleable, so this stock would be overvalued.

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Weigh the evidence Use the franchisor’s projections as a starting-point to evaluate the franchise and make your decision on whether you want to go ahead. How long will it take you to get payback on your initial outlay? How much will you need to borrow to get the business up and running?

Often the projected profit and loss figures provided by the franchisor do not include any deductions for depreciation, borrowing costs or drawings/ salaries, as these may vary. You should factor these costs back in when assessing whether you want to go ahead and buy the franchise.

Money is not always the only factor in choosing a franchise. Quality of life and the satisfaction of being your own boss, with support from the franchisor and the franchise network, are also important.

You don’t want to lose your hard-earned savings, so take time at the outset to understand the costs and potential returns, and to build your own business plan. n

25

Buying a Franchise

Make sure your business plan packs a winning punch

W

hen looking to invest in a franchise, once you have completed all your research and opted for the brand you wish to proceed with, your franchisor would expect you to be able to produce a business plan to outline how you will be successful in your territory.

clarify your ideas and objectives. You will have to answer questions on your business objectives, your product or service, pricing methods, your customers and competition.

The business plan should be your guide to how you are going to be successful, which will require updating periodically once you launch your business.

Your business plan should outline what you want to do, how much money you need to do it with and how you plan to pay the money back. It should also include a Profit Forecast and Cash-Flow model.

This is crucial to ensure you remain successful as after you open the business there will be changes in your marketplace with both competition and opportunities that you will need to plan around to continue your success moving forwards.

Author: Suki Dehal, Head of Franchising at Lloyds Bank

Many franchisors will assist in the preparation of a business plan, but remember that it is your business and your business plan. This is important as we have seen in recent years that some franchisees

However, there is more to the business plan than getting funding. It will help you 26

When discussing the plan in depth with lenders, they will inevitably look to challenge you on the statements made.

This isn’t to try to catch you out, but rather it’s a lenders way of gaining confidence in your business acumen and your ability to deliver what’s on paper.

have minimal involvement in the production of the business plan, which becomes apparent when discussing the plan in depth with potential lenders.

Having an active involvement in the creation of the plan will allow you to ensure that the plan reflects the demographics of your locality and how you will grow your business successfully against any existing competitors.

Common stress tests would involve asking to see how your ability to repay borrowing would be affected by increases in Bank of England base rate throughout the term of the loan. Or by asking if break-even point was pushed back by six months, would the business have sufficient cash-flow to continue to grow?

Preparing, presenting and defending your business plan is a real test of your business acumen. Producing the plan tends to bring everything out into the open, focuses your mind on all elements of the business, and helps put your thoughts down in black and white.

These are some of the common stress tests that banks will use when reviewing your

About the author

Suki Dehal is Head of Franchising at Lloyds Bank. He has 13 years banking experience, including seven in franchising.

Dehal is responsible for providing support to the Lloyds Bank Business Managers, assisting them in assessing proposals from prospective franchisees and ensuring that they have up-to-date information on the franchise systems operating within the UK. He also works closely with franchisors to understand ongoing performance, training and support offered and any other developments that may affect the network.

Understanding the benefits of franchising, Dehal and his wife are now franchisees themselves, buying a Home Instead franchise in their local area. This allows him to bring another perspective into the industry and to Franchisee Awards. franchising@lloydsbanking.com www.lloydsbank.com/business 27

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Your business plan is the 'sales document' for you and your business. It's preparation and presentation should project the image you want for your business. Its content should be clear, concise, to the point and divided into logical sections.

business plan, therefore having an active involvement in the development will allow you to answer confidently to secure the funding needed to launch your business.

● List the distinctive qualities of your

product or service and describe your 'Unique Selling Point' (USP) - the key feature which makes your product or service stand out in the market place. ● Describe how your product or service can be developed in line with a changing market.

Your business plan is the 'sales document' for you and your business. It's preparation and presentation should project the image you want for your business. Its content should be clear, concise, to the point and divided into logical sections. Most franchisors will have developed their own template that you can use to produce your plan, or alternatively they may work with a separate organisation to support you in the production of the plan. Either option is acceptable for lending purposes and I have outlined the broad sections below:

3. The personnel Any business is only as good as its people.

You should include details of anyone who will be involved in making your business a success. These people are a very important asset and this is therefore a key section of your business plan. Include in this section: ● Firstly outlining your own skill set is

essential to demonstrate how you will be successful in this franchise. Most franchisors will promote what skills their ideal franchisee candidate will possess, therefore use this section to bring your CV to life and explain why you feel you possess the right skills to replicate the success of other franchisees. ● Franchise lending banks will know that sector specific skills generally aren’t required for most franchise brands and they will be looking to evaluate your transferrable business skills from your working career to date. Depending on the brand you opt for there will be different skills requiring different levels of importance. ● Also include an overview of each person

1. Introduction ● Describe the purpose of your business, briefly outline the concept. ● Include your overall business objectives. ● Outline your personal motivation for selecting this business. ● Decide on the 'legal status' of your business - sole trader, partnership, limited company or co-operative? All have benefits and shortcomings. Find out which is right for your situation.

2. The product or service ● Describe precisely the product or service

that your business will offer. Include any relevant history of the product or service and try to avoid any jargon.

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essential to the business, including their personal assessment of their attributes, strengths and weaknesses as well as your own assessment of each person. ● Their relevant experience, commitment and reasons for involvement in your new venture. ● You should also include a detailed CV for each person in the 'Appendix' at the end of your plan.

successful business to replicate the success of others. This may be determined by the number of people of a certain age, number of households or even number of vehicles, naturally dependant on the type of business you are looking to launch. ● Give details of your competitors and explain why your potential customers will choose your product or service rather than the competition. It is important to make sure that you complete thorough research on each competitor to be clear about each of their strengths and weaknesses which gives you confidence about your own position in the marketplace. This can be completed via mystery shopping and researching online reviews and testimonials to gain an in-depth look at the existing performance of competitors. This is the point where research pays off. You should make use of the wealth of business information that is available about markets, competitors and customers, as this will be crucial to ensure your own success.

4. The market This is probably the most important section of the whole plan - without a clearly defined market your business will not succeed. If you can show that you have done your homework in this section, you will gain credibility for the whole business plan. Your franchisor will also have research in this area to support this but your own local knowledge will be essential to bring the details to life: ● Describe the current conditions in the

marketplace for your product or service, in terms of what makes you feel that the area is suited to react well to the introduction of your business. ● Detail any relevant facts and figures relating to the market sector(s) that you will be targeting - for example geographical location, size (in terms of people and money), expected growth, and the type(s) of potential customers for your product or service. ● Demographic reports can be critical to ensure that the new territory contains sufficient opportunity to build a

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5. The marketing plan A business without a marketing plan is like a ship without a rudder. Your company must therefore have a clearly defined marketing strategy, which will include: ● Your marketing objectives - for example

number of sales or market share. Clearly identify what level you are looking to achieve and in what timeframe. This can

Without a clearly defined marketing plan your business will not succeed.

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then be compared to existing franchisees performances to ensure that your projections are realistic. ● Where your product or service will be 'positioned' in the marketplace in terms of price, quality, image etc. This will ensure that you can clearly identify your USP and how you will compete effectively in your locality. ● What your planned marketing communications are - advertising, leaflets and brochures, etc. Most businesses will use a blend of difference activities, however its important to identify how much you are looking to budget to each of your mediums to ensure that you will have sufficient cashflow to achieve your growth ambitions. ● How your product or service will be distributed and /or sold, for example, through agents, sales teams, etc. This will be important to help define what margin you will realistically achieve for your goods depending on which route to market you opt for. ● What customer care policy is planned and how it will work. In modern business customer service is crucial to ensuring loyalty and growth within a business. It would be essential to identify how you will manage your customer database to ensure that you are able to foster ongoing loyalty and brand advocacy from your customers. This can be done in a variety of methods including social media, loyalty cards, discount codes, etc.

Clearly identifying your care strategy will enable you to plan repeat sales into your forecasts confidently. ● Any interest that you have already generated or details of possible orders

you have already taken should be include in the 'Appendix'.

6. The operation Having an efficient operation can be the key to a profitable business. This section should describe how you will supply your product or service. Your franchisor will have set systems that you will have to adhere to.

These systems will provide you with a lot of the information needed to populate this section and ensure it is relevant for your own local area. ● Include your sources of supply, resources

and materials. Ensure that you have a clearly identified supply chain so that you can be confident of what gross margin you can achieve. ● Detail how you will look to recruit the necessary staff to grow your business effectively. Recruitment has become a challenging area for many businesses following the impact of both Brexit and Covid on the labour market. It is important to identify how you will look to source candidates suitable for your business and how you will make your offering attractive to recruit the necessary staff needed to be successful.

Is your base salary competitive with equivalent businesses in your area?

Ensure sufficient research is done into the labour market of your area to know that your offering will be competitive. ● The same question will apply to senior positions you recruit for, will you use a recruiter to find these people? If so, ensure that costings are included in your projections and projected salary is competitive with the market place. Also given current inflationary pressures 30

close proximity, customers or staff?

Ensure that the location is accessible for your desired audience and has sufficient transport links/parking facilities if needed. ● Future business growth – how long will the premises provide ample space for the businesses growth? Can additional space be bought or will a full move need to be completed when the business reaches a certain size. ● Running costs and uniform business rates – ensuring premises are affordable is essential to make sure that cashflow is sufficient for the growth ambitions of the business. ● Insurances. ● Planning consent.

ensure that the wages will include periodic rises each year to ensure the business remains competitive. ● Detail the resources required to operate your business, differentiating between what you already have and what you need to acquire. ● Identify any critical procedures or sensitive issues and outline possible alternatives. Most franchise businesses will have prescribed which CRM system the business must use and any ancillary services around it. Ensure that these systems costings have been included accurately and that they have sufficient usage capacity for your desired team size. ● State where you intend to operate from your current premises and future requirements. ● Outline your current Health and Safety policies - if you don't comply with your statutory obligations, you will need to take action. Again your franchisor will normally be able to support you with this, some will have an outsourced partner for HR matters, whilst others will handle in-house with their own dedicated resource. Ensure that a member of your team takes full ownership of ensuring compliance in this area.

8. Financial information 1. (a) Introduction Start with a summary of the key facts: ● The forecast profit (or loss) for the year. ● Whether financing is required and if so,

how much and where your own contribution is to come from. ● The 'break-even' sales for the business should be calculated and shown as a percentage of your anticipated sales. ● Details of the money you need to take out of the business to live on - 'your required income'. Ensure this is a reasonable level that correlates with your existing personal account statements. ● A detailed schedule of your required income should be included in the 'Appendix'.

7. The premises You need to decide on the most appropriate premises for your business needs together with the franchisor.

Whether you are working from home or looking for factory premises, you need to consider the following:

1. (b) Profit & Loss forecast Your forecast profit (or loss) should be based on your anticipated sales, minus

● Location – to whom do you need to be in

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your direct costs and overheads. The assumptions made in producing your forecast should be listed:

expenditure still to be made - how much and when. ● Properly done, this will tell you when your business is likely to be short of cash and it will enable you to plan for this.

● Include as much detail as possible to

justify anticipated sales. This should include how other franchisees in territories of a similar demographic have previously performed in order to give credibility to your projections. ● Any direct costs (materials etc.) should be detailed. ● Don't forget your overheads - it is just as important to show how they have been calculated. Again, by looking at other franchisees you will be able to anticipate what level of overheads is reasonable for each stage of your business growth.

Finally it’s important to articulate the security being offered against the borrowing if necessary. Different lenders will have different levels that they can lend to on an unsecured basis.

Currently at Lloyds Bank, we would look to discuss what potential security can be offered when we look to lend more than £25,000 against the business. Typically in the first instance we would look at property owned by the business or the directors that has equity available to secure the new proposed borrowing against.

1. (c) Cash-flow forecast Cash will flow in and out of your business often at different rates and times, for example, you may have to pay for materials in advance, yet wait months for payment after you have sold your product or service.

If you don’t have sufficient equity available in your assets to secure the borrowing against, you may be able to secure the borrowing using a government scheme like the Recovery Lending Scheme to raise the necessary level of finance. The key here is to link in with your bank manager to discuss viable options for your business plan.

Situations like this can lead to cash-flow problems in an apparently profitable business. To anticipate how much cash your business will require, you should convert your profit and loss forecast into a cash-flow forecast.

To conclude your business plan you should be able to summarise your findings from all of the sections above and why they give you the confidence that your business will be successful. Following the completion of the plan, whichever bank you look to obtain funding from will look to review your plan and financials, along with other supporting information.

List your assumptions: ● When will you get the money from sales. ● When will you have to pay suppliers. ● The timing of specific overheads. ● How much capital equipment that you

require for your business. Differentiate between existing equipment and

Typically banks will ask to view your personal bank statements, to ensure that 32

personal commitments are being met without pressure. They will also look at top view proof of the origin for your contribution towards the business. This can be in the form of bank statements. Banks will also look for a breakdown of your personal finances for your household, outlining all assets, liabilities, income and expenditure.

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If you don’t have sufficient equity available in your assets to secure the borrowing against, you may be able to secure the borrowing using a government scheme like the Recovery Lending Scheme to raise the necessary level of finance.

Following these steps will ensure that your business plan is robust and complete across all areas to ensure that lenders will be able to provide faster decisions to support your business goals.

Please feel free to get in touch with banks who can support you in the planning phase when you have decided on the brand you wish to pursue and ensure you complete plenty of research to make sure that your goals are realistic and achievable. n

33

Buying a Franchise

The core principles of a franchise agreement

T

his article will consider some of the key rights and obligations which should feature in a franchise agreement.

● Franchise agreements come in many

shapes and sizes, such as unit franchise agreements, master franchise agreements and multi-unit development agreements. This article will not consider the different structures and their relative merits and uses, but will instead focus on the key terms which feature in most forms of franchising.

Author: Gordon Drakes, Partner and co-head of the franchising and commercial team at European law firm, Fieldfisher Before we get into the detail, we should be clear about what we are talking about.

● Franchisees are not a homogenous ● This article will comment from the

group; franchisees range from inexperienced "mom n pop" owner/operators, to large multiunit/multi-brand second or third generation family concerns, to listed corporate entities, which might be specialist operators in certain types of retail channels, such as air and rail.

Franchise agreements therefore vary depending on the category of franchisee

perspective of English law, which is a common law system. This matters because a common law franchise agreement tends to be much more comprehensive than its cousin, the civil law franchise agreement, which will rely on (and not repeat) a number of legal principles and terms which sit within the relevant civil code of that jurisdiction.

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So, having hopefully demonstrated that franchising is a very broad church, here is a selection of some of the key rights and obligations which form part of a franchise agreement.

and the relevant channel. Again, this article will aim to focus on the commonalities. ● Franchising is a legal and commercial

model for selling goods and services, which is applied across various sectors, such as food and beverage, services, retail, hospitality, leisure and education.

Franchise agreements vary depending on the sector, but again this article will aim to be sector agnostic in its observations.

Intellectual property/grant of rights The franchise agreement is primarily a licence of intellectual property (IP), typically comprising of trade marks and operational know-how, which defines a system.

Franchisees must operate the system in a uniform manner.

About the author

Gordon Drakes is a Partner and co-head of the franchising and commercial team at European law firm, Fieldfisher.

His practice specialises in third-party relationship models such as agency, distribution, selective distribution, franchising, manufacturing and licensing, commercial joint ventures and strategic alliances. The Fieldfisher team helps clients protect and commercialise their IP and grow their presence in domestic and international markets.

Drakes enjoys the variety of franchising, having advised clients during his 17 year career on high-profile and innovative deals in the retail, food & beverage, leisure and entertainment, services, healthcare and education sectors.

The Fieldfisher team is ranked consistently in the top-tier for commercial contracts, franchising and licensing by Chambers & Partners and the Legal 500.

He is a BFA affiliated solicitor. The Legal 500 ranks Drakes as a ‘Leading Individual’ and Who's Who Legal: Franchise 2023 ranks him as a Global Thought Leader. gordon.drakes@fieldfisher.com www.fieldfisher.com 35

From a franchisee perspective, it is important that the IP is protected (such as registered trade marks) and that the operational know-how is made available in a comprehensive "manual", which sits alongside the franchise agreement.

sufficient guidance on how to operate the business, as this is how franchisees will be judged.

Whilst this will always remain a delicate balancing act, the risk is only really meaningful when a franchisor is in the early stages of its growth, as there is always a risk that its system is not yet fully formed.

Franchisees should be wary of investing into a franchise which does not have adequate IP protection, as the costs associated with having to change the name of the business could be high. Franchisees should make enquiries as to whether the franchisor itself owns the IP, or the IP is licensed by a third party.

Finally, franchise networks can act as incubators (deliberate or accidental) of innovation in the system, and it is important that any new IP which is generated by franchisees in the course of operating the system reverts back to the franchisor. A good example of this is the McDonald's Drive Thru, which was conceived by a franchisee in the U.S.

From a franchise brand perspective, it is common to have the IP registered in a different group company and licensed to the franchisor company. However, if rights in the IP and/or system are held by third parties, that should sound alarm bells.

The franchise agreement should be clear about what rights the franchisee is being granted, and consequently what rights it is not obtaining. For example, does the right relate to operating the franchise at a specific location, or does it extend beyond? Does the franchisee get a zone of exclusivity around any defined premises, or within a certain area? If so, what does that stop the franchisor from doing? Can the franchisor still operate close by, but not appoint other franchisees (aka "sole rights")? Does the exclusivity refer to all formats of the franchise, or does the franchisor reserve certain channels (such as air, travel and other "captive environments")? How does geographical exclusivity work in the digital space?

Franchisors should not disclose the full content of their manual to franchisees before the franchise agreement is signed.

That should not mean that franchisees cannot have a good "look under the bonnet", but this can be achieved through discovery days, onsite visits and in some cases, selective disclosure of extracts of the manual.

It is important that franchisors do not disclose this commercially sensitive document in full to franchisees before they commit fully to becoming a franchisee, as every prospective franchisee is a potential future competitor.

These issues are equally important for both parties to understand. A franchisor needs to ensure it is maximising opportunities for

That all being said, franchisees need to know that the franchisor can provide 36

the business, but it also needs to ensure that franchisees have sufficient space to build a business and do not start cannibalising each other. It is also important that what is sold is a true reflection of the case studies and figures which were provided in the pre-contract sales phase.

franchise agreement, what happens if that new form is substantially different from the existing agreement? Whilst it will always be a blurred line, a renewal franchise agreement should not be so radically different that it materially alters the commercial and/or legal "bargain".

Yes, some fees might increase (particularly in this inflationary environment), and yes, after 5 years it is likely that certain elements or the system have become obsolete, or have evolved, and yes, the law is not static and legal updates may be required (in the last 5 years, we have had GDPR, Brexit and the updated competition law block exemptions), but if the balance of these changes result in a different looking business, both in terms of funding requirements, profitability and expertise, then there is a problem. It is not a genuine renewal.

Term and renewal A typical franchise unit will get between 5 to 10 years to operate, with a right to renew for the same amount of time.

The initial term needs to be sufficiently long in order for the franchisee to have a reasonable return on its investment, and a renewal is usually a contractual right, subject to certain conditions, as opposed to something which the franchisor can offer or withdraw at its discretion.

From a franchisor perspective, it is important that franchisees are not inadvertently offered longer than an initial term and one renewal term, just as a landlord should to avoid granting a tenant rights of occupancy which extend beyond the term of the lease.

Initial and ongoing services The franchise agreement should clearly set out what is being provided initially to get the franchise up and running, what is being provided on an ongoing basis, and crucially, how much of that is paid for by upfront fees and ongoing management fees, and how much is charged as extra.

As part of the renewal conditions, a franchisor will typically require that the franchisee waives any and all claims which arose during the initial term, and the franchisee enters into the then current franchise agreement. A blanket requirement for a waiver may be deemed to be unfair if there is a bona fide dispute and/or the franchisee finds itself liable for acts or omissions of the franchisor.

Franchisees should understand (and franchisors should stipulate) in what circumstances travel and subsistence expenses and/or salary costs are payable (and whether there are any limits to this).

Franchisors should be wary of making commitments to provide a certain level of support, as this can be a source of challenge by franchisees (i.e. my franchise is not performing because you have not

In relation to the then current form of the 37

provided me with support). Setting specific service levels is still uncommon, but this remains a source of miscommunication and fertile ground for disputes.

form of a share sale or a sale of assets, and it is important that the franchise agreement deals with both scenarios, and indeed with what happens when there is a change of minority interests. A franchisor will typically have a right of first option to buy the franchise back at the price offered by a third party, but these clauses are increasingly the subject of negotiation, as franchisees evolve in larger operators with complex funding and shareholder structures.

As franchise systems become increasingly digitised (e.g. mobile apps, loyalty schemes, CRM systems, integrated POS) franchisors are procuring IT systems and platforms from third party suppliers. It is therefore important that the franchise agreement, in tandem with the manual, sets out a clear framework for how franchisees should participate in and contribute towards these aspects of the system.

Valuations can often be a source of disagreement. A franchise business by its very definition has a limited shelf life – i.e. the residual term of the franchise agreement – and it will not have many, if any, intangible assets, because the system is owned by the franchisor. This can lead to a difference of views between how a franchisor values a franchisee's business, and how a franchisee perceives it. Again, a franchise agreement should help resolve these ambiguities, and contain a third party valuation mechanism in the event the parties cannot agree.

Right to sell/changes in ownership Most franchise agreements will include a right to sell the business for a "going concern" valuation during the term of the franchise agreement.

This will come with a set of conditions, the most important for the franchisor being that the incoming franchisee must have suitable experience, adequate funding, and that the outgoing franchisee will pay for the franchisor's costs in assessing their suitability (even if the sale does not proceed).

Breach/liability/termination/expiry The balance of obligations within a franchise agreement will be heavily tilted towards the franchisee, and a franchise agreement will contain a long list of grounds for termination in favour of the franchisor, with limited or no contractual termination rights for a franchisee.

From a franchisee perspective, conditions which might be problematic include the condition to require a new agreement (as with renewal, is it materially the same agreement?) and whether the incoming franchisee is getting the residual term of the original franchise, or a new term (this will have an impact on valuation).

This does not mean that a franchisee cannot claim damages if the franchisor is in breach of its obligations, but any claim will usually be subject to a limitation on the franchisor's liability, where no such

A sale of business can of course take the 38

limitation will apply to the franchisee's liability. Irrespective of what an English law franchise agreement says, a franchisee will always have a common law right to terminate for "repudiatiory" breach.

guarantees), may face considerable liability if the franchise has accrued debts, in addition to a claim for future looking damages for loss of revenue over the remainder of the term.

Franchisors will typically have more scope to deal with breaches. Certain breaches may be curable and will be subject to a breach notice, whereas other types of breach may warrant immediate termination. A franchise agreement will usually set out the range of remedies which might be available to deal with a breach, other than termination. For example, withdrawing certain contractual rights or incentives, imposing fees, or seeking injunctive relief.

If the franchise agreement expires, many of the same post term obligations will apply, but some franchise agreements do make a distinction between "good leavers" and "bad leavers" and the terms on which the franchisor can buy back the business on expiry may be more favourable than on termination for breach.

Conclusion Whilst it is clear that there is no one size fits all form of franchise agreement, and the types of businesses which use franchising are evolving rapidly to take account of changes in consumer habits and technology, a number of keys principles remain the same, and it is important that both parties have a clear understanding of their respective rights and obligations. n

When it is the franchisor which is subject to a breach notice, they should carefully consider the merits of the claim before asserting a limitation or exclusion of liability under general exclusion clauses. Given that many franchise agreements are presented as "standard form" agreements which are not open to negotiation, with an unequal bargaining position of the parties, reliance on these types of limitations and exclusions will need to pass the "reasonableness test", as set out in the Unfair Contract Terms Act 1977.

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The balance of obligations within a franchise agreement will be heavily tilted towards the franchisee, and a franchise agreement will contain a long list of grounds for termination in favour of the franchisor, with limited or no contractual termination rights for a franchisee.

Franchisees which have had their franchise agreements terminated will usually be subject to a number of post termination obligations, such as restrictions on their ability to operate a competing business, returning or destroying all franchise related materials, and enabling the franchisor to take back their business. Franchisees, and their owners (if they have provided 39

Buying a Franchise

Are post-termination restrictive covenants in franchise agreements enforceable?

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he Court of Appeal has dismissed a franchisor's appeal against a High Court decision that had declared that the restrictive covenants in its franchise agreement were unenforceable (Dwyer (UK Franchising) Ltd v Fredbar Ltd and another [2022] EWCA Civ 889).

guarantor of its obligations under the franchise agreement.

The court held, among other things, that: ● the High Court was right to conclude

that, on the particular facts of the case, the twelve-month restriction in the franchise agreement was unreasonable and unenforceable; and ● the High Court did not err in concluding that any unreasonable part of the restrictive covenant could not be severed.

Author: Gordon Drakes, Partner and co-head of the franchising and commercial team at European law firm, Fieldfisher The appeal, on 30th June 2022, concerned the enforceability of post-termination restrictive covenants in a ten-year franchise agreement between the franchisor and one of its former franchisees, the first respondent.

This case has significant implications for a substantial number of franchise systems in the UK, which operate with individual/ inexperienced franchisees, on standard form franchise agreements.

The second respondent was a director and shareholder of the first respondent and 40

with Fredbar Ltd ("Fredbar") and Mr Bartlett as guarantor. Fredbar was run solely by Mr Bartlett, who had formed the company expressly for the purpose of becoming a Drain Doctor franchisee.

One of the key takeaways (discussed below) is that there is no general rule that a 12 month post termination restrictive covenant will be enforceable and that consequently, franchisors should not categorise post termination restrictive covenants as a "boilerplate" issue.

The Agreement granted Fredbar the exclusive right to trade within the specified territory for ten years. It also provided that for a period of one year after termination or expiry neither Fredbar nor Mr Bartlett were permitted (either directly or indirectly) to be "engaged concerned or interested in a business similar to or competitive with" the

The background of the case In 2018 Dwyer (UK Franchising) Ltd (“Dwyer”), the franchisor of “Drain Doctor”, a substantial plumbing and drain repair services franchise, entered into a franchise agreement (the "Agreement”)

About the author

Gordon Drakes is a Partner and co-head of the franchising and commercial team at European law firm, Fieldfisher.

His practice specialises in third-party relationship models such as agency, distribution, selective distribution, franchising, manufacturing and licensing, commercial joint ventures and strategic alliances. The Fieldfisher team helps clients protect and commercialise their IP and grow their presence in domestic and international markets.

Drakes enjoys the variety of franchising, having advised clients during his 17 year career on high-profile and innovative deals in the retail, food & beverage, leisure and entertainment, services, healthcare and education sectors.

The Fieldfisher team is ranked consistently in the top-tier for commercial contracts, franchising and licensing by Chambers & Partners and the Legal 500.

He is a BFA affiliated solicitor. The Legal 500 ranks Drakes as a ‘Leading Individual’ and Who's Who Legal: Franchise 2023 ranks him as a Global Thought Leader. gordon.drakes@fieldfisher.com www.fieldfisher.com 41

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One of the key takeaways is that there is no general rule that a 12 month post termination restrictive covenant will be enforceable and that consequently, franchisors should not categorise post termination restrictive covenants as a "boilerplate" issue.

Drain Doctor business within (i) the territory or (ii) a radius of five miles from the territory (the "Restrictive Covenants").

grounds they did not strike a reasonable balance between freedom to contract and freedom of trade, and were far more extensive than was required to provide reasonable protection.

In July 2020, Mr Bartlett purported to terminate the Agreement, citing various conduct by Dwyer, and, in alternative, asserted that he no longer intended to be bound by its terms. At around the same, Mr Bartlett ceased operating the Drain Doctor business and began to operate a competing business in the territory.

Whilst the Court of Appeal confirmed a franchisor is "entitled to protect the goodwill of the business upon termination of a franchise by a post-termination restrictive covenant which does not exceed what is reasonably required for that purpose", a court should consider a number of factors in assessing the reasonableness of a restriction, including the factual and contractual background, the relative bargaining strength of the parties and the circumstances of franchisees.

In August 2020, Dwyer terminated the Agreement and sought, amongst other things, damages and injunctive relief to restrain breach of the Restrictive Covenants.

On 11 May 2021, the High Court held the Restrictive Covenants were unreasonable and unenforceable. Dwyer appealed this decision on the grounds that: (1) in concluding that the Restrictive Covenants were unenforceable the judge erred by considering irrelevant and impermissible factors; (2) the judge erred in concluding that any unreasonable part of the Restrictive Covenant could not be severed.

The Court of Appeal judgement drew the following conclusions on the nature of the franchise relationship and the interplay of restrictive covenants, namely: ● that franchise agreements are not a

special category of agreement when considering the doctrine of restraint of trade; ● where there is inequality of bargaining power, it is "not only relevant, but is a significant factor in determining reasonableness"; ● the inequality can alter the standing of a

What did the Court of Appeal decide?

The Court of Appeal affirmed the High Court's decision that the Restrictive Covenants were unenforceable on the 42

franchise agreement, and it may be more akin to a contract of employment than to a contract for the sale of a business; ● issues of enforceability and reasonableness are to be determined at the time that the franchise agreement was entered into, i.e. "what the parties: “(objectively) intended or contemplated, consequent on the contract, at the time the contract was made as well as the contract terms”; and ● "each case has to be assessed on its own facts and there cannot be some general rule that a twelve month restriction in franchise agreements is reasonable".

● Mr Bartlett had invested all his savings in

the franchise business and would have no other source of income (except his partner’s relatively small one) should the franchise business not succeed and would be at risk of losing the family home; ● the franchisor suspected that the franchisee may fail, but decided to give Mr Bartlett a chance; ● the franchisor had no prior trading history in the contractual territory (which is relevant to concept of protecting goodwill); ● the franchisor provided projections calculated using averages obtained from data regularly submitted by Dwyer’s franchisees. There was no research specific to the contractual territory nor was there any filtering out to take account of how long a franchise had been in existence.

In this case: ● Mr Bartlett had no previous experience

of plumbing and drainage work or of being a company director prior to signing the Agreement; ● there was no evidence of any discussion or negotiation of the Restrictive Covenants to take into consideration the specific circumstances surrounding the Agreement, which had to be accepted or rejected in its standard form without amendment; and ● as a result, Mr Bartlett did not take legal advice.

On these facts, the Restrictive Covenants were unreasonable because: ● failure of the franchisee was foreseeable,

the projections were way off the reality, and the franchisor knew that the financial consequences of failure could be dire for Mr Bartlett; ● at the time that the Agreement was entered into, Dwyer had no goodwill in the territory. The Restrictive Covenants failed to distinguish between terminations at an early stage of the Agreement and terminations towards the end of the ten-year term when the goodwill to be protected was likely to be substantially more valuable; ● at the time of termination of the Agreement, the franchise had only been

This will sound very familiar to number of franchise systems in the UK which recruit franchisees with little or no prior relevant business experience (partly because of the belief that the licensed "System" is so strong that direct prior experience is not a determinant of success).

Other relevant circumstantial facts were: 43

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Consider making changes to the restrictive covenants.

Also, consider linking the duration of the restriction to the period of time during which the franchisee operated the business, and consider the geographical scope of the restriction.

running for eighteen months, four of which during the pandemic with limited earnings that were far less than the projections, so a twelve month restriction was unreasonable; ● the restriction was not capable of being overridden with the franchisor's consent; and ● the argument that twelve months is required to give a new franchisee a clear run is "a lawyer's construct".

goodwill, a court might conclude that the twelve-month restriction was reasonable.

The Court of Appeal judgment considers a long line of authorities on this issue, including two cases where the successful franchisors were represented by Fieldfisher's franchise disputes team: the Court of Appeal's decision in ChipsAway International Ltd v Kerr [2009] EWCA Civ 320 and the High Court's decision in Carewatch Care Services Ltd v Focus Caring Services Ltd [2014] EWHC 2313 (Ch).

Furthermore, the second restriction was held to be unreasonable because there would be no goodwill to protect within the extended area as Fredbar had not provided services in any part of it. The fact that Fredbar could be permitted to work outside the territory in limited circumstances did not mean it would be reasonable to prohibit engagement, concern or interest outside the territory regardless of whether or not any goodwill had been established there.

What are the practical implications of this case?

This case highlights that the enforceability of post-term restrictions in English law franchise agreements depends on the specific circumstances surrounding each individual agreement.

Franchisors need to be mindful of the type of franchisee they are recruiting and specific circumstances which relate to their appointment and ongoing performance.

The Court of Appeal held that the unreasonableness of the Restrictive Covenants could not be remedied by the application of a "blue pencil".

Whilst it is understandable for franchisors to maintain uniform contractual terms across the network, and to be seen to enforce those terms, for franchise systems which are of a similar profile to Dwyer (and that must surely mean a significant number of franchise systems which are members of

The Court of Appeal held that in other circumstances, such as where a franchisee was well-established and successful or where the franchisor could show cogent evidence of the need to protect its 44

the British Franchise Association (BFA)), franchisors should consider the following takeaways:

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● Review the standard franchise

agreement and consider whether some of the harder edges really need to be that hard. ● Ensure that franchisees understand the legal relationship they are entering into.

Even if the contract is non-negotiable, a proper disclosure document or FAQs is useful, as is mandating that a franchisee takes legal advice and/or completes some form of induction course on what franchising is before entering into the agreement (the BFA runs such a scheme). ● If there is a question mark over a franchisee's likelihood of succeeding, consider putting in place additional support to minimise the risk of failure. ● Ensure that projections are tailored to the franchisee territory, and that the franchisee actively engages in the process of business planning. ● Consider making changes to the restrictive covenants. Consider linking the duration of the restriction to the period of time during which the franchisee operated the business, and consider the geographical scope of the restriction. ● Make a careful consideration of the facts before enforcing rights under a franchise agreement. n

Franchisors need to be mindful of the type of franchisee they are recruiting and specific circumstances which relate to their appointment and ongoing performance.

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Buying a Franchise

The advantages of buying a franchise resale

I

f you are looking to buy a franchise you should give consideration to a resale.

There are many benefits of investing in a franchise resale, so let’s look at some of the key reasons why they are becoming increasingly popular.

● Building the foundations of the business. ● Staff recruitment. ● Growing a customer base.

The owner before you established the business, now it’s your turn to help it grow.

The business you are investing in may have been running for some time and may even have a loyal and established customer base. Franchises often gain customers by being part of an established brand but maintain customers by providing a consistent service.

Author: Emma Ozenbrook, Operations Manager at Franchise Resales Firstly, a franchise resale skips the set-up process associated with buying a new franchise; this can usually involve a significant amount of money with a lot of hidden costs which you may not have even considered.

This is a huge benefit of buying a franchise resale as you have a ready-made customer base and the worry of finding customers is diminished – they are already there.

With a resale most of the groundwork has been done for you. For example:

When you start a new franchise marketing costs can spiral as you attempt to make

● Finding a suitable location.

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With everything already in place for you, a franchise resale allows you to focus on the growth of the business as the previous owner may not have had the time to.

people aware that your business even exists. It can take time to raise awareness of your business and even longer to establish a strong customer base to take you to profitability, which means with a resale you should break-even much sooner and start making profits in a shorter time frame.

franchisees find the idea of a fully staffed franchise so enticing.

With the proven track record of the business, the banks often look more favourably at lending money, making it easier to fund your new business venture than if you were to start a business from scratch.

Staff recruitment In the current climate recruitment is becoming increasingly difficult. With a resale, they’re already fully staffed and completely operational. This is a particular bonus if you find that you get on well with the team in place and don’t need to make changes.

With everything already in place for you, a franchise resale allows you to focus on the growth of the business as the previous owner may not have had the time to.

If you’re starting a business from scratch, it can be difficult to distinguish its strengths and weaknesses, however, with a resale you can take a strategic view of the business and implement plans to achieve your visions. n

Finding the right employees, training them and providing operational experience can take a lot of time and effort, so it’s understandable that so many potential

About the author

Emma Ozenbrook initially trained as a pre-school teacher, a role she enjoyed for six years, but as her children got older she returned to university and graduated with a degree in English Literature.

After graduation, Ozenbrook worked in an Office Manager role until, in 2019, life guided her into the world of franchising through her partner, Michael Bohan, at Franchise Resales. emmao@franchiseresales.co.uk www.franchiseresales.co.uk 47

Buying a Franchise

How to sell a franchise that has started to fail due to unforeseen circumstances

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f the past few years have proved anything, circumstances can change at the drop of a hat when you own a franchise. Preparing for foreseeable expenses such as quarterly VAT bills, your management service fee, or corporation tax can be accounted for in the business plan.

control. You will have thrown your full weight behind ideas and strategies to turn things around, but, unfortunately, nothing has been able to pull you back from the brink, and now there is no option other than to sell.

There is, however, still hope of getting a reasonable price for your business.

Author: John Hatt, Managing Director at Business Partnership

Valuing a failing franchise When selling any business, the first thing to do is find its value. When valuing a franchise that has started to fail, an excellent place to start is to find out the total cost of a new franchise, including the price of the business and any required investment in equipment or refurbishment of the building. This is an entry point for anyone interested in that franchise.

Unforeseen situations, like the pandemic or Brexit, can leave your business with serious long-term cash-flow issues and affect your return on investment, which ultimately forces some franchisees to sell.

Accepting that your business has started to fail is always difficult, especially when things go wrong that are out of your 48

“

To ensure you succeed in negotiating the sale of your failing business and get the very best deal, it is crucial to have all the necessary skills required to close your sale. Selling a business is a process that takes finesse and sensitivity, as well as grit.

If you have a retail franchise, for example, the good news is your unit may be more valuable than you realise, as good contracts and well-maintained equipment or other similar assets can help the price of a business.

and finding out what other struggling businesses have sold for. Do not forget there will be additional franchisor administration costs for whatever value you arrive at. If that tips the balance of funds into a negative, you could also estimate the business’s liquidation value.

If the franchise you are trying to sell is growing and the turnover is increasing but currently unprofitable, you will need to provide some forecasts to show that the future is looking better. Suppose your business has faced temporary issues, such as roadworks which reduced footfall to the business but is expected to recover to previous profit levels soon.

If that is the case, the safest thing to do would be to speak to a professional insolvency practitioner who can advise on this.

How to maximise your sale price To ensure you succeed in negotiating the sale of your failing business and get the very best deal, it is crucial to have all the necessary skills required to close your sale.

Selling a business is a process that takes finesse and sensitivity, as well as grit.

In that case, you might take a 15 per cent discount from your valuation. You will then be expected to provide historical accounts and fully explain the situation to give the buyer a full understanding of the circumstances.

Despite you being on the back foot when selling a failing franchise, you should never let on. First, I recommend you set out clear negotiating goals for selling your business

I recommend researching your industry

About the author

John Hatt is Managing Director of Business Partnership, a national franchise network of regional offices connecting business sellers with business buyers.

With over 20 years of experience helping businesses sell quickly at maximum value, Hatt understands the practical and personal issues involved in selling a business. www.business-partnership.com 49

to help you answer critical questions and guide your negotiations when selling. Then put together a negotiation strategy. By being proactive and planning a strategy, you will stay ahead of the curve.

prospective buyer. Following these tips, you should have no problem maximising the sale price of your franchise. n

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Also, when in communication with a buyer, despite the fact that you need to sell, make it clear you are willing to walk away from a deal if it is not up to scratch. As well as this, always try to lead the discussions. This way, you will be in the driver’s seat throughout the sales process.

It is crucial to ensure you know your numbers and everything about your accounts.

Have you ever seen Dragons’ Den when the person pitching cannot remember his figures?

Never be that person.

It is also crucial to ensure you know your numbers and everything about your accounts. Have you ever seen Dragons’ Den when the person pitching cannot remember his figures? Never be that person.

A prospective buyer usually requests to see records of three years’ worth of trading, so even if it’s a while off selling, make sure your accountant can advise on how best to present statements. Items of interest could be increased profits, a consistent but varied client base, and regular revenue growth.

Finally, when it comes to selling your franchise territory, believe in yourself! Your business has not started failing because you are a bad owner; it started failing because of events no one could predict. If you are not upbeat, positive and, most importantly, passionate about your franchise, it might be more difficult to sell the business.

Keep in mind all your business’s best assets and ask yourself what would interest your 50

Buying a Franchise

If it must come to parting, try to make it amicable

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s in all business relationships, problems may occur and there may come a time when the franchisor and franchisee arrive at a parting of the ways.

This can occur for a variety of reasons ranging from breaches of the agreement by the franchisee to the ultimate catastrophy, the financial failure of the franchisor.

other business start-ups, is highlighted by the NatWest/BFA survey as one of the key strengths of a franchise.

Franchise litigation is still relatively rare which is why perhaps those failures that do occur may gain much publicity.

A breakdown does not need to be acrimonious. When problems first arise, good communication with swift and appropriate legal advice can often resolve most issues amicably. It is important that the franchise agreement deals with this area adequately and that lines of communication are kept open between the parties.

Here are steps the parties need to take to protect their interests and salvage as much as possible from the break-up.

Author: Nicola Broadhurst, Partner at law firm, Stevens & Bolton A good franchise relationship with mutual respect should be capable of withstanding the test of time. The comparative lack of failure amongst franchisees, as opposed to

Nevertheless, there are occasions when the relationship must end. This could occur in the following situations.

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Dispute resolution In order to try to reconcile the parties, avoid bad publicity, and maintain the integrity of the franchise network, it is preferable to resolve such disputes without referring the matter to the courts.

● Where the franchisor fundamentally

breaches the franchise agreement. ● Where the franchisor becomes insolvent and a liquidator/receiver is appointed. ● Where the franchisee fundamentally breaches the franchise agreement. ● On expiry of the fixed term of the agreement with no further renewal. ● On the sale of the business by the franchisee to a purchaser, who is then granted the franchise resale by the franchisor.

Mediation or arbitration can be used if direct negotiation has been unsuccessful and often the franchise agreement will provide for this. Even where it does not the parties will often agree to mediate or arbitrate, rather than litigate, to avoid costs.

On termination, the parties’ objectives then conflict. The franchisor will want to safeguard its assets, know-how and reputation. The franchisee will want to maximise the value of his business and minimise the extent of any restraints on his future business activities.

The use of mediation as a means of resolving disputes is an approach that is encouraged by the courts and can often be an influential factor in awarding costs should the dispute end up in court. The courts can take a dim view of a party who has refused to participate in an offer of mediation.

The process of termination can be costly, particularly where it is contested. In such situations, rather than resort to litigation in the first instance, it is always worth exploring alternative ways of settling any disputes.

The revised European Franchise Federation’s Code of Ethics (which the British Franchise Association (BFA)

About the author

Nicola Broadhurst is an acknowledged legal expert in the franchise sector providing the full range of advice to franchisors and franchisees.

These include the set-up of franchise networks and franchise agreements, the review and adaptation of international franchise agreements for compliance with English law and the British Franchise Association’s Code of Ethics and advising multi-unit franchisees on their franchise investments. nicola.broadhurst@stevens-bolton.com www.stevens-bolton.com 52

adopted at its AGM in 2016) now requires franchisors and franchisees to seek to mediate in good faith before resorting to litigation.

Arbitration is private and confidential – for franchisors this is an advantage as the franchise disputes that end up in the courts often attract a lot of coverage. There are however more limited rights of appeal from an arbitral award than a court judgment.

The advantage of mediation is that it is a more informal process than arbitration and can reduce hostilities and help to preserve relationships, but the decision is not necessarily binding unless the parties agree.

The advantage of both schemes is that the dispute can be resolved in private at a time and place convenient to the parties.

Franchise agreement A well-drafted agreement should set out clearly the consequences of termination. It should not only deal with the mechanics of termination, but also protect the franchisor’s intellectual property name and goodwill.

For many therefore this is just seen as an additional expense without the benefit of a binding resolution, but held at an appropriate stage before positions become entrenched it can be very helpful.

Mediation is a structured negotiation between the parties in which the mediator (whose time is usually paid for equally by the parties) is an independent third party who facilitates the negotiations on a without-prejudice basis.

Mechanics: The franchisor will want to be sure that there is a clear and obvious break with the franchisee, whilst ensuring that customer contact and continuity of services are maintained. It is, therefore, vital to obtain all the relevant customer lists of the franchisee’s business and to contact customers directly. This should not be left to the last minute, but be collected regularly throughout the agreement.

The parties are not bound to settle their dispute, but if they do it is recorded in writing, and can be final and binding. Any such settlement can be enforced, but it is not the mediator’s job to make any finding or award.

With the recent changes in data protection law (following the implementation of the General Data Protection Regulation and the recent Data Protection Act 2018) appropriate data sharing provisions are likely to be needed to be included in the franchise agreement.

Arbitration is more formal in terms of the procedure followed and the manner in which it is conducted. The arbitrator makes an award that is final and binding (although there may be limited rights of appeal) and the award is enforceable.

In addition, certain mandatory data processing clauses may be required where either party is providing services for the other using the personal data provided by

The arbitrator will need to be paid and the costs can be awarded against the parties as determined by the arbitrator.

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that other to ensure compliance. To overlook this area may mean that not only is a franchisor unable to use the customer data in the way it wishes, but that it and the franchisee risk breaching data protection legislation. This is not a risk to be taken lightly given the increased liability for potentially hefty fines.

premises directly from a landlord, the franchisor will often have an option, as part of the agreement, to acquire the premises on termination.

Protection: The agreement will usually contain undertakings on the part of the franchisee in which he agrees to restrict the way in which he conducts his business activities on termination.

In order to ensure that all association between the franchisor and the departing franchisee is removed, the franchisee should be required, amongst other things, to make the following changes.

These restrictions do vary from one agreement to another, but they have the same objective, which is to ensure that the franchisee will not use the knowledge it has acquired as a franchisee to compete unfairly with the franchisor, or any of its franchisees, following termination for a stated period and within a certain area.

● Change the fascia, décor and shop fitting

of premises and the livery of any vehicles to remove the visible connection between its business and the franchise. ● Return all advertising, packaging, marketing and promotional materials. ● Cease to use all stationery, literature and other materials using the franchisor’s trade marks and service mark, trade names and other reference to the franchise. ● Return the operations manuals. ● Cease to use the franchisor’s system. ● Cease to use the franchisor’s copyright material. ● Where relevant, cease to use all phone numbers and landlines.

These restrictions need to be drafted very carefully, particularly in terms of the time limit and the radius covered. Although the law recognises the need for them they must be reasonable in order to be enforceable.

The franchisor must satisfy the court that the restriction is reasonable, both as to time and area of operation, and that it has a legitimate interest to protect.

The franchisor has the right to keep and protect what it rightfully owns, but at the same time the departing franchisee must have some freedom to trade and/or to work in its chosen occupation, particularly if this is his only livelihood. This freedom cannot be constrained unreasonably.

Where location is important, the franchisor should have considered what it requires in this situation at the outset. Where the franchisor has acquired the premises and sub-let to the franchisee, the lease should be co-terminous with the franchise agreement.

Establishing the correct period of time and radius is a matter requiring careful

Where the franchisee has acquired the 54

consideration. This has to be done by reference to the nature of the business and its area of operation and, for example, whether the business is in a densely populated area, and whether it is the exfranchisee’s only means of earning a living.

These restraint of trade clauses have been the subject of much litigation.

common law right to terminate where the breach is a material breach which goes to the heart of the contract.

Where a franchisor becomes insolvent this would not necessarily justify termination by a franchisee unless there is an express provision to this effect, or the franchisee cannot trade as a result.

Usually there is an additional restraint on franchisees, both during and after termination of the agreement. This is the obligation to keep all intellectual property of the franchisor, including trade secrets, systems, and know-how, secret and confidential, unless in the public domain.

This obligation is not subject to any time limit as long as it is confidential and not generally accessible.

Where the franchisor goes into receivership or liquidation the receiver/liquidator will take control of the assets, subject to the rights of the franchisees.

These assets include all the intellectual property owned by the franchisor in the franchise, together with the franchise agreements.

It is this area, and the enforcement of the restrictive covenants, which most often become the subject of court proceedings.

At the first sign of any unauthorised disclosure of information or trading, prompt legal advice should be sought to protect the franchisor’s interests. Any delay can prove fatal.

The primary objective of a liquidator/ receiver is to protect the assets. As the franchise agreements will usually be producing an income, it is very much in the interests of a liquidator/receiver to ensure that the franchisees continue to operate their businesses as usual. Therefore, franchisees should be allowed to continue trading despite their franchisor’s failure.

Where possible it is usually beneficial to both parties for a settlement to be reached in an amicable way. This avoids any loss of reputation for the franchisor and therefore for the franchise network as a whole and it enables the franchisee to salvage what it may from the breakdown at a reasonable price.

The liquidator/receiver also has to realise the best possible value for the assets. This will obviously be enhanced where the franchised network continues to trade.

The network might be bought from the liquidator/receiver by a third party and most franchise agreements provide for this without the need to obtain each franchisee’s prior consent.

Failure of the franchisor Usually a franchisee does not have a contractual right to terminate where the franchisor is in breach, but he has a

Alternatively, one or more of the 55

franchisees could join together and buy the assets. This is usually more successful where the franchisees have taken swift legal advice at the first signs of trouble, and are well prepared and organised. Not all franchisees will necessarily wish to be involved, but this does not prevent a handful of franchises taking over the position of the franchisor.

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The process of termination can be costly, particularly where it is contested. In such situations, rather than resort to litigation in the first instance, it is always worth exploring alternative ways of settling any disputes.

Dealing with termination Not all franchisors behave ethically and not all franchisees are suited to franchising. It is essential, therefore, that where a dispute arises which may result in termination of the relationship or termination occurs that each party seeks legal advice in order to clearly understand what each can expect to achieve.

If a breach has occurred the wronged party will often want compensation and this needs to be quantified and the merits of any claim assessed. A franchisor may wish to recover its lost earnings on early termination and a franchisee may wish to recover his investment.

The costs of litigation can often outweigh the potential award of damages that a party may receive. Therefore, it is a prudent person who is able to take appropriate advice in order to make an informed and dispassionate decision. n

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Franchising a Business

Turning your business into a franchise

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ore and more businesses are quite rightly considering the opportunities and benefits offered by franchising when planning their future development. Indeed, any business which operates through branches should at least look at franchising as one of the potential strategies for growth.

franchising, including its advantages and disadvantages, and its likely effect on their existing operation.

Only when fully armed with all the relevant information should a business make the decision to become a franchisor. This information includes hard elements, such as the financial aspects, and the softer, personal elements of the unique franchisor/franchisee relationship.

Author: Dugan Aylen, Co-Owner, Director and Head of Franchise Recruitment at Europe's largest franchise consultancy firm, The Franchising Centre

It is important to look very closely at the more personal elements because there is much more to building a successful franchise than the cold legal agreement, operations manuals and financial projections. Whilst advice on these matters from properly qualified professionals is, of course, essential it must be considered in tandem with issues concerning human

However, the process of turning a business into a franchise begins long before the first advertisements are placed for potential franchisees. The people who run the business, whether they are main board directors of a Plc, or are virtually a one-man band, must first gain a full understanding of 57

marketplace. They will also expect you to create and maintain standards, both in your own business and throughout the network.

resources and personal development.

Make no mistake, if a business becomes a franchisor, personal development is the name of the game.

As this is what you will have promised them when they were considering joining you as a franchisee, you had better deliver it.

Whatever happened, you may ask, to running a restaurant, printing, cleaning carpets, tuning cars, and so on?

Whatever it is you do now, whether you are a restauranteur, printer, carpet cleaner, car tuner, fashion retailer, or deliverer of parcels, your business will change when you become a franchisor. It will then be all about recruiting, training, monitoring and motivating people (franchisees) who want to run a business under your name, using your system and operated to your standards.

If you are ready for this fundamental change, let us look at how we decide whether a business is franchiseable. We will examine firstly the mechanics and then the cultural implications.

They will expect leadership and direction; help when they want to expand, or when they meet the inevitable problems; ongoing training and marketing support; and the product or service development to keep their business at the forefront of its

Five-star franchising Just about any type of business that operates as a branch network has already been franchised somewhere in the world.

In the U.S. for example, you can be born in

About the author

Dugan Aylen is Co-Owner, Director and Head of Franchise Recruitment at The Franchising Centre, Europe's leading franchise consultancy.

Aylen's passion and focus is on every aspect of solving the problems involved in the franchise recruitment process. For 20 years, he has been advising franchisors as to the best methods of recruiting franchisees, using a unique mix of philosophies, methodologies and advanced technology.

He heads up a team of consultants providing outsourced franchise recruitment services to over 20 franchisors in the UK. This puts him in a unique position of being able to understand what is required for franchising to work with all involved. enquiries@thefranchisingcentre.uk www.thefranchisingcentre.com 58

a franchised maternity hospital, buy just about every product and service you will need in your lifetime from franchised outlets, then be seen off by a franchised undertaker, and finally buried in a franchised cemetery.

Naturally, the trademark or name has to be owned by the franchisor as he is licensing others to use it, but do not worry if your name is not yet well known. That will not stop franchisees from joining you. After all, even McDonald’s and Marks & Spencer started with only a single outlet.

However, not every business that has tried to franchise has been successful, and this is due to a number of reasons. To create a successful franchised network certain key elements need to be present. These are:-

All the elements of the package from the design and layout of the premises, through marketing campaigns, to accounting and administration will be detailed in the franchise manual, and it is the system in the manual that the franchisee agrees to operate.

● A business with a clearly defined image

and system of operation, both at branch and head office levels. ● A business with a proven and successful format suitable for franchising and with a product or service that has stood, or will stand, the test of time. ● A business that is easily duplicated and easily learned. ● A business that generates enough profits to support both the franchisor and the network of franchisees. ● A business which has, or can adapt to, a culture of mutual respect and support, and in which it is clear who is responsible for what, and how often, and how well, they will perform their obligations.

Proven format Pilot operations prove that the concept works and it is the evidence of their success that will convince your first franchisees that they should choose your franchise. Even if you have run company-owned branches for years, you must be aware that things will change when you franchise and you must be prepared to run pilot units at arm’s length.

This is just as important if you currently have company-owned outlets which you are planning to convert to franchises and even if the franchisee is going to be the existing branch manager. Something different will happen when it becomes a franchise, so it is wise to find out what that is before you take the plunge.

Image and system The clearly defined image and system are what we call the intellectual property. This includes the trade name, the method of operation and the way in which the various elements of the business come together to make up the franchise formula. None of the elements of the package need to be individually secret. What matters is the way that the franchisor has combined them to create a successful business system.

Pilot units should, of course, mirror the proposed franchised outlet as far as possible in terms of size, location, catchment area, population profile, staffing and so on. It is no use doing brilliant business from a site in London’s Leicester 59

Square and then expecting a franchisee to be equally as successful in the high street in Leicester. Ideally, you should pilot the concept in two or three places for at least one complete trading cycle.

business and simply decided to charge the same franchise fees.

Whatever percentage they charge for their management services fee and advertising levy, or the size of the mark-up they charge on supplies, will probably not be appropriate for you, and it may not even be right for them either.

Pilot operations help to prove that what you thought on paper will work in practice.

If it does not, then you still have the chance to adapt it before offering it to franchisees.

Pilot units also give you the opportunity to write the manual from practical experience rather than theory.

A franchising feasibility study has to consider many things. Having sorted out whether the business is proven, and easily duplicated and easily learned, it is then necessary to look at the structure. How big is the market? How much business can the proposed size of outlet handle?

Consequently, how many franchisees will you need?

Easily duplicated Depending on how many franchisees you need to properly service your potential market, you will not want to have too much difficulty finding premises, or people to join you as franchisees.

Having decided the number, what support staff and structure will you need to recruit and support a network of that size? Can the business make enough to satisfy the franchisee, and give the franchisor a profit?

If there are a limited number of sites suitable for your business, or it needs particularly unusual conditions (say a constant supply of fresh spring water) then it will not be easy to duplicate in sufficient numbers to support a network. Similarly, if it calls for special skills which few people possess, say something particularly artistic or creative then franchisees will not be able to learn how to do it.

These and many other considerations are best discussed with someone who has franchising experience as it is easy to overlook simple items when you have not had experience as a franchisor.

Every rule has its exceptions, but generally speaking the easier it is to duplicate and learn the business, the easier it will be to franchise it.

Naturally, it is sensible to work out the franchisee’s finances first. After all, if it does not work for the franchisee, it will never work for the franchisor. If things look good for the franchisee, then go on to work out your finances as a franchisor. Ideally, you should prepare a three-year profit-and-loss and cash-flow forecasts for both your franchisees and yourself. These can later be used as the basis for business plans,

Profitable The whole area of profits and fees is what we call structuring the franchise, and it is one in which you will need professional advice. Do not just look at a similar 60

both for raising finance and the on-going monitoring of the business.

becoming involved, and there are advantages and disadvantages on both sides.

It is vital to get the structure right. This may seem obvious, but if one or other of the parties sees the other making all the money or, indeed, if neither of them is making enough, the relationship will come to an end.

For the franchisor, the benefits have mostly to do with using other people’s money to expand the network quicker than would otherwise be possible, whilst having less involvement in the day-to-hassle of running branches. The disadvantages are having to accept that the bulk of the profits from the branches will go to the franchisees, and learning how to deal effectively with people who are using your name and system, but who own their own businesses.

The business, therefore, has to generate enough profit for the franchisee to make a decent living and pay back whatever he borrowed to start the business, and also make some more on top to re-invest in future improvements. Finally, the business must contribute enough to the franchisor for him to do the same, and in addition provide on-going support to all his franchisees.

Some research says that it is a relationship which is becoming increasingly attractive to many businesses as proved by the fact that more franchisors come to the market every year. However, other research says that as many as 90 per cent of franchisors drop out of franchising within the first 10 years.

So if your business has a low margin it is likely to be difficult to franchise successfully. It also really goes without saying that if your existing business is not making sufficient profits, franchising will not offer a way out of the problem. In such a situation, you must first put right whatever is wrong and then use franchising to build on your new success.

There may be any number of reasons for firms dropping out, and they are not all due to failure or disappointment with the system, but it is likely that many of those who did withdraw did so because they had failed to understand the principles of good franchising practice before they started and were subsequently unable, or unwilling, to get to grips with the allimportant question of the franchisor/ franchisee relationship.

Franchising culture None of the above will work if you do not get the relationship right and build a business based upon mutual trust, respect and support. To support franchisees, it is essential that franchisors and their support staff understand the unique relationship between the franchisor and franchisee.

As in many relationships, the major cause of failure is often due to the failure to communicate. It is the franchisor’s job to communicate what the network is trying to achieve; how it will be done; who is

Like all relationships, both parties in franchising have different motivations for 61

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If you have recruited your franchisees, or sold your franchise, on the strength of the support you will provide, that support had better be there and it had better be good.

responsible for what; and by when it should be done. He should set an example by his own actions, and motivate and encourage franchisees to play their part in making the system successful. Not many networks fail because of the franchisees.

manual; and maintaining and improving standards.

Jointly, the responsibility of both parties is to build a network with a defined image and standards, under a recognised brand name.

Assuming the franchisor has properly piloted and proven his system, he then needs to understand the motivation of franchisees for choosing this particular form of self-employment. Research tells us that at the top of the list comes reduced risk, marketing and training support, the fulfilment of a long-term desire to have their own business, and trading under an established name. At fifth place is the level of prospective income.

Franchisees must be made to understand from the outset that they are being allowed the opportunity to operate a proven business system, using an established name. They are not opening a business in which they are free to do their own thing.

The position of franchisees is, in fact, unique in the field of commercial relationships.

Franchisees are not employees, although they work to instructions and will hopefully have been recruited with as much, if not more, care. They are not customers, although they will have been, and continue to be, sold products or services. They are not, whatever the PR message may say, partners. Not legally, anyway.

If you have recruited your franchisees, or sold your franchise, on the strength of the support you will provide, that support had better be there and it had better be good.

The first step towards mutual understanding is for each party to accept their individual and joint responsibilities.

They are, in fact, people who have trusted the promises made by the franchisor and his staff to the extent that they are prepared to devote probably their entire financial assets and most of their working life to the pursuit of the promised opportunity. In return, as we have seen, they expect to receive the support that they have been promised in terms of marketing assistance, training, business

Broadly speaking, the franchisor is responsible for marketing and developing the network and its products or services; assisting the franchisee to be profitable; and creating and maintaining standards.

The franchisee is responsible for upholding the good name of the franchisor; operating in accordance with the agreement and 62

planning, product development, and general business advice.

preparing these documents, but over the life of the network this will appear negligible, and will usually be amortised from the fees of the first few franchisees.

Both documents must be properly prepared. Cutting costs here will create problems down the line which will prove far more expensive than taking proper advice at the start.

The franchisor’s support staff must realise that their role is to deliver what the franchise sales staff have promised. The recruiters for their part must be careful not to promise more than the franchisor is capable of delivering.

Becoming a franchisor Franchising is about supporting franchisees in order that they can operate a proven system, and that support must be available to the very first franchisee who joins the network. It may not then be necessary to add to the initial support staff until there are 15 – 20 franchisees, but they all need to be there at the start. If the early franchisees are not supported, they will not succeed and it will then become increasingly difficult to sign up others.

Support staff Having agreed that franchising has its particular skills, the staff involved in the franchise operation should either have, or quickly acquire, those skills. Basically there are three choices: either recruit experienced franchise managers from outside; have your own staff trained in franchise management; or work with an effective outsourced specialised franchise consultancy like The Franchising Centre.

Prospective franchisees may soon be asking for evidence of such qualifications being held by the staff of the franchisor they are planning to join, and perhaps choosing to go with a different network which has more evidence of such a professional approach.

Similarly, the operations manual and legal agreement must also be in place at the start, as must the systems for monitoring and managing the performance of franchisees. Franchising, therefore, requires considerable up-front investment by the franchisor before there is any income stream.

Whether there is just one manager doing it all, or a separate one for each of the support functions, personnel need to be proficient at recruiting, training, monitoring and motivating franchisees, with all the technology, knowledge and inter-personal skills called for by such responsibilities.

Agreement and manual The agreement and manual are the documents which lay down the ground rules which govern the relationship. They are linked together through clauses in the agreement, and both need to be professionally prepared by recognised franchising experts.

Recruiting franchisees A franchisor has two marketing responsibilities – one for continuing to market the product or service; the other for

There is a substantial cost to be met in 63

marketing the business opportunity and recruiting franchisees. These are not the same, and require different approaches.

Presumably, if he has established the business, the franchisor already knows how to market his product or service. What the franchisor may struggle with is developing a marketing strategy that their franchisees can follow, and is effective in a short period of time.

recruitment personnel include marketing, selling, business awareness, negotiation, and legal and financial understanding.

Business plans Subject to the usual lending criteria, all the banks are keen to lend to franchisees of a properly-structured and proven franchise.

Most franchisors present their opportunity to the franchise sections of the banks to clear the way for later applications by their prospects.

The feasibility study and franchise plan will have established how many franchisees are needed and where they should be located.

The manual will make it clear what is required of the franchisee in terms of duties, responsibilities, knowledge, skills and attitude.

Naturally, the franchisee needs his own business plan, based on the experiences of other franchisees in the system and franchisors, or their approved third parties, can help with the preparation of these plans.

The franchise marketing plan brings the two together, and the franchisor needs to choose people, or perhaps companies, who fit a pre-determined profile and have the ability to succeed. It usually proves disastrous to simply appoint anyone who has the money to buy the franchise and to locate them wherever there is a blank space on the map.

Agreeing business plans (both action plans and financial projections) with franchisees allows more sensible discussion of progress once the outlet is up and running, and most franchisors will insist on franchisees using a particular system of accounting.

This can even be overseen by a professional adviser who monitors the performance of the entire network, rather than leaving it to in-house staff.

There are any number of ways of reaching potential franchisees, but no way that is right for every franchisor. Having established a clear idea of what a prospective franchisee looks like, it becomes easier to decide where to look for them.

Once agreement to go ahead has been reached, the franchisor will commence his set-up and support procedure. This will vary according to the type of business and may include help with locating and acquiring a suitable site; converting and equipping premises or vehicles; preparing a marketing launch package; and providing initial stock.

Professional advice will help to ensure that the message is properly targeted, leads are handled effectively, and procedures are implemented to accept or reject applicants. The skills required by franchisee

Whatever the business, it will include 64

training for the franchisee, and probably his staff, in every aspect of the business. This may be carried out either in classroom style, or hands-on at an existing unit, or in a mixture of the two.

easily duplicated and easily learned; likely to be profitable for both franchisor and franchisees; and the management is prepared to accept considerable operational and cultural changes.

Training is the very essence of franchising.

It is how the franchisor passes on the proven format which he has developed and in which the franchisee has decided to invest. Having successfully completed initial training, franchisees should be able, or indeed required, to attend further training on a continuous basis.

Franchising in the UK has come of age, and there is now a wealth of professional guidance available to prospective franchisors. To not take advantage of such advice may turn out to be not just remiss, but fatal to the businesses of the franchisor and his franchisees.

If it is operated properly, franchising is a superb way of building a business in which everybody wins – the franchisor, the franchisees, and through the franchisees’ personal commitment to the success of their local outlets, the customers. n

On-going support Franchisees expect and are entitled to continuing support in operating their business, whether this be concerned with new products or systems of operation, training, assistance with business development, encouragement during times of difficulty, and help in finding a purchaser for their business if they want to move on.

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The franchisor must learn how to both motivate and monitor franchises – motivate to encourage them to do better, monitor them to ensure that they are maintaining standards, both for their own good and that of the network as a whole. There are numerous techniques to achieve these aims, and professional advisers can explain how to implement them. There are also outsourced services to help franchisors manage this aspect of their business.

Pilot operations help to prove that what you thought on paper will work in practice. If it does not, then you still have the chance to adapt it before offering it to franchisees.

Conclusion A business can probably be franchised successfully if it is proven and successful in an established format; capable of being 65

Franchising a Business

Financial considerations when franchising your business

S

o, you’ve decided to take the leap into growing by franchising… or, perhaps, you already have started franchising and are wondering if you’re doing things in the best way?

In fact, the thought going through your mind right now is “this can be tomorrows problem”. Hopefully I can help you think otherwise – and it doesn’t cost anywhere near what you’d expect.

Author: Carl Reader, Chairman at d&t, a leading franchise financial specialists

What should you be thinking about when designing your franchise system?

First and foremost, the most important thing that you should be thinking about is unit level economics. The great franchisors, both domestically and internationally, know that profitable franchisees build a long term sustainable franchise network that has true value to everyone involved.

I’ve personally worked with hundreds of brands, both in the UK and internationally, and a common theme that I have found is that often people don’t know the benefit that they can have by addressing the financial systems and support in their operation from day one.

Whilst that might sound like a catchphrase that ignores the commercial reality, those who’ve trodden the path before know that relying on the management service fee (MSF), or even worse the initial fees alone,

Yes, you might have your own accountant and your own funding broker, but it’s unlikely that they are as integrated in the industry as specialists such as d&t.

66

avoid the trap of speaking to their local bank manager, who will likely be unaware of the preferential lending terms available to prospective franchisees of proven brands.

creates a split between franchisor and franchisee.

The unit level economics dictate whether your potential franchisees can get funding for their franchise from the banks on preferential terms, whether the model is attractive once they get independent advice, the morale of the network during their term and of course, the likelihood of both referrals and renewals.

You can do this yourself; however there are quite a few risks in this. For a franchisee to successfully raise funding, they need a strong business plan which has truly considered the realistic chances of success, and the various matters that might impact the business on both a local and national level.

Once we have that mindset in place, we can then turn to the practical steps that you can take to support your network: Assisting new franchisees with funding Whilst you might hope that you will stumble across several billionaires who will happily pay you in cash, the reality is that most new franchisees tend to need some level of funding.

As a franchisor, you’ve naturally got a vested interest in them achieving funding as it will secure you a new franchisee. And as an accountant by training, I’m fully aware that you can easily become a spreadsheet millionaire by hitting the zero key on your keyboard a few times!

By having a process in place to help them through this, you can ensure that they

What’s more, as a franchisor, you could potentially open yourself up to liability risks

About the author

Carl Reader is Chairman at multi-award winning franchise accounting firm d&t and author of The Franchising Handbook. He has previously served as Affiliate Chair and Board Member at the British Franchise Association.

Reader has spoken to global franchising audiences about best practice in franchising, and has worked with countless household name brands.

He has been recognised as one of the '20 faces of franchising' by What Franchise magazine, is a judge of many industry awards, and regularly contributes to the trade press. hello@team-dt.com team-dt.com 67

Creating a system to manage your networks finances Being in franchising since 2006, this is probably the area where I’m most amazed at the differences between networks. We all know that finance is the language of business, but it’s very rare that franchisee and franchisor speak the same language!

should the franchisee not perform as planned. Many franchisors are aware of the misrepresentation risks that come with initial material provided to prospects, but these risks also apply to information you provide to them directly in detailed projections or templated business plans.

So, the best route is to find an independent funding broker, but not just any funding broker. I’d recommend that you ask them three questions to check that they are the right fit for you:

The very best in class franchisees have a system that consolidates and provides analytics of their networks performance – not just their sales (which is where the MSF comes from) but also their profitability.

There are two ways in which you can do this:

● Ask them if they are truly independent.

A ‘broker’ who is tied to one or two finance companies isn’t a truly independent broker and you can’t be assured that they are getting the best deals for your franchisees.

● You can build it yourself. If you have

experience of Application Programming Interface (API) connections between various packages, the risks of different charts of accounts, and coding experience you’d be able to create a consolidation tool that works.

● Ask them if they truly get franchising.

And ask again! So many new finance companies pop up and put the word ‘franchise’ into their branding. Ask how long they’ve been working actively in franchising with more than just 10 or so brands, how many brands they work with, etc. Really dig deeper to understand whether they are just putting a marketing strapline onto their website, or if they are truly integrated into the industry.

● You can use an existing system, for

example d&t’s free of charge Franchise Dashboard, which helps you hit the ground running with the insights you need to manage your network.

Once you’ve got a system, this is where the magic kicks in!

● Don’t fall for the ‘spreadsheet

millionaire’ trap!

Yes, we talked about it as a risk for you as franchisor – but there is also a risk your broker has the sole focus of getting the deal done too. If the only service they provide is funding; with no follow up accountability on those plans, then it is likely that their main source of income is based on success fees. Again, this might help you today but decimate your unit level economics tomorrow.

If you use a holistic provider that manages both the planning (through funding applications) and the results (through filing of accounts and tax returns), you can not only monitor what happened 18 months ago, but also compare against what was planned to happen. This can help you drive performance, and in turn happiness, through your network – whilst also being 68

able to spot when things aren’t quite what they seem.

● A reporting structure to head office.

Ultimately, whilst franchising itself isn’t a complicated method of growth, it needs the right foundations to ensure success.

Appoint a mandatory accounting partner in your franchise agreement Under the EU Block Exemption for Vertical Agreements, you are permitted to enforce certain suppliers that are integral to your network, and we all know that financial management is vital to both the health and the performance of each and every franchisee.

The usual objections to a mandatory accounting partner is the perceived fear of a franchisor that ‘it would be offputting’.

Thankfully, those fears can be allayed by our experience.

Firstly the stats show that over 70% of new franchisees are starting their first or only business, and that the remaining who already have a business are likely to be more established multi-unit franchisees.

It is much tougher to justify enforcing a generic accountant who uses off the shelf systems, but when you have one that also provides the network infrastructure to manage the finances of the entire network it becomes a no-brainer.

Secondly, they need to pay for an accountant anyway. Surely it’s best for them to get one who knows how every other franchisee in the network is doing, so that the advice is specific and based on much more knowledge and experience than a generalist.

When choosing your partner, again you should follow similar questions to those mentioned above about their longevity and experience in franchising, and working with concepts that are similar to yours.

The kind of things that a reputable accounting partner would suggest, without you prompting them, would be:

Look at the data more than once per year Yes this sounds obvious, but you’ll be amazed how many franchisors rely on paper accounts being emailed/posted 18 months after the start of the financial year.

That simply isn’t good enough.

● A mandatory chart of accounts to

ensure that you are comparing apples with apples and that the information is similar across the network.

Check in regularly, monitor their bank balances, costs and income, and be there for them to support them.

● Structuring of your initial franchise fees

and an explanation of the tax differences between training and secondary training, for example.

The best in class have systems which allow them to do this daily if they wish, but if you have a disjointed system with different accountants and potentially differently

● Practical KPIs to monitor within your

network.

● Joining up budgets vs activity vs

results.

69

structured bookkeeping packages (or perhaps even worse, using more than one bookkeeping package), I’d suggest employing someone to monitor these things weekly or fortnightly. Of course, it might be far easier to appoint a network accountant with these tools already in place.

From setting up your systems from day one, through to converting franchise networks with 500 locations on to a better way of doing things, we’ve been there and we’ve got your back.

“

Take focused action rather than carpet bombing As a knock on effect of a lack of systems, many brands manage their franchisees with a big stick, in the same way.

First and foremost, the most important thing that you should be thinking about is unit level economics. The great franchisors, both domestically and internationally, know that profitable franchisees build a long term sustainable franchise network that has true value to everyone involved.

Franchisee management visits become a checklist, to make sure that the logo is on the wall, the floor is clean, and so on.

Instead, why not use the data to help you identify who you can serve and how you can serve them?

By tying up budgets vs activities vs results, you can support your bottom 20% with whatever assistance they need, and work with your high flyers to identify the key traits and activities that make them stand out amongst their peers (ps hint – it is likely to be their focus on the stats, and taking action!)

Finally, sleep at night Once you’ve got your financial processes in hand, it’s a job well done. And if you’ve appointed the experts, it takes little intervention afterwards.

Whilst I appreciate these things can be tough to get your head around, our team at d&t are more than willing to help you and hold your hand through this process.

70

Franchising a Business

How do I recruit franchisees?

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et’s start with a solid piece of advice ... finding and recruiting the best franchisees is more than just a numbers game.

recruitment activity for decades now, that the quantity of enquiries is often prized in equal measure to the quality.

There’s no denying that the more people you can tell about your franchise, the more people you are likely to get an enquiry from, but what you really need, if you’re going to keep your conversion ratio (and your cost per lead) low, is an honest and compelling story shared with the right people, in the right place.

Author: Suzie McCafferty, Founder of consultancy firm, Platinum Wave Franchising Many franchisors are reporting that whilst franchise recruitment enquiry numbers are down, the actual number of quality enquiries has remained the same, so they continue to grow at the same rate as before, only with fewer applications to wade through.

The commitment required to buy a franchise is enormous. Leaving aside the obvious financial commitment, you are essentially asking people to take a massive leap of faith with their future, so your marketing and recruitment processes need to be pretty persuasive to attract and convince the right/best people.

A dream scenario you might say?

Yet the mantra “it’s a number game” has been so deeply ingrained into all 71

Have you ever followed up an enquiry and had to spend the first couple of minutes reminding the person which franchise you’re calling about? Lacklustre marketing content and the ease with which people can apply for multiple opportunities on franchise portals, are certainly contributing factors. Fill your details out once and within a couple of clicks you can request info from every brand in the sector.

If you get 10 enquiries and they’re all perfect, you’re a marketing genius. If you get 100 enquiries and none of them are worth looking at, then you’re doing something wrong.

From looking at a lot of portal listings and company websites, you could be forgiven for assuming that most franchisors are trying to attract the exact same person.

Every click takes you to the same, safe, generic sales messages - in fact, if you took away the company logos, it would be hard sometimes to tell which company you’re reading about.

To be fair to the portals, we demand they send us high volumes of enquiries every month so why wouldn’t they want to make life as easy as possible for the readers to

About the author

Suzie McCafferty, with nearly 25 years of first-hand international franchising experience, is a well-respected personality in the franchising world.

Having franchised her own printer cartridge business from a single store in Edinburgh to a network of 70 locations across six countries, McCafferty’s consultancy comes with an authenticity that few can match.

Prior to founding the now multi-award-winning Platinum Wave Franchising in 2010, she was Managing Director and Board Member of the £30m turnover franchise network at Select Appointments.

McCafferty is a Non-Executive Director with one of the UK’s leading franchise brands, Right at Home. She is also the Onboarding Director at HERO Brands, owners of multiple international franchises including German Doner Kebab and Island Poké. She is also Chair of the BFA’s Regional Forum and Encouraging Women Into Franchising, Scotland. suzie@platinumwave.co.uk www.platinumwave.co.uk 72

get in touch? It's up to those of us doing the recruiting to make sure our content is more attractive, and memorable, than our competitors.

Yes, figures are important, but you need to tell them your story and be honest about what they can expect as a franchisee in your network. At a very basic level that’s how you stand out – your story is your story, and your company culture is unique.

Right, enough of the challenges – what are the solutions?

When researching opportunities most of today’s content hungry franchisee prospects are just as interested in understanding the culture and personality of your brand as they are in prospective returns on investment. You need joined up marketing that shows in addition to your franchise being a sound financial investment, you, the franchisor, are an expert in your field, an innovator in your sector and an inspiring leader to work with!

Sound like a lot of work? It is. But it’s crucial if you want to recruit the best franchisees.

And we’ve not even discussed who’s going to do it, or what ‘it’ even means for your brand.

So, who’s going to take on this incredibly important role for your brand?

Adding to your headcount and payroll, particularly in the early stages of growth is not something most businesses can afford.

But you still need the skills and man hours to effectively launch your brand to the thousands of people out there looking for the perfect franchise opportunity.

You’re asking people to make a long-term commitment to you, so who you are and how you do what you do, is incredibly important.

Inevitably you’ll find yourself facing a chicken and egg conundrum... you can’t afford to invest in a marketing team until you sell some franchises; you can’t sell franchises without good marketing.

The public has long moved on from being hooked in with headline promises of overnight riches and early retirement.

Today your prospects are very wellinformed individuals who will put in an incredible amount of research before engaging with your emails, let alone picking up the phone to you.

● A franchise page on your website with

This means if you want to have any influence in their decision-making process, you need to be providing the right information, in the right format, exactly where and when they want it. You won’t get a chance to shout “no wait, come back, there’s loads I haven’t told you” – so create a coherent information journey that delivers the goods.

content that accurately reflects your brand and your opportunity. ● Listings on the most suitable franchise portals (once you determine which those are). ● E-Shots to the portal databases that promote your opportunity in a clear, engaging voice. ● Google Ads to draw in those people not looking for opportunities on the portals.

Here’s a basic list of the things you’ll need:

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● Well placed expert opinion pieces that

fraction of the cost of bringing it in-house.

You don’t need an enormous budget to get started, but you can’t do it for free and it’s not advisable to do it on the cheap.

identify you as a leader in your sector or industry. ● Print Ads in franchise media, trade magazines and marketing collateral for events. ● Quality copywriting and branded imagery. ● Someone to build a database of enquiries and manage a flow of content to each prospect that relates to their level of engagement. ● Someone to manage that database using the latest technology to establish levels of engagement so that the best people are followed up quickly and personally. ● Someone to be ready to pick up the phone and talk expertly and professionally about your brand, answer tough questions, maintain dialogue and then identify the right people to invite to a discovery day, webinar, or one-to-one meeting. ● Discovery Day or webinar presentation. ● An engaging franchise prospectus.

So, who is going to do it? You’ve built a great business that’s ready to franchise, so there’s a good chance you could take on most of it yourself – but do you have the time, which after all is your most valuable resource?

There are some quite specific skills required here and anyone who has them all to a high standard will be able to command a very good salary. But is it really a full-time role at this early stage?

An agency will work for a retainer and doesn’t need an employment, holidays or sick pay. They will also have all the skills you need because the tasks are spread amongst a team of specialists. They should also be able to offer you plenty more besides the basic list of requirements above, such as social media management, pay per click, photography, video shoots, branding & design, copywriting, media engagement and campaign strategies.

Daunting, isn’t it? And that is by no means an exhaustive list, it’s just the things that have to be done. It can, however, be broken down into three essential parts: lead generation, lead management and lead conversion.

That would be your lead generation taken care of, but what about lead management and selection & recruitment? If you can find a company offering all three services, you can expect to pay a monthly retainer with a commission on each franchise sold. An experienced team will be able to hit the ground running - there’s no single approach to recruitment that works for every franchise (and it involves a combination of many different things) but a good agency will have solid and proven

You might find one person you can employ full-time who has all the skill sets required, but to be honest, we haven’t yet. It takes a team – and everyone on our team has at least 15 years’ experience in their chosen field.

Outsourcing can bring you a team at a 74

building blocks upon which to create the right strategy for your brand.

and many brands would pay to advertise on all of the major ones. The truth is, some are better than others – but more importantly, some will perform better for your brand or market sector than others.

Put yourself in the shoes of a potential franchisee looking for an opportunity in your sector and use Google – see what sites comes up first and offer the most relevant content – that’s probably where you should be.

However, outsourcing isn’t always the right answer. There are many franchisors who have done it all themselves, only adding a team member when they had simply too many franchisees to manage alone. Only you know your budgets, your existing inhouse skill sets and the speed you want to recruit at, but it’s good to know you have options.

LinkedIn If you know precisely who you’re looking for, then LinkedIn is phenomenal for recruitment. They even have a tool called LinkedIn Recruiter.

Effective recruitment activities that you should consider as a starting point Your own website Some brands have an entirely separate franchise recruitment website from their primary b2b or b2c site, and that’s certainly something to inspire to, but probably not necessary from day one. You don’t need to write War and Peace (you won’t sell a franchise on the strength of one web page) but enough to articulate that franchise opportunities are available, where and what the person should do to get in touch.

● I want a graphic designer – 2 million

people ● I want a graphic designer in Glasgow –

1,000 people ● I want a graphic designer in Glasgow

with more than 16 years’ experience – 250 people ● I want a graphic designer in Glasgow with more than 16 years’ experience who has worked in the education sector - 12 people

A simple contact form works well here.

Enough so that you get a name and contact number and/or email address. If the person can’t be bothered to spend 30 seconds filling in these basics then they aren’t particularly interested, but you don’t want to put up something resembling a mortgage application at this stage either.

They’re on your page, you have their interest, don’t make taking the next step too labourious.

That’s a nice concise list to approach, isn’t it? But it requires you to really know the attributes of the franchisees you’re looking for. Also, if you’re going to try LinkedIn, please make sure your own profile is up to date and professional looking – first impressions matter.

Social Media Channels like Facebook, Twitter, Instagram and Tik Tok can be great tools for recruitment, but it entirely depends on who

Franchise Portal Once upon a time this was all you needed to guarantee a decent stream of enquiries 75

you’re trying to attract. Never make the mistake of thinking “well, I don’t use Facebook so I’m not going to advertise there” – you’re not trying to recruit yourself, you’re trying to recruit franchisees – the big question is, ‘are they on there?’.

Franchise Awards & Business Awards Awards work ... they really do. These days we’ll barely part with money for a new toaster unless a reasonable number of complete strangers have given it a 5-star rating on Amazon (other retailers are available). Third party endorsements are always more powerful than your own claims to greatness.

Again, what works for one franchise won’t necessarily work for another – Tik Tok might struggle to deliver you candidates for an accountancy franchise, but you can be sure that some children’s activity brands are using it to great effect.

You might not be ready to enter 'franchisor of the year' just yet, but have a look at what’s out there – in particular, do your competitors have any awards or accreditations that make them look more attractive than you?

Trade Media Prospective franchisees are going to want to see that you’re a player in your own sector – otherwise what value are they getting from your brand. Print advertising can be expensive depending on the sector, but most will offer digital options too.

Could you submit an opinion piece or perhaps secure an interview or podcast appearance?

Go for it – you’ll either win or you won’t but remember to answer the questions and keep your entry relevant. It’s not about telling them what you want to shout about, it’s about demonstrating that you’ve excelled at the very thing they are giving the award for. Also, you can still get a lot of PR and marketing mileage out of a finalists place even if you don’t come first.

A PR firm can advise you on the best way to go about this – but please note that the days of getting free advertising disguised as a press release are long gone. Nowhere worth appearing is interested in content that isn’t of value or interest to its readers.

Dealing with enquiries At Platinum Wave Franchising our recruitment team never refer to an enquiry as a lead. An enquiry only becomes a lead once it’s qualified. A name on a spreadsheet who’s never answered their phone or replied to any emails shouldn’t be taking up space on your hot list. For an enquiry to become a lead, you need to have communicated with them and confirmed that they understand what you’re offering and declared that it is of interest (and ideally, affordable) to them.

British Franchise Association (BFA) Perhaps the biggest strength of the BFA is that fact that it’s not an organisation you just decide to join – you have to pass accreditation no matter how big or wellknown you are. This accreditation (and there are plenty of other good reasons to join) gives your prospective franchisees a serious helping of comfort when deciding if they can trust you or not.

When a good candidate gets to the point 76

of contacting you, it’s usually because they have given it some thought and are ready to take a step closer to properly engaging with you. Not to be rude, but it’s unlikely you are the only brand they’ve reached out to. Therefore, time and first impressions are of the essence.

If you’re going to let them speak to existing franchisees – how and when, and are your franchisees prepared for that?

Basically, whatever your process, you don’t want to be making it up on the hoof infront of a good prospect – make a plan and give them confidence.

Have a proper plan in place so that there is a process to follow. This gives everyone a consistent experience and means you don’t need to think on your feet and forget anything important. No-one’s going to buy your franchise on the first call, so don’t terrify them by going for the close.

Good luck Once you’ve decided on a process, put yourself through it, and then ask a friend or colleague to do the same. Why not go through a competitor’s process so you can compare and contrast – you can be sure your candidates will be familiar with several application approaches.

Whether you decide to respond by phone, text, email or smoke signal – do it promptly, confidently, and establish their level of interest, suitability and where they are in their own research. You should have a prospectus to share and a timeline of next steps so that expectations are managed and no-one gets disappointed.

In summary, you have options. If you only have budget for one piece of activity, make sure it’s the most effective one and nail it. If you can afford a 10-channel strategy, then make sure you’re not ignoring quality in favour of quantity – it really is much more than a numbers game. n

If the end goal is for them to sign a franchise agreement and join your network, what do you need from them to get them to that stage – and what are they going to need from you?

“

Today your prospects are very well-informed individuals who will put in an incredible amount of research before engaging with your emails, let alone picking up the phone to you.

● Do you have all the facts and figures

they’ll need? ● Do you have additional information

beyond what’s shared in the prospectus? ● Do you have an application from that asks for the right information? ● Will you be requiring an Non-Disclosure Agreement before meeting them? ● Where are you meeting them and is it for a casual ‘get to know you’ or a proper Discovery Day? 77

Franchising a Business

The term ‘Franchise owner’ may be cuddly, but is it safe?

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s a relatively new franchisor, I have noticed that some of my more experienced colleagues are cuddling up to potential franchisees by calling them 'franchise owners'.

into believing that their territories included some equity in my franchise system? I am justified in being a little nervous?

You are right in that there is a discernable trend for franchisors, including some who are among the longest established, to describe their franchisees as franchise owners.

I’m tempted to follow this new fashion, but I have a nagging feeling that the term might come to infer to my so-called franchise owner that they have some proprietary rights to my franchise system.

Presumably the logic of this term is that a franchisee owns a franchise - ergo he is a franchise owner.

Author: Mark Abell, International Franchise Consultant

Presumably the phrase has been created, as you have suspected, by an over-creative franchisor who felt it would be warm and cuddly to give its franchisees a feeling that they owned a business, rather than just a franchised outlet. The franchisor would have seen it as a marketing ploy that would

Could I find myself having created a rod for my own back? Should problems arise down the line could I find myself in court trying to convince a franchisee-sympathetic judge that I hadn’t misled my 'franchise owners' 78

“

... it is a dangerous perversion of established legal terminology that could seriously back fire on a franchisor if he ever has to litigate on an agreement in which the franchisee is referred to as a franchise owner.

encourage potential franchisees to join and would differentiate its franchise from those of its competitors.

He suggested it was “a system leasing arrangement under which the franchisee acquires from the franchisor a licence to duplicate the franchisor’s existing and successful system of providing a product/service to the end user”.

That seems reasonable and harmless enough. Or does it?

The short answer is a resounding, no. It is a dangerous perversion of established legal terminology that could seriously back fire on a franchisor if he ever has to litigate on an agreement in which the franchisee is referred to as a franchise owner.

It is not a perfect definition, but it does touch on the underlying commercial arrangement between the franchisor and its franchisees – the permissory and temporary nature of the franchisee’s rights to use the business format and other intellectual property of the franchisor.

That may sound a slight over reaction, even verging upon hysteria, but it isn’t. It’s a reality. Let's go back to basics to understand why.

This view is reflected in the more than 50 countries that so far have introduced franchise-specific legislation. All of them, ranging from France, Belgium, Spain, Italy the Netherlands and Sweden in Europe to China, U.S., Brazil, Vietnam and Saudi Arabia take this view. In general terms, it manifests itself in one of two basic approaches to defining franchising.

System leasing Some 40 years ago, the founder of the then very successful print and design franchise, Kall Kwik, proffered an incisive view of franchising which is still very relevant in the 2020’s.

About the author

Dr Mark Abell LLB has been acknowledged as a world leading expert in franchising for over 40 years.

Abell now works with a select portfolio of world leading franchise brands on the development and implementation of their international and domestic strategies.

DrMarkAbell2022@gmail.com 79

The so-called marketing plan definition, and so-called common interest definition.

The former originates from the Californian franchise law - the first in the world.

Association's own definition is based on that of the European Franchise Federation.

This defines franchising as being a relationship whereby "the franchisor grants to its individual franchisee the right .... to conduct business in accordance with the franchisor's concept."

It describes franchising as existing when "a franchisee is granted a right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor .... in connection with a trade mark in return for a fee".

All these definitions are based on the fact that the franchisee does not own a franchise, but is granted the right to operate one and that it is temporary right.

To use a conveyancing analogy, a leasehold is not a freehold. It follows, therefore, the franchisee is not a franchise owner.

The community of interest definition, first found in the laws of U.S. states such Wisconsin and New Jersey, provides that there must be a common financial interest between the franchisor and the franchisee, and the franchisee is granted the right to use the relevant marks and carry on the business in return for a fee.

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But so what, you may ask? What difference does it make? Well, quite a lot.

Entrenched pro-franchisee view If a court was to hear a case based on an agreement that called the franchisee a franchise owner it would most likely encourage the judge, who generally starts from a pro-franchisee position (protecting the little man from the bullying approach of the large corporate), to take a still more entrenched pro-franchisee view.

Both these long-standing approaches stress the temporary and permissory nature of the franchisee's rights.

It is also not only legal definitions that reflect this approach. The British Franchise

... these definitions are based on the fact that the franchisee does not own a franchise, but is granted the right to operate one and that it is temporary right. To use a conveyancing analogy, a leasehold is not a freehold. It follows, therefore, the franchisee is not a franchise owner.

That is not to say that the terms of a properly written franchise agreement would be set aside wholesale merely because of the use of the term franchise owner. It is far more subtle than that.

Consider, for example, the Natural Life case. Despite good evidence to the contrary, the court of first instance held in favour of the franchisee and that the managing director of the franchising company was personally liable. It was left 80

to the Court of Appeal to sort things out and reverse the decision.

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There are many other cases of a similar ilk.

For example, the ChipsAway case in 2009 held for the franchisee at first instance, but it was emphatically overturned on appeal with a strong suggestion that the original judgment was totally wrong.

If a court was to hear a case based on an agreement that called the franchisee a franchise owner it would most likely encourage the judge, who generally starts from a pro-franchisee position, to take a still more entrenched pro-franchisee view.

When a franchisor has to litigate against its franchisees it needs every advantage of which to avail itself. It certainly can’t afford to alienate the court through the use of soft and inaccurate terminology.

So, using the term franchise owner is both incorrect and dangerous. The questioner is right to have been concerned about its increased use. It is something that I would warn franchisors and their advisers to avoid at all costs. n

81

Franchising a Business

Setting performance targets for franchisees

T

argets are important in franchising and take various forms depending on the type of franchise agreement that is being granted. In the typical unit franchise agreement, franchisors may want to set minimum payments to be made by franchisees to the franchisor.

agreements. Such targets are particularly important when exclusive territories are granted to franchisees because the last thing that a franchisor wants is for a franchisee having been granted an exclusive territory to not fully develop that territory.

Author: John Pratt, Partner at legal firm Hamilton Pratt

Whilst, of course, it is standard for a franchise agreement to contain a contractual obligation on a franchisee to promote and develop the market in the allocated territory, it is sometimes difficult to prove that the franchisee has failed to do this.

Usually, continuing fees – often called management service fees – are calculated on a percentage of a franchisee’s turnover and, accordingly, setting minimum payments to the franchisor have the same effect as setting minimum turnover levels on franchisees.

From a legal perspective it is much clearer if a franchisor specifies specific payments or turnover requirements because then, in theory, it is, or should be, very straightforward for a franchisor to argue

There are difficult issues in relation to setting targets in unit franchise 82

that a franchisee has failed to achieve the minimum payment/turnover requirements.

All of this is simple and understandable, the practical implications are considerably more complex.

Another issue is the extent to which, if a franchisor grants non exclusive territories, it is possible and fair to set minimum performance obligations that apply to all franchisees. The issue is quite simply that a franchisor may grant non exclusive territories in which there are a number of franchisees operating when other franchisees, who have also been granted non exclusive territories, may find themselves operating without competition from other franchisees in their territory.

The extent to which, for instance, a new franchisor or a franchisor from overseas entering the UK market can set sensible targets when the franchisor has no or very few outlets in the UK can set challenging, with no actual franchisee performance figures on which to rely. Franchisee lawyers are always anxious to ensure that minimum payments/turnover targets have not simply been plucked out of thin air and are achievable by their franchisee clients.

Additionally, even when exclusive territories are granted and the targets apply equally to all franchisees then the franchisor will have to demonstrate that all territories are calculated to offer the same potential.

As a result, often franchisors with no existing franchisee performance figures relating to the UK do not impose performance requirements for the first three years, by which time they would hopefully have obtained relevant information about what is or is not achievable.

'Safety net' It is very arguable that minimum target obligations are difficult to justify, unless they are set at an appropriately low level.

The British Franchise Association (BFA) is sensitive to issues relating to minimum

About the author

John Pratt is the author of the UK’s text book on the legal aspects of franchising.

He has been: Legal Advisor to the BFA, chair of the International Bar Association’s Franchising Committee, chair of American Bar Association’s International Franchising Division and chair of Euro Franchise Lawyers – the grouping of Europe’s leading franchise lawyers.

Who’s Who Legal has rated John Pratt as Europe’s leading franchise lawyer. john.pratt@hplaw.co.uk www.hamiltonpratt.com 83

“

If a first year franchisee has to achieve a percentage of the average figures of all franchisees, including those that have been operating for ten years, then that is unlikely to be achievable and is therefore unfair.

payments/turnover and has set out the basis on which it would accept such clauses in its members’ franchise agreements.

franchise agreement but there are serious issues as to whether that should, in all cases, be an option in favour of the franchisor. It is generally considered to be best practice to set out a list of possible implications of a failure to achieve targets, which build up in terms of severity for a franchisee.

The basis is that they have to be set based on the average performance of franchisees and cannot be set at more than 70% of such average performance. In other words, they will be set at a very low level to emphasise the fact that the targets are a “safety net” for the franchisor to enable the franchisor to deal with a substantially under performing franchisee and have not been set as a challenging target to encourage franchisees to promote and extend their business.

What this means is that, the first failure to achieve targets would result in assistance being provided to a franchisee to improve performance. That assistance could be provided free of charge or, more usually, at the franchisee’s cost. A second failure could lead to the removal of exclusivity, a reduction in the size of the allocated territory or the removal of certain products or services which a franchisee could offer.

Another issue is whether franchisors should set minimum performance targets linked to the period of time during which a franchise has been operating. The unequivocal answer is “yes”. It would be unfair for a franchisee in its first year of trading to achieve figures that are not based on what other first year franchisees have actually achieved. If a first year franchisee has to achieve a percentage of the average figures of all franchisees, including those that have been operating for ten years, then that is unlikely to be achievable and is therefore unfair.

There can be any number of further intermediate steps, such as the removal of the right, in favour of the franchisee to renew the franchise agreement, with the right to terminate being the final step.

As an alternative to setting minimum payment/turnover figures, some franchisors adopt an approach based on valuations. Whilst complicated it has some advantages – apart from anything else valuation provisions do not seem to be regulated by the BFA. This approach envisages an obligation on franchisees to obtain regular valuations on a basis clearly set out either in the franchise agreement

A final issue to consider is what happens if a franchisee fails to achieve the minimum performance. The most draconian result of such failure could be the termination of the 84

itself, or in the operations manual and further imposes a contractual obligation for the valuations to always increase.

of franchises will be opened by the developer franchisee in order to retain exclusivity or for the development agreement to continue in force. These area development agreements are particularly common in fast food businesses. Clearly no franchisor would be prepared to allocate very large exclusive areas in which a franchisee will open a number of outlets if the area developer franchisee fails to “perform”.

The failure to record such an increase would indicate that the franchisee was not growing its business and, as with a failure to achieve targets would lead to certain results which could include termination or the loss of the right to renew. The downside with this approach is that obtaining valuations may not be inexpensive and generally franchisees would not want to incur that cost.

As a result, it is standard for franchisors to set out in the area development agreement a development schedule which obliges a developer franchisee to open a specified number of units by annual anniversaries. Failure to do so would either lead to termination or removal of exclusivity with perhaps also removal of the right to open further outlets. In this way franchisors can ensure that large areas are not removed from the market without the benefit of an active franchisee opening outlets in that area.

Whilst, of course, franchisors can insert contractual provisions dealing with performance, much the best way to improve franchisee performance is for a franchisor to provide guidance, support and training on a regular basis to its franchisees. As always in franchising, by far the best way to improve the performance of franchisees is not to rely on contractual provisions but work with franchisees to assist them to achieve their objective.

In addition, some development schedules are more sophisticated than simply setting out the minimum number of units and may include minimum turnover either for each unit, if the unit is to be included in the development schedule or total minimum turnover for all units at specified annual anniversaries.

As indicated at the beginning of this article, the approach taken by franchisors to targets depends on the type of agreement that is being entered into. The above elements relate to a single unit franchise agreement, but there are other agreements that are frequently used in franchising such as development agreements and master franchise agreements.

Master franchise agreements Turning next to master franchise agreements, here again, development schedules are absolutely standard. The issues identified above in relation to area development agreements apply to master franchise agreements, but are even more

Development agreements In relation to development agreements franchisors allow a franchisee to reserve an exclusive area in which a specified number 85

important. Usually master franchise agreements relate to whole countries with a master franchisee investing very considerable sums to, in effect, act as a franchisor in the allocated territory.

UK. Franchisors in the U.S. are often surprised at the lack of an entrepreneurial spirit and are equally surprised by the level of concern that would be expressed if a franchisor had a high franchise failure rate.

Usually these agreements impose obligations on the master franchisee to open a certain number of outlets itself before it starts recruiting franchisees which means that the commitment both in time, effort and money of a master franchisee can be very considerable.

It is therefore very important for master franchisees to ensure that foreign franchisors understand the UK market and agree sensible development schedules.

It is also vital that the development schedules contain some protection for master franchisees. In an ideal world the development schedules would apply on the basis that the master franchisee was required to use its reasonable or best endeavours to achieve the development schedule and the consequences of any failure would only apply if the master franchisee simply wasn’t trying.

During the negotiation of master franchise agreements, all parties are usually “excited” about the prospect for an incoming franchise system in the UK and, of course master franchisees are keen to demonstrate to a franchisor their confidence in the likely success of the franchise and their ability to grow the market in the UK.

This would mean that if a master franchisee was able to show that it had devoted all appropriate resources to making a success of the franchisee, but had simply failed to open the required number of units then the exclusive rights or the rights to open further units or, at worst, the right to terminate the franchise agreement would not apply. In practice it is by no means common for development schedules to be drafted in this way. n

This means that prospective master franchisees are susceptible to agreeing development schedules which, in practice, have little prospect of success. In our experience relatively few development schedules in master franchise agreements in the UK are ever achieved and hence it is very important that the consequences of failing to achieve a development schedule in a master franchise agreement are not too draconian.

What needs to happen but rarely does, is that foreign franchisors need to understand the market in the UK. Some countries, such as the U.S. and Australia, have a particularly entrepreneurial culture and an attitude to business failure which is not reflected in the 86

Franchising a Business

Setting franchise fees both initial and ongoing

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ne of the more emotive aspects of any franchisor/franchisee relationship is that of the franchise fees.

into its coffers as profit. The initial franchise fee it charges to the franchisee will be the mechanism by which it recovers its own franchise development costs and the specific costs relating to setting-up each franchisee in business (of which, more later).

The setting of fees, both initial and ongoing, is very much a balancing act to ensure that both the franchisor and the franchisee achieve the rewards they deserve for their respective contributions to the business.

Of the on-going franchise fees, only a small proportion may be profit with the rest going to pay for the support and back-up that the franchisor is contractually obliged to provide to its franchisees.

If the relationship is to endure, neither party should get rich at the expense of the other.

Firstly, we will examine the situation from the perspective of the franchisor. The setting-up of a franchised network, perhaps involving the conversion of a company-owned chain, can be a complex, time-consuming and costly business for the franchisor at least in the short term.

Author: Steve Felmingham, Senior Franchise Consultant at The Franchising Centre It should be remembered that the franchisor's income does not go straight 87

At the outset, a prospective franchisor will have to cover the costs associated with putting all the necessary elements of the franchise in place. This might include advice from franchise consultants, franchise-proficient lawyers, accountants, trademark agents, and territory mapping specialists, etc.

franchisor will then have the costly task (both in terms of time and resources) of sifting through the responses. This will usually be through a highly objective recruitment process involving the assessment of the original application, several interviews and, in some cases, credit checks and personality profiling.

The components will include the drafting of the franchise agreement, the operating manual, brochures, prospectus and other promotional materials. Other costs may include the recruitment of specialist staff to oversee the franchise network and perhaps additional premises from which they can operate.

It is only at the end of this process that the franchisor will offer franchises to the candidates who possess the right qualities and the right amount of capital. The recruitment stage can be the most expensive of the whole process whilst the fledgling franchisor tries to discover the most effective mix of media and the right budget required to generate the number of candidates it needs to grow its network at the desired rate.

Having created the franchise structure, the franchisor will then incur further costs in promoting its offering and advertising for franchisees. This may involve a mix of media, including franchise exhibitions, websites, and advertising in newspapers and magazines.

Having selected its candidates, the franchisor will then need to devote a considerable amount of time and effort to ensure that they are adequately trained and prepared to successfully launch and operate their businesses. The franchisor

Having generated the enquiries, the

About the author

Steve Felmingham, having been involved in franchising for over 28 years, is one of the owners of The Franchising Centre, Europe’s largest specialist franchise consultancy.

Felmingham has been a franchisee, franchisor, an international master franchisee and an international franchise consultant, developing, launching and managing dozens of UK and international master franchises in Europe, U.S., Canada, South America and Australia. steve.felmingham@thefranchisingcentre.uk www.thefranchisingcentre.com 88

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In reality, it will probably be some time before the franchisor's income, both in terms of initial franchise fees and on-going fees, reaches a level that provides it with a profit. Hence setting-up a franchised network must always be seen as a medium to long-term strategy.

will have to ensure that it has the resources within its organisation to handle the throughput and that its staff are skilled in both the day-to-day operations of the proposed franchise business and their ability to train the candidates.

The initial fee should, therefore, be viewed as a joining, or entrance fee, that at the same time enables the franchisor to recover a proportion of its development costs, and the specific costs, in terms of the training and recruitment, of setting-up each specific franchisee in business.

In reality, it will probably be some time before the franchisor's income, both in terms of initial franchise fees and on-going fees, reaches a level that provides it with a profit. Hence setting-up a franchised network must always be seen as a medium to long-term strategy.

The initial fee is usually paid as a lump sum at the time the franchise agreement is signed and before the franchisee has received training, a copy of the operations manual, or commenced trading. Whilst the size of the fee is intended to recover the franchisor's costs, it makes sense to keep the fee at as low a level as possible as the number of prospective franchisees, who can afford a fee of, say, £30,000 will always be smaller than those who can afford £10,000.

Similarly, whilst the benefits of franchising from a prospective franchisor's standpoint are said to include the ability to expand its business using other people's capital (i.e. the franchisees) it is clear that a franchised network cannot be established without (at least initially) some reasonably significant levels of capital investment.

A franchisor must take care that it does not price itself out of the recruitment market.

Initial fee The selection and recruitment of a new franchisee will hopefully be just the beginning of a long-term commercial relationship. As such, the franchisor should not view the initial fee as a mechanism for making large profits. The franchisor should, instead, aim to make the bulk of its income over a longer period from the income and profits generated by its franchisees.

Knowing at what level to set the initial fee will be a problem for a franchisor in its early days. There is no standard pattern, although there may be an observed similarity between the fees charged by different franchisors in the same line of business.

Whilst this is perhaps only to be expected, given that these companies probably had similar development costs, this may also be 89

evidence of benchmarking with franchisors not wishing to place themselves at a commercial disadvantage by charging a higher fee than their competitors.

avoided in favour of a level playing field.

There will be time enough for the franchisor to earn from its stronger territories through its on-going franchise fees or product markups.

A further consideration for keeping the initial fee at a low level, often over-looked by overseas franchisors looking to enter the UK marketplace, is that having paid a large up-front fee a franchisee may be left with insufficient capital to invest in the business to make it successful.

One situation where the initial fee may be reduced or waived is where, in the absence of a fully-piloted franchise concept, the franchisor offers a special deal to the first of its test or development franchisees. Such franchisees are accepting a higher level of risk and may find the franchise system changing as any wrinkles are ironed out.

In such circumstances, the franchisor does run the risk of handicapping the franchisee's business from day one, whereas if it had charged a lower fee it would be more likely to have the franchisee in the position to generate greater levels of profit and over the longer term to pay more in on-going fees.

This arrangement should not over-ride the principle that the franchise agreement should be the same for all. In such cases, any discounts or variation of terms should be covered by a side letter.

When a franchise network has reached maturity, and its initial development costs have been met from the up-front fees paid by the early franchisees, then the franchisor may start to make significant profits from franchise sales. Indeed, after a franchisor's brand has developed and gained market strength there may be a case for increasing the franchise fee to reflect such progress.

In the past commentators have suggested that the initial fee element should be set in the region of 10% of the total start-up costs of the franchisee's business. Such a relationship is less relevant in the modern market, given the boom in the number of relatively low-cost service industry franchises in which the franchise fee may be the largest single cost element.

Initial franchise fees generally remain modest in the UK and it is standard practice to have fees that don't vary according to the territory or location. It is quite a common temptation for a new franchisor to want to charge a higher fee for a territory with a perceived greater-than-average opportunity.

Market forces may also come into play in situations where the demand for the franchise exceeds the number of territories that are available. This can lead to a progressive elevation in the franchise price.

Nevertheless, the fee should never be elevated to a level that deters buyers. The franchisee must always feel that he or she is getting good value for money.

Such a temptation should, however, be

On occasions, a franchisor may have asked 90

the prospective franchisee to pay a deposit, which may or may not be refundable in full or in part. Such a deposit may be sought if the franchisor will be spending time and resources on the prospective franchisee's behalf in perhaps helping it to investigate the viability of an area or territory, or find suitable premises.

trust between the franchisee and franchisor will be jeopardised.

Often a franchisor may achieve discounts or economies of scale through its bulk purchasing arrangements and, unless the franchise is based on mark-ups, these discounts should be passed on to the franchisees. It is generally considered acceptable for the franchisor to retain a modest margin or handling fee for buying in supplies, but the underlying ethos must always be to give the franchisees the best possible value for money.

A positive factor for a franchisor is that whilst its early overheads may be high its income should from that point grow faster than its expenses. The staff initially required to service five franchisees may also be sufficient to service, say, 15. Each new franchisee coming on board represents additional income and as the turnover of each rises the franchisor's income will grow proportionally.

Similarly retained commissions, retrocessions, or other kick-backs from suppliers should be avoided and certainly not hidden. It is better to declare these amounts and demonstrate how they are used for the promotion of the business.

A franchisee can generally be regarded as a long-term contracted source of income to the franchisor. A franchisee having perhaps invested heavily in its new venture (and therefore having his or her neck firmly on the block) will normally be more highly motivated than an equivalent company employee. As a result, they can generally be counted on to direct their efforts towards continually boosting their turnover and thereby the income of the franchisor.

In situations where the franchisor provides the franchisee with a turnkey business and equips the outlets ready to trade similar principles should apply. The franchisor should make no hidden profits and be prepared to provide full details of the costs it has incurred including, where appropriate, invoices from suppliers.

Initial and on-going support As stated earlier, the initial franchise fee should be regarded as covering the cost of the franchisee's recruitment, selection and training. The on-going fees, whether received as a percentage of turnover or a mark-up on goods supplied by the franchisor, should be partially utilised to fund the cost of providing the essential back-up and support to the franchisee's business.

Another issue to consider is the supply of initial equipment and any other items that are necessary for the running of the franchisee's business. Often the franchisor will supply such items or arrange their supply. In this situation it is considered unethical for the franchisor to regard the supply function as a source of hidden profit. The franchisor will nearly always be found out, and the whole relationship and 91

Initial practical guidance and support might include advice on finding, acquiring, designing and fitting out suitable premises.

The franchisor might also provide guidance on the equipment required and where to obtain it. There might also be advice on training, business development, generating sales leads, marketing and advertising.

indeed, contractually obligated, to provide certain continuing support services which, depending on the type of business, may include: ● Regular visits by the franchisor's field

support staff to assist in correcting, or preventing, problems and help the franchisee to develop their business. ● Liaison with the franchisor and other franchisees to exchange ideas and experiences. ● Continuing product research and development, including investigation of the marketability and compatibility of new products/services with the existing business. ● Training and re-training facilities for the franchisee and perhaps their staff. ● Market research. ● National and local advertising and promotions. ● Bulk purchasing opportunities. ● Management and accounting advice. ● The organisation of national conferences and regional meetings, and the publication of newsletters and other literature.

Training is of particular importance as the whole ethos of franchising is that a newcomer to the business will be operationally trained to run its business in accordance with the franchisor's proven operating system and methods. The content and duration of the training programme varies from franchisor to franchisor, although it may involve on-thejob training in an existing outlet, or in the field.

It could include classroom modules, sales training, learning how to use equipment or processes, and familiarity with or preparing the products. The training must enable the franchisee, in a relatively short period of time, to become expert in all areas of the business prior to opening.

A franchise should be viewed as a longterm relationship in which the initial concept is being continually refined and developed over time with input coming from both the franchisor and the franchisees.

The franchisee may also have to learn how to operate a small business, perhaps for the first time in their life. They may, therefore, need to be instructed as to how to keep accounting records, how to manage cash and stock, and aspects of recruiting, managing, training and coaching staff, as well as the various legal and fiscal requirements and obligations associated with running a business.

On-going fees In return for its on-going support and as its primary source of profit, the franchisor will charge the franchisee an on-going fee. The most common method of doing this is to charge a management services fee which

The franchisor may be expected and, 92

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A franchise should be viewed as a long-term relationship in which the initial concept is being continually refined and developed over time with input coming from both the franchisor and the franchisees.

will be expressed as a percentage of the franchisee's turnover. Alternatively, where the franchisor provides the products or materials that the franchisee sells or uses, it may take its return through mark-ups.

Naturally, there are pros and cons with both methods.

However, the majority of franchisors derive their income through a management services fee, calculated as a percentage of turnover. To establish the rate of these fees, which again should be constant across the network, the franchisor needs to assess the financial performance of its pilot outlets in relation to the anticipated turnover, gross profit and costs of the franchised units.

Where the products can only be sourced through the franchisor and are competitively priced as a result of the franchisor achieving economies of scale then the franchisee may be quite happy with mark-ups. However, if the franchisee feels that the franchisor is making an excessive margin on the goods, or it discovers that the same or similar goods can be obtained more cheaply elsewhere, problems could easily arise.

This gives rise to another careful balancing act. If the rate is set too high, the franchisees may well resent what they consider are excessive fees. Such a situation has led to disquiet in many franchise networks.

On the other hand, if the franchisor sets the rate too low it could end up making insufficient profits and could lack the funds needed to adequately support its franchisees. It is of key importance that the fees are set at such a level as to allow the franchisor to afford to deliver the level of support which the franchisees need, and indeed deserve, without negatively impacting upon the franchisees' operational profitability.

Where a franchise involves a requirement or obligation to buy products from the franchisor - known as a product-tie - there could be competition law ramifications.

Such product ties can, in certain circumstances, be deemed anticompetitive and so franchisors operating such arrangements will have normally made provision for them in their franchise agreements.

Based on the performance data available, or the performance expectations, for both company-owned and franchised outlets, the on-going fee should be set at a level that is long-term viable for both parties so that each may achieve a reasonable profit and return on capital. In setting the fee, it is

The competition authorities will generally uphold product ties within a franchise environment, provided that the franchise agreement has a term, or break-clause, of no longer than five years.

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also important to consider the percentage charged by other franchisors in the same sector.

fee many franchisors ask their franchisees to complete a return showing daily sales and fee calculations. Some returns may also seek information as to sales by product or service type, and details regarding local marketing and sales activity.

This not only provides the franchisor with information relating to the payment, but other data which can help the franchisor track what is going on in the network. At the individual franchisee level such data can be useful in identifying performance issues at an early stage.

Unfortunately, would-be franchisees often simply look at the headline percentage figure and look no further to find out what this translates into in actual profit or the level of support services.

The range of management services fees that are charged varies enormously between different types of businesses, depending on their relative turnovers, profitability and margins. Convenience stores, for example, may have on-going fees of only a few percent because they operate with low margins, but high turnovers. Service businesses on the other hand, with wider margins, may be at the other end of the scale with fees as high as 25% or more as they have very low direct costs.

Franchisors will also need to examine at some stage whether their franchisees are declaring all their income, particularly in franchises where some customers pay in cash. From a franchisor's viewpoint, underdeclaration of sales is the worst crime that a franchisee can commit. It will, of course, be a breach of the franchise agreement and technically grounds for termination.

The fee should, of course, also reflect the level and range of services provided by the franchisor. It should also be borne in mind that the higher the level of fee, the higher is the likelihood that franchisees will resent paying it, and the more they will expect in return.

Most franchisors would forgive any accidental or inadvertent underdeclaration, whilst a tough line will be taken against any franchisees where substantial or repeated underdeclaration takes place.

The onus is clearly on the franchisor not to rely totally on trust, but to build into the franchise some monitoring systems that make it harder, if not impossible, to hide turnover. Such fail-safe techniques include regular audits, mystery shoppers, spotchecks and modem-linked tills which feed details of all transactions electronically to the franchisor. Companies that fail to take such precautions are likely to be sowing the seeds for later difficulties.

The franchisor should recognise that it is likely to generate less income from a franchised outlet than it would from a company-owned one. This is a given since it is the franchisee's capital that has established the unit and it is the franchisee who is exposed to all the day-to-day problems that occur.

When collecting the management services 94

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It is essential that the fee levels are seen to be fair by all, and provide an adequate financial return for both the franchisor and its franchisees from the outset and over the long term.

Another means of taking on-going fees is by levying a fixed or a fixed minimum charge. Such a method is not recommended by franchising purists as it can be indicative of a franchisor who is happy with a minimum level of income, regardless of the success or otherwise of the franchisees. A system in which the franchisor is only successful if its franchisees are successful is clearly a more mutually beneficial approach.

In conclusion, the on-going fee must be low enough so that the franchisee can pay it and still make a reasonable profit commensurate with the capital employed.

The franchisee should also ideally continue to feel it is getting good value for money.

On the other hand, the franchisor needs to cover the cost of the support services it provides and make a reasonable profit itself - a true balancing act.

Advertising levy In addition to the on-going management services fee, or product mark-up, many franchisors take an additional, but generally smaller, percentage of turnover known as the advertising or marketing levy.

Having different percentage management service fees for different franchisees within the same network is highly inadvisable.

Differing fee levels encourage negotiation, lead to uncertainty, and breed discontent among franchisees. There are, however, examples of franchisors introducing tiered structures whereby franchisees are rewarded by having their fee percentages reduced for achieving targets or hitting turnover thresholds.

One of the principal advantages of becoming a franchisee is that you are part of a larger network, perhaps enjoying the benefits of strong brand recognition and national advertising. To assist the franchisor with the funding of this continuing brand development, franchisees are required to make a contribution in the form of a levy.

The reduction tends to apply on the amount of turnover they achieve over the threshold, rather than on their entire turnover. Such structures can act as a good incentive to perform and are generally a positive tool when used sensibly. To work effectively, the thresholds need to be reviewed upwards from time to time as otherwise franchisees may achieve them simply due to inflationary trends without having achieved any actual increase in sales.

By making it linked to each franchisee's turnover, the more highly performing franchisees, which it could be argued have benefited most, make a larger contribution than the weaker performers.

It is important to get a degree of franchisee involvement in the control and expenditure of the money generated by the levy. Over 95

time, the total of the contributions could be substantial and the franchisor should ensure that the fund is not only independently audited, but that there is a committee made up of franchisee representatives and the franchisor to budget and administer the fund.

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As the fund will ultimately benefit both the franchisor and the franchisees it makes sense for the former to also make a financial contribution. This should be on the same basis as that of the franchisees in recognition of the benefit being derived by the company-owned outlets. The franchisor might also top-up the fund with additional contributions, particularly in the early days.

In return for the fees, the franchisee will expect their franchisor to train them, set them up in business and provide an on-going support service, as well as continue to develop the concept as a whole.

Summary Within the franchisee/franchisor relationship there are several financial transactions: ● The initial franchise fee. ● The on-going fees either calculated as a

percentage of turnover, or taken (invisibly from the franchisee's viewpoint) as a product mark-up. ● The advertising or marketing levy.

In return for the fees, the franchisee will expect their franchisor to train them, set them up in business and provide an ongoing support service, as well as continue to develop the concept as a whole.

It is essential that the fee levels are seen to be fair by all, and provide an adequate financial return for both the franchisor and its franchisees from the outset and over the long-term. n 96

Franchising a Business

Create the operations manual your franchisees need to succeed

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he profitability of each franchise depends on the franchisee successfully absorbing the franchisor’s know-how and faithfully replicating the business system uniformly across the network. It’s no overstatement to say that a true business-format franchise cannot exist without a practical, effective operations manual.

to operate it according to the franchisor's specifications.

Franchisees must receive appropriate support and guidance from the franchisor to achieve operational excellence in all business areas. Support includes initial, ongoing and development training and the operations manual, which focuses on success and profit through continual improvement – the constant effort to improve processes, products, and services.

Author: Penny Hopkinson, Founder of Manual Writers International

Why provide an operations manual?

After the franchise agreement has been signed, the operations manual is the essential tool in the franchisee’s box to set up the new franchise and run the business daily. A comprehensive, practical, up-todate manual is at the heart of every successful franchise.

A franchise is a business relationship between a franchisor and a franchisee. The franchisor is the owner of an established business who offers to sell or licence their business model to the franchisee.

The franchisee is the person or entity who buys into that business model and agrees 97

It is a comprehensive guide for the franchise owner/manager and their team on how to:

● Resolve any disputes between the

franchisor and franchisee, such as breach of the agreement. ● Renew the franchise term or sell the business.

● Conduct business ethically. ● Create a secure, profitable, and lasting

business.

Further, the process of documenting the franchisor’s know-how and the business system allows you to:

● Protect the franchisor’s system and the

franchisee’s investment. ● Maintain quality standards and

consistency of products and services.

● Hone and sharpen your business model.

● Guarantee that the brand is presented

● Emphasise the value of the franchise

professionally and consistently. ● Work together more efficiently and effectively – i.e. franchisees can potentially do less and accomplish more. ● Implement an ongoing monitoring system to ensure quality management and compliance. ● Avoid recruiting team members who do not share the same traits and values as the franchisor. ● Troubleshoot problems and find solutions.

offered to your franchisees. ● Be precise with who is a good fit (or not)

for the business and how best to engage with them.

Creating an operations manual also protects the franchisor’s Intellectual Property (IP) because it will be copyright protected.

Some franchisees may argue that the operations manual is written merely to

About the author

Penny Hopkinson is the founder of Manual Writers International, established in 1986, to help franchisors create their operations manuals using a simple three-step strategy.

In 2011, she was appointed a Companion of the British Franchise Association in recognition of an outstanding personal contribution to the development of franchising in the UK. Her latest book, 'Manual Magic: Create the Operations Manual Your Franchisees Need to Succeed', will be published early in 2023. penny@manual-writers.com www.manual-writers.com 98

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Some franchisees may argue that the operations manual is written merely to protect the franchisor. But this is not true of any ethical franchisor with whom I have worked to create a new manual, upgrade or convert one.

protect the franchisor. But this is not true of any ethical franchisor with whom I have worked to create a new manual, upgrade or convert one.

start a similar business. It can be challenging to prove that they are ‘passing off’ the franchisor’s business concept and operations as theirs.

While a well-written operations manual needs to underpin the franchise agreement obligations with which all franchisees must comply, it must be balanced by documenting those obligations with which the franchisor must comply. Central to these obligations is confirmation in the manual that you will support your franchisees with advice and guidance because you want them to succeed – and become profitable.

Your franchisees won’t be able to take full advantage of your know-how and faithfully replicate your business system. So, they will use their interpretation which may be wrong. Almost certainly, your system will not be applied uniformly across the network – the basic concept of a successful franchise. Franchisees are likely to be offbrand, leading to confusion among customers if different messages, logos and non-standard colours are used in marketing and promotion.

What happens if you don’t have an operations manual?

If you don’t provide your franchisees with an operations manual:

The repercussions can be catastrophic. Say a franchisee fails to operate according to the laws and regulations covering all food businesses that protect the consumer in many parts of the world because these businesses are considered a potential danger. The franchisee operates purely on instinct and what they know from cooking at home. An elderly customer becomes ill with food poisoning after eating a chicken sandwich – and dies – because of crosscontamination. The franchise is closed by the local health authorities, and the franchisee is prosecuted and fined. This is reported in the local, regional, and national news resulting in permanent damage to the brand.

● Because it is a contractual obligation,

you will breach a fundamental requirement of the franchise agreement when the first franchisee signs up. ● If there’s no operations manual, you will also be in breach of the franchise agreement because you won’t be able to reflect any changes, modifications, or techniques to the content and keep it up-to-date. ● Your know-how and the business system will be unprotected, and anyone working in the business can steal your ideas to 99

Customers must be 100% confident that the outlet prepares and serves excellent safe food the first time, every time, in a hygienic risk-free environment. Therefore, the franchisor should have operated and fully documented a comprehensive food safety management system across the whole food supply chain – from growers or manufacturers, through distribution and preparation – to the customer’s plate.

highs and lows of a business cycle, is at the heart of any high-performing franchise model and should provide the franchisee with a process to fix their operations – e.g. by performing internal or external audits.

How do you define know-how?

Know-how is defined as confidentially or closely held information. This will be in the form of technical data, formulas, standards, technical information, specifications, processes, methods, handbooks, raw materials – i.e. all information, knowledge, assistance, trade practices and secrets – and improvements.

An established franchisor’s know-how will have been accumulated over many years – much of it learned the hard way. Know-how will likely be scattered like confetti in files across a digital network. Even in a mature franchise, much good content may reside in a team member’s head. In a newly established franchise, know-how may live purely in the founder’s head. Therefore, asking the right questions to obtain this content is key to getting the information necessary to replicate a process faithfully.

What is a business system?

The business system is how the franchisee will meet customer expectations by implementing a systematic approach to analysing, measuring, comparing, and testing all the possibilities of what the customer wants – or doesn’t want. A robust business system, capable of surviving the

A sound business system will help the franchisor and franchisee reduce costs and prevent the erosion of profits. Applying it to safety, hygiene, quality, or getting the job done promptly will give them practical, efficient, and repeatable results. It should also provide a clear plan to develop the business and improve top-line performance.

A sound recruitment system, for example, will aim to retain team members for longer and provide suitable training and techniques that enable them to complete their work more efficiently and effectively.

Procedures should allow the franchise to integrate new team members swiftly and make it easy for them to understand their role within the franchise. Being able to suggest new ideas to improve the business is critical. Franchisees should seek to harness their team members’ views and creativity and, in the process, increase their engagement.

How the complete business system works should be rigorously tested and improved.

Mistakes will have been made – and corrected – so that the franchisee can benefit from their first day to their last.

What are standard operating procedures?

The franchisor’s know-how and business system will be presented in the operations manual as a structured set of Standard

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Operating Procedures – commonly known as SOPs. SOPs capture organisational knowledge for all repeatable core processes. The franchisor’s objective is to ensure that the franchisee gets a reliable result – the first time, every time. To quote Aristotle: 'We are what we repeatedly do.

Excellence, then, is not an act but a habit'.

An SOP needs to be flexible, take what is good and working well, and improve upon it. When replicated across a franchisee network, this results in three powerful interdependent pillars of a franchise: ● Quality ● Consistency; and ● Conformity

Quality is everything that adds up to providing complete customer satisfaction so that the franchisee can build on the franchisor’s desire to be the customer’s No.1 Choice – e.g. extensive choice of locations, highly trained personnel, longer opening hours. It is superior in knowledge, selling skills and all-around professionalism, essential in communicating the franchisor’s vision and brand values – it’s their DNA. This will lead to more loyal customers who become great brand advocates. – and ultimately, raving fans for life. A raving fan is more loyal, spends more, and refers more unsolicited leads.

Consistency needs to be applied to every process – i.e., the people the franchisee recruits, the training they provide, and the services and products they sell. However, these processes must be sufficiently flexible to cope with potential external

economic, political, legal, demographic, social, competitive, global, and technological influences affecting a business's smooth running. A perfect example of multiple effects is the Covid-19 pandemic.

Regulatory compliance and compliance with the franchisor’s requirements and policies form the bedrock of a franchise.

The franchisee’s obligations and those of the franchisor will be set out in the franchise agreement.

However, it is the job of the standard operating procedures to underpin the terms under which the franchisee will operate with the operational detail necessary for compliance. Non-compliance can be costly when the consequences are financial penalties, court costs, and suspension of services.

Every process should be described using logical, easy-to-follow steps as if the content writer followed the procedures in their mind’s eye. These steps will be tracked as needed, revised continuously – and improved. This is the recipe for efficiency, growth, and profit so the business can scale forward.

What is the difference between operating and operational?

We often hear people asking for what they want, such as ‘good’, ‘the right size, or ‘on time’, ‘regularly’ or ‘frequently’. These words mean something to the person using them. They also mean something to the person hearing them. But will the two meanings be the same? Only the use of operational definitions can guarantee a correct interpretation.

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An operational process is an organised set of activities or tasks that leads to excellence for a specific service or product.

Usually, it addresses what, when, why, who, and how questions.

A definition explains what something means. An operational definition does much more. It describes how something should be observed, measured, or decided. Without explanations, ambiguity can quickly arise. The training seeks to qualify operational definitions and demonstrate that only the highest quality service and product standards are acceptable. When initial training has been completed, the operations manual becomes every franchisee’s terms of reference.

● What will happen if the franchisee

doesn’t conform to the specification? ● How will the process be performed,

checked, and measured? ● What tools and resources are available to

assist the activities or tasks?

However, operational definitions are required to describe sufficiently all the steps necessary to complete a given task to the required quality standards.

In a food service franchise, the easy option would be to tell the franchisees that cleaning must be done frequently. But this means nothing. The franchisor would need to explain what must be cleaned (kitchen floor, equipment, surfaces), what must be used to clean them (list of approved cleaning solutions), how these solutions should be used, what are the logical steps in carrying out the work, how often cleaning will take place, and at what times.

An operational process is an organised set of activities or tasks that leads to excellence for a specific service or product. Usually, it addresses what, when, why, who, and how questions.

Operating checklists are convenient as aides-mémoires – e.g. a store standards checklist to be used by the franchise owner/manager to ensure that all jobs are completed.

For example:

My franchise is a relatively simple concept. Surely there can’t be many procedures to document?

Franchisors with simple concepts are often surprised when we draw up a comprehensive blueprint for the contents of their manual from the franchise agreement and other Intellectual Property (IP).

● What is the process? ● When is this required? ● Why is it necessary – i.e. outcomes,

results and payoffs? ● Who is responsible for meeting the

franchisor’s minimum operating requirements – franchisee/manager or specific team member role? ● What are the obligations of the franchisor – e.g. granting approvals?

When you identify all the critical processes for setting up the new franchise and the 102

daily, weekly, monthly, quarterly, and annual routines that franchisees and their teams must perform to your quality standards which must be measured, analysed, and improved, the information will be substantial.

format were huge. It was disheartening to realise that much of this investment was lost.

Operations manual or knowledge management system?

Over the years, manuals have evolved from the paper-based tome of the 80s and 90s, gathering dust on a shelf, to digital content accessed through a password-protected franchisee portal or cloud-based system.

The original hard copy manual was cumbersome and difficult to read and use.

Just pages and pages of close type and text with few bullet points, which made reading tiring. No thought had been given to graphic white space. All those headlines in capitals in bold with underlining and copious exclamation marks had put off readers entirely. Franchisees found this condescending.

By 2008, clients such as Costa Coffee had ceased to print hard copy versions in favour of putting the many volumes of the Costa System for the Brand Partners’ Operational Manual on password-protected CD-ROMs. These were cheaper to produce and easy to distribute. By then, we had developed a tried and tested systematised approach – a three-step methodical approach for creating all operations manuals.

In 2013 we started to explore the use of password-protected cloud-based services such as Dropbox or Microsoft Sharepoint, franchisee portals/intranets, and a Learning Management Systems (LMS) for the AA / BSM Driving School Instructors’ Manual.

Updates were a nightmare. Franchisees were issued with a list and hard copies of the updated sheets to insert in the binder and swap out the out-of-date sheets. Many franchisees shoved the new sheets into the front, which fell into a heap and were ignored if the manual was consulted. It became apparent that most franchisees weren’t using their operations manual. But they guessed running the business after initial training, even if they received many customer complaints and recorded a few serious accidents.

The time and costs involved in creating and printing the operations manual in this

The AA / BSM Driving School System consists of tried, trusted, proven processes and operational procedures backed by a century of cumulative know-how and support systems. The AA / BSM Driving School System is much more than an operating framework. It provides franchisees with everything they need to set up, operate, and develop their business as a driving instructor and make them part of the unique AA family. As a small team, the Training Academy did not have the resource or expertise in-house to develop the type of professional operations manual that a premium brand such as theirs demanded.

Our three-step methodical approach for developing all operations manuals breaks down the process into a series of easily

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manageable tasks. This included creating a structure, acquiring content, and editing the rough draft through to the finished product, and we tailored the process to the AA’s specific requirements. One size can never fit all in a franchise.

This meant spending time upfront to develop a logical, clear, and consistent structure. A key role was to steer and mentor in-house content owners through the process and liaise with the IT department to ensure that the design of the operations manual would be compatible with the LMS.

and when any amendments or modifications to the business system need to be integrated.

Creating or upgrading an operations manual can be challenging and timeconsuming. We start with a user-friendly framework: Introduction, People, Marketing & Promotion, Day-to-Day Operations and Business Development, Growth & Profit.

Briefly, this will cover: ● The franchise's history, up-to-date

Today, we organise a franchisor’s know-how and business system using a slimmeddown password-protected Core Operating Brand Standards Manual underpinned by a comprehensive knowledge management system with multimedia. This includes text, audio, images, animations, or ‘how to’ instructional videos converted to strategically placed QR (Quick Response) codes which can be read using a smartphone camera.

This provides a single resource that can be updated as and when required. It has proven to be a popular format, and the content is more engaging for franchisees and their teams with different learning styles and levels.

Using hyperlinks strategically, we connect the Core Operating Brand Standards Manual to the vast quantity of digital information held across the network, which has been sifted, organised and streamlined. This makes it easier for franchisees to read and logical to update as

market data, the ‘partnership between franchisor and franchisee', and how to use the knowledge management system.

We affirm that the franchisee has made a wise choice and that their business will have the best prospect of success if they follow the franchisor’s business system. ● Minimum Operating Requirements to underpin the franchise agreement and other legal requirements. ● Operational procedures that describe the features – advantages – benefitsoutcomes of doing things ‘The [Brand’s] Way’. ● A clear understanding of the difference between standard operating procedures, best practice and guidelines. ● A proven mechanism demonstrates how to measure, analyse, and improve their business – weekly, month-by-month and year-on-year. ● Targeted support demonstrates that the franchisee is never alone and that advice and guidance are welcomed in every aspect of running their own business. ● An up-to-date Resource Library that delivers a ‘goldmine’ of valuable tools to

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Franchisors can now engage with their franchisees to create, share, and update knowledge in their preferred language using a centralised knowledge-sharing platform and a fast way to deliver behavioural change.

underpin core content - e.g. ‘how to’ instructions, hints & tips, examples, and samples. ● Comprehensive content that is fully searchable to save their time – and yours. ● A simple branded page format, sans serif typeface (font) and sufficient graphic white space to make the content easy to read. ● A seamless updating process that is simple to implement as and when changes need to be made – not three, six or 12 months later. ● A consultation process to engage with franchisees on the content at least twice a year. ● The appointment of a franchisee panel when an upgrade or conversion becomes unavoidable.

Regardless of its format, the operations manual must be fit for purpose – i.e. ● Up-to-date ● Relevant ● Detailed (operational) ● Well written and easy to understand ● Readable (without waffle and jargon) ● Well laid out (a simple page design) ● Easy to navigate (fully searchable)

Access to The Manual will be provided for the duration of the agreement and is for exclusive use by the franchisee/manager and their staff. However, all content remains the sole and exclusive property of the franchisor. Password access will be

withdrawn immediately when a team member leaves or the agreement is terminated.

What’s next in the evolution of an operations manual?

Technology can now provide a solution enabling franchisors to facilitate more straightforward operations, manual development, and better engagement objectives. Procedures can be digital, accessible, and easier to exchange.

Information is more detailed, more effective, and more efficient. Franchisors can now engage with their franchisees to create, share, and update knowledge in their preferred language using a centralised knowledge-sharing platform and a fast way to deliver behavioural change.

Instead of text-heavy content, the operations manual will be developed via a self-serve content creation process that significantly reduces the cost of manual creation.

For example: ● All precise, media-rich, step-by-step

‘how to’ instructions can be created on any mobile phone. ● This encourages the capture of mandatory procedures and best practice quickly and simply. ● The self-serve content creation process delivers instant knowledge about how to 105

deliver franchise standards day-to-day – at the point of need. ● Instant multi-lingual language capability is in-built for those with franchise operations in non-English speaking countries or with non-English-speaking team members. ● It includes text-to-voice capability – to read instructions aloud for those with reading difficulties. ● It enables franchisors to analyse what works and keep on improving. ● Continuous improvement is easy because information can be updated everywhere instantly. ● Customers typically see a 10 x Return on Investment, with bottom line revenues increasing across all sectors. ● It enables franchisors to better protect and uphold brand values by providing clear instructions on ‘how to’ do ‘this’ at the point of need. ● All data is secure, and only those with password access can see instructions. ● It facilitates audit and accountability – so that franchisors can track who has watched what, where, and when.

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Instead of text-heavy content, the operations manual will be developed via a self-serve content creation process that significantly reduces the cost of manual creation.

We live in a YouTube, Instagram, Tik Tok society. Attention spans have become shorter. If we want to know how to do anything, we search the internet for the answer and find what we want immediately.

As people have less time and everything becomes more digital, changes faster, and becomes more complex, franchisors need to employ quicker, leaner, knowledgesharing solutions. Already this is happening in manufacturing. The revolution in operations, manual development, and franchising, is imminent. n 106

Franchising a Business

Role of disclosure in reducing risk for both parties

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isk management by franchisors is an essential part of their international strategy and roll-out process. Those who fail to identify, reduce, and then manage the remaining risk do so at their peril.

They should anticipate spending large amounts of time and money seeking to extricate themselves from the quagmire of litigation.

franchises .... holding out the prospect of large returns on the investment. But once a payment has been made, the franchise proves worthless ....”

Author: Mark Abell, International Franchise Consultant The judiciary are notoriously unsympathetic towards franchisors when they litigate against their franchisees.

Perhaps Lord Roskill, the chairman of the Fraud Trials Committee, best typifies their approach in his 1986 report. He stated that: “Fraudsters induce investors to buy

Despite the reality of the situation, the court generally sees master franchisees and developers as “the little man” and franchisors as large corporate entities, focused more on profit than fair dealing.

They are, therefore, usually only too willing to accept the suggestion that the franchisor has encouraged the hapless master franchisee or developer to invest in the franchise by making gross misrepresentations of the truth.

The reality is, of course, somewhat different. Whilst some franchisors may make over-inflated claims when recruiting master franchisees and developers, the

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breakdown of the relationship and any resulting litigation is usually due to a mismatch of expectation between the franchisor and the master franchisee/developer, and not any misrepresentation by the franchisor. In other words, the franchisor has failed to undertake appropriate risk management.

Consequences Nobody likes to take the blame for their own failure. Master franchisees and developers are no different. If their franchised business fails, the natural reaction is for them to try and blame the franchisor, rather than themselves for this failure.

Franchisors, who have failed to properly implement a risk management strategy and who are found to have made misrepresentations to prospective franchisees, can find themselves subject to substantial awards of damages. It is, therefore, in the franchisor's very best interests to make sure that it manages the risks by implementing an appropriate disclosure system when recruiting franchisees.

The implementation of an appropriate risk

management strategy will mean that prospective franchisees are given relevant, quality information about the franchise in good time before they execute the franchise agreement.

In all jurisdictions, franchise agreements are subject to the law of contract, and a master franchisee/developer can sue a franchisor for breach of contract if it does not fulfil its obligations under the agreement, if it makes false representation, and/or breaches an implied term, warranty or representation. UK franchisors usually ensure that their master franchise and development agreements are subject to English law and the jurisdiction of the English courts. They must, therefore, be aware of how English law regulates such things.

The Misrepresentation Act 1967 and the Unfair Contract Terms Act 1977 may also afford redress to the franchisee in certain circumstances. The franchisee can sue for damages for loss of the bargain and also in certain circumstances for specific performance.

If a franchisor fails to fulfil his obligation under the franchise agreement he may well

About the author

Dr Mark Abell LLB has been acknowledged as a world leading expert in franchising for over 40 years.

Abell now works with a select portfolio of world leading franchise brands on the development and implementation of their international and domestic strategies.

DrMarkAbell2022@gmail.com 108

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If a franchisor fails to fulfil his obligation under the franchise agreement he may well be liable not only for breach of contract, but also for negligence, or even breach of fiduciary duty in which case the franchisee also has a right against the franchisor in both damages and specific performance.

be liable not only for breach of contract, but also for negligence, or even breach of fiduciary duty in which case the franchisee also has a right against the franchisor in both damages and specific performance.

shadow director. A shadow director is defined as a person in accordance with whose directions or instructions, the directors of the company are accustomed to act.

One particular source of protection afforded to franchisees which is often overlooked is that provided by the Company Directors Disqualification Act 1986. Section 56(1) of this is a complicated piece of legislation, but in basic terms it provides that a director of an insolvent company can be disqualified from being a director for a period of two to 15 years if he can be proved to be unfit to manage the affairs of a company. There is not a great deal of case law upon this point.

Case law also uses the term “de facto director” which is basically the same as a shadow director. This means that it is quite possible that the franchisor could, in certain circumstances, be deemed by the court to be a shadow or de facto director of a franchise company, and if the franchisor behaves in a commercially culpable manner (e.g. does not perform his obligations under the franchise agreement) it may well be that he could be disqualified as a director.

The Natural Life Health Foods case held that in some unusual cases the court might be willing to “pierce the corporate veil” and hold the director of a franchisor company liable for negligent misstatements. However, on appeal the House of Lords found that this could only happen in exceptional circumstances which did exist in the Natural Life case.

A mere distributor or licensee could obviously show that any directions were given under a bona fide arm’s length commercial agreement. The franchisor, however, is far more intimately involved with the franchisee and has power to control most aspects of its business, including management and accounting procedure, coupled with powers of inspection.

The relevant point to note is contained in section 741 of The Companies Act 1985, which provides that a “director” includes any person occupying the position of director by whatever means, including a

Indeed, most franchise agreements provide for the franchisor to manage a franchisee’s outlet in certain circumstances, such as the franchisee’s incapacity or even 109

death. This would mean that not only could an individual franchisor be prevented from being a director of his own company, he could also be disqualified from being a shadow director of another company, and therefore from being a franchisor.

This bar is not restricted to individuals, but extends also to corporate franchisors.

Thus, the UK law arguably goes further than most others in this respect in providing protection for franchisees.

If it could be shown that the franchisor, in acting as a shadow director, has lacked commercial probity, or even been merely negligent, he could become subject to a disqualification order. This grey area of law really requires some clarification; ideally by franchisors being expressly excluded by statute.

However, until such amendment passes into law, the franchisor must take steps to monitor carefully its franchisees and ensure that it avoids acting without commercial probity or is negligent.

It should also be noted that any dishonesty by the franchisor could be an offence under the Theft Act 1968, punishable by fines and penal sentences.

Legal regulation of franchisor disclosure In a growing number of jurisdictions, the risk management process is in part proscribed by legislation. The legislature takes the view that appropriate disclosure is so important that it is something that needs to be specifically provided for in the law and cannot be left to voluntary codes, enforced by toothless trade bodies. Even

though the agreement may be subject to English law, the franchisor must still comply with the local disclosure law.

The U.S. The protection afforded to franchisees in the U.S. is often held up as a model which the UK should adopt by those favouring a statutory regulatory system. In the U.S, where franchise sales are seen as basically dealings in securities, there is a complex web of federal and state laws imposing differing requirements upon the franchisors.

At federal level, there are the Trade Commission’s “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures”, which have recently been amended and updated. These require franchisors and area developers to provide would-be franchisees and sub-franchisees with the franchise agreement, or related documentation, and a disclosure document.

Matters included in the disclosure document are:● the franchisor’s litigation and bankruptcy

histories ● the histories of the franchise to be

purchased ● details of any initial and continuing

payments ● details of any obligations to purchase goods ● details of available finance ● the precise nature of the franchisee’s participation and, ● a summary of the termination, 110

cancellation, training, site selection and reporting provisions of the agreement.

It is common practice to use the Franchise Disclosure Document (FDD) developed by the American Securities Administrators’ Organisation in place of the actual disclosure document. Timing is crucial and disclosure must be made at the earlier of either the first “personal” meeting, or the time for making the disclosure (at least 10 business days prior to the execution of a binding agreement or the payment of consideration by the franchisee).

All related documentation, including the agreement to be executed by the franchisee, which is materially different from the standard form of agreement must also be registered within five working days before execution. Further, unless the FDD is used for disclosure purposes an “earnings claims document” must also be delivered to the franchisee if the franchisor makes projections of earnings or incomes of the franchisee or discloses history or information concerning the company and/or franchise operations. However, if the claims are made in the media the separate earnings claims document is compulsory, even if a FDD is used.

Most states also have registration/disclosure requirements as well as provisions for covering such things as termination and renewal. These requirements are many and various, and the interface between state and federal laws requires a great deal of consideration and keeps the American franchise lawyers well supplied with highly remunerative work. At present there are a number of

proposals to increase this level of regulation still further.

The problems in such a system for UK and other foreign franchisors is that they find it difficult to deal with the administration and the highly technical rules tend to gain a momentum all of their own. The rules continually change as their shortcomings become evident.

Australia In Australia, a specific franchise law was first proposed in 1986 along the American lines. However, at the time the development of Australia’s common law, which is basically the same as that of England, was thought to afford more than adequate protection to franchisees and so the proposed law was abandoned.

A voluntary regulatory code was established following the recommendations of a parliamentary working party headed by David Beddell M.P. Its lack of success has been well documented. As a result, in June, 1998 a new franchise law, providing for mandatory disclosure by franchisors to their franchisees, was adopted. This has become a heavy burden for franchisors.

Japan In Japan, the Ministry for International Trade and Industry (MITI) has agreed a voluntary code with the Japanese Franchise Association which, if complied with, exempts JFA members from extensive laws covering distribution in general. The Fair Trade Commission has issued guidelines on desired disclosure by franchisors.

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South Africa The Franchise Association of Southern Africa (FASA) has been given powers to consider complaints by franchisees under the Consumer Code for Franchising introduced by the South African government.

to prove bad faith on the part of the franchisor to establish liability. If bad faith is established then the franchisor may be convicted of criminal fraud. Failure to comply with the disclosure requirements can lead to an order for damages being made by the courts.

This approach has much to commend it as it combines the “teeth” of legislation with the flexibility and industry knowledge of a national franchise trade association. A new law is currently being considered.

By and large the Loi Doubin has been successful at ensuring that franchisors impart relevant information to potential franchisees before they sign up. This success has inspired Spain and Italy to take a similar approach to the regulation of franchising.

France It is widely stated that the Loi Doubin was the first franchise specific law in any EU member state. That is not technically correct. The Loi Doubin does not specifically refer to franchising. Rather, it focuses on networks which operate under a common brand. This neatly avoids the courts becoming embroiled in highly technical arguments over what is a franchise and what is not.

The Loi Doubin was adopted in 1989. It was enacted by Decree Number 91-337 of 4 April, 1991 and makes pre-contractual disclosure mandatory for most franchising operations. Although the law does not actually mention the word “franchise” its main impact is upon the franchising sector.

It provides that any chain that is licensed to use a trade name, mark or sign on an exclusive or non-exclusive basis must comply with the disclosure requirements.

Spain The story in Spain is somewhat different to that in France, even though the laws are partly based on the French law.

Despite the fanfare that heralded the introduction of Spain’s franchise laws in 1988, 13 years on they can only be seen as a failure and underline the need for any franchise law to be based upon rational assessment rather than emotional selfrighteousness.

There is a disclosure and a regulation law.

The disclosure law applies to all franchises being sold in Spain, including master franchises. The disclosure requirements are detailed in Article 3 of the Royal Decree 2485/1988 and under Article 62 of Law 7/1996 of January 15, 1996.

Disclosure must be made at least 20 days prior to the signing of the franchise agreements. Breach of this will render the franchisor liable to a fine. It is not necessary

The franchisor is required to provide basic information 21 days before closing a deal with a franchisee. By and large this law is complied with.

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The Franchisors’ Registry was set up in 1988 as a national registry to guarantee the centralisation of all relevant information about franchises operating in more than one autonomous region of Spain.

The law aims for a transparent system, which enables potential franchisees to identify reputable franchise systems by reference to the register. However, to date this aim has not been achieved.

Foreign companies will have to translate all legal documents into Spanish and register them. Further voluntary requirements will include registering the company’s quality certifications, any mediation or ADR in use in the network, any observance of the Spanish Code of Conduct and any consumer complaints system.

In addition, the new decree creates procedural red tape such as an obligation to notify the Spanish Registry of changes of registered office, the closing or opening of franchise establishments, and an obligation to supply the Registry with an annual report on the franchise network.

The original idea was to create a registry in each region under the jurisdiction of the Central Registry based in Madrid. This has yet to be achieved nationwide and several regions do not have a local registry.

Further, a lack of uniformity in criteria has meant that the registries have been operating without proper admission rules.

As a result, the registries have admitted and, therefore, given credibility to systems which are not business-format franchises.

This in turn has lead to the registries failing to achieve their aims of establishing a list of quality franchise systems.

Thus, ironically, a system designed to make life more difficult for disreputable franchisors is currently endorsing some of them as ones in which potential franchisees can safely invest.

To address some of these issues, the Spanish legislature recently passed Royal Decree 419/2006 which introduced amendments to the previous Royal Decree.

The new decree creates additional disclosure requirements regarding the length of time the business has been active and any master franchise agreement.

A more considered approach to the practicality of the law before it was enacted could have avoided these problems. Other European jurisdictions should study and learn from the Spanish experience.

Italy The Italian law defines franchising as a contract by which one party grants to the other, for a consideration, the use of a combination of intellectual property and/or industrial rights, know-how, and technical and commercial assistance, as well as the opportunity to be part of a franchising network.

The law stipulates that the contract must be executed in writing (otherwise is null and void), and the franchisor must have previously tested its formula in the market.

The duration of the contract must take into account the time necessary for the franchisee to recoup the investment and, in any event, must be at least three years, except for early termination in case of

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breach of the agreement. The contract must specify certain basic matters. The franchisor must deliver a disclosure document to the franchisee at least 30 days before the date of execution of the contract.

they obtain “with a view to entering into a franchise agreement, and may not use the information, either directly or indirectly, other than for the purposes of the commercial partnership agreement to be entered into”.

Belgium After several years of contemplating a wide variety of proposals - some bordering upon the bizarre - the Belgian Parliament has followed the lead of France and Spain by requiring franchisors to make formal precontractual disclosure to their potential franchisees. The proposed new franchise law came into force in February, 2006.

Romania Romanian law also requires pre-contractual disclosure to franchisees. Unfortunately the law was adopted without a great deal of thought as part of a general attempt to present post-communist Romania as a modern country subject to the rule of law.

As a consequence, the law has many shortcomings.

It requires franchisors to deliver a formal disclosure document to potential franchisees a month before they enter into it. Failure to do so will potentially render the franchise agreement unenforceable.

Sweden After many attempts in the Swedish Parliament to enact a franchise law, a precontractual disclosure law was passed in 2006.

The document comprises two separate sections, the first summarises the main terms of the agreement, and the second details “information relating to the correct evaluation of the commercial partnership agreement”.

The Netherlands A franchise disclosure law was adopted by the Dutch government after heavy lobbying by franchisees. As a result it is one of the more arduous franchise laws in the EU.

In the event that the franchisor fails to comply with the disclosure requirements, the franchisee will have the option to have the agreement become null and void within a period of two years of the date of the agreement. If the disclosure document fails to properly summarise the terms of the franchise agreement, those terms will not be enforceable.

Risk management What should UK franchisors embarking upon an internationalisation programme be doing as regards risk management? If there is a disclosure law in the target country the franchisor has no choice but to comply with it.

Both parties are placed under a duty of confidentiality as regards information that

However, franchisors must take responsibility for their own situation and properly manage the risks involved in recruiting master franchisees/developers,

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regardless of the absence of statutory disclosure obligations in many countries.

If the franchisor is at fault, then it should take the blame. Sharp practice amongst franchisors can damage the reputation of franchising as a whole. However, legitimate franchisors must also accept responsibility for their own actions. They must take pre-emptive steps to ensure that there is no mismatch of expectation between them and their prospective master franchisees/developers, whilst at the same time not putting the latter off all together. It is a delicate balance. An art rather than an exact science. An international franchise disclosure document is, therefore, essential.

markets they must come to terms with the need for proper disclosure, not only in countries such as Italy, France, Spain and Belgium with “franchise laws”, but also in countries such as Germany, Austria and Switzerland which have so-called “soft” franchise laws that afford franchisees a level of protection that is far higher than that offered in the UK and other jurisdictions.

By mastering the gentle art of disclosure, UK franchisors will save themselves both time and money. n

The master franchisee for its part must take proper legal and financial advice on the franchise and speak to as many of the franchisor’s existing master franchisees as possible before entering into the agreement. The master franchisee must also be brutally honest with itself as regards to whether or not it is cut out for the role.

The franchisor must make sure there is as little scope as possible for misunderstanding. This means identifying the risk to which it is exposed through any alleged misrepresentation, reducing that risk as much as possible by implementing an appropriate disclosure procedure as a key part of its recruitment process, and managing the remaining risk by ensuring that the disclosure process is properly implemented on an ongoing basis.

So, in conclusion when UK franchisors decide to take advantage of foreign 115

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Franchisors must take responsibility for their own situation and properly manage the risks involved in recruiting master franchisees/developers, regardless of the absence of statutory disclosure obligations in many countries.

Franchising a Business

From domestic to global: the key to successful franchise international expansion

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n this fast changing world, and heightened globalisation, what are the basic routes to successful international franchise expansion and what are the structures available?

Big brands like McDonald's, Subway, Hertz, Water Babies, Jani King, F45, are examples of businesses that have used franchising almost from day one with incredible success.

Author: Farrah Rose, Head of International Development at The Franchising Centre

However, there are also examples of brands such as Marks & Spencer’s and Costa, Bread Ahead, who are company run in their home turf, but have used franchising to take their systems and concepts overseas.

International expansion is the obvious next step for any brand well-established in their home market which wants to tap into highly lucrative overseas markets. After all, there’s a big wide world out there with coming up on eight billion potential customers!

You don’t have to look far to find countless brands who have used the opportunities and tools franchising presents for them to export their tried and tested systems.

There are various shades in between these two examples, but all of them have recognised franchising as the best way to bring their products and services to new consumer markets without the risks and demands on capital which opening an owned and managed network overseas usually entails.

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Essentially, there are six different models which brands have used to successfully embrace the power of international expansion:

requiring a great deal of capital and time.

Organic growth using this model can be slow and expensive, especially if multiple new markets are involved.

1. Company-run operations This model can be very attractive for brands as it allows them tighter control over the establishment of pilot outlets in their prospective territories, and how the brand and systems are implemented.

Then, of course, there are the many cultural, political, employment and legal differences to negotiate. Every market has its own characteristics, and a companyowned model will naturally be at a disadvantage compared to local brands who already understand exactly how to make things work on their home turf.

As a result, brands who have been successful in their home markets with company owned branches may feel an affinity for this model, but it can also be fraught with problems and complications.

Cost is the obvious issue, but so is maintaining management and brand standards, and appointing the right people for new leadership roles. Every detail needs to be meticulously planned and overseen,

Challenges such as how much to pay for sites, how to employ staff and how to make sure the products or services are positioned correctly for the local market, mean there is a very steep learning curve.

There will be hard lessons along the way, and the effectiveness of many corporate brands has been blunted by costly, even disastrous, mistakes over the years.

About the author

Farrah Rose has unrivalled experience in international franchising and has been operating in this field since 1984.

Initially working for major corporations, such as Burger King and Arcadia Group Plc, Rose began advising businesses as a consultant in 1996. During this time she has worked with organisations of all types from family businesses to major Plc companies and high profile brands, helping them to expand their businesses into global markets.

Rose works with 76 associated offices in 103 countries and is now recognised as one of the leading authorities on international franchising. farrah@thefranchisingcentre.uk www.thefranchisingcentre.com 117

That’s not to say that some brands have not found success using the company-owned model but using a franchising model has been shown time and again to offer faster expansion, and with the benefits of significantly reduced risk and capital expenditure, following a thorough market research and local adaptation. By using franchisees from the local market, you can tap into their knowledge and expertise of the territory to not only drive expansion and development, but also avoid many of the challenges and pitfalls a newcomer to the market faces.

2. Management franchising In this model, a franchisee buys a licence from the franchisor to use its brand name, and will then invest in setting up the business, but pay the franchisor’s team to run the operations.

This is a very rare way of expanding internationally, and not suitable for most brands’ goals. It is often used for complex and hefty investments such as hotels, schools, and universities.

3. Direct franchising This is an extension of how a brand might have already expanded in their domestic market, where a franchisor recruits franchisees individually in an overseas territory and manages the entire process directly. Their systems and operations will likely be very similar to those used in the home market, but with a number of adjustments to deal with international issues and modifications to the systems, such as service and products modifications, IT adjustments, pricing and cost structure amendments, currency conversion, taxes

etc. The franchisor provides direct support and back-up to franchisees just as it does with its existing domestic franchise network.

Again, on the surface, this is an attractive model as franchisors may see the potential for greater control, but the opposite may be true in practice. Supporting franchisees, driving growth, and maintaining standards can be very challenging over distance, even with modern technology. For example, virtual meetings are all very well, but managing a number of single units/territories, over multiple time zones can be a serious burden. The key question is … How can you be sure the right person is available at the right time to deal with an issue?

Without a solid leadership structure immediately to hand, it is all too easy for franchisees to diverge from the model, which can have a negative effect on growth, productivity, and how the brand is represented in their market. As a result, the cost and impact on the overall franchise structure will likely be much higher than other franchise models.

Without local leadership, and the market specific expertise and experience that comes with it, there will be challenges in co-ordination of development, or consistency in quality. There is a place for direct franchising, but usually on a limited scale, such as in piloting in a new market relatively close to home.

4. Developmental franchising Often also referred to as area development agreements, this model involves the

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franchisor granting the rights to an individual, company, or investor group to develop and operate several outlets within a particular territory or region. The most famous example of this is Starbucks and Burger King, who I think we can all agree have done extremely well out of it!

The advantage of this model for the franchisor is that it only has one key franchisee to liaise with in that market, rather than a large network, as with direct franchising. Generally, that franchisee will also have significant resources, and a proven track record of operating successfully within that local market. As a result, they require less support and have the investment capability to build and grow the operation on a scale which aligns with the franchisor’s goals.

As this model is focused around said franchisee, company or group growing a multi-unit network, development agreements typically require that a specific number of outlets must be opened within a prescribed period, say one store to be opened within the first 12 months, with a required openings schedule stipulated over the following years. In return, the investor/franchisee gains long term rights and exclusivity over the new market.

The franchisor will usually charge a significant upfront fee for these rights, often running into six or seven figures. This not only reduces the capital expenditure needed for overseas expansion, but also serves to highly motivate the franchisee to stick to the developmental schedule in order to see a timely return on their investment.

Within this agreement, there will also likely be an initial franchisee fee paid for each outlet which opens, and an ongoing fee based on sales. As with domestic franchising, there will also likely be a commitment to spend a certain amount on marketing, and/or a percentage of sales which should be paid into the global marketing fund. There will also be a set policy in place on how the developer will run the network and infrastructure within their territory.

5. Master franchising Similar to a development franchise, master franchising is one of the most popular structures in international franchising.

Historically, it has been seen most frequently in the service sectors, especially Food & Beverage, but has expanded into a cross section of industries. It is especially effective where the business or service requires the cloning of multiple outlets, each with a hands-on owner/operator.

Like a development franchisee, a master franchisee will usually put down a large sum up front to secure rights in a territory and be committed to paying the home franchisor an ongoing percentage and/or fixed fee for each new outlet.

The difference is that the master franchisee themselves is not directly responsible for operating all the outlets themselves (though they may do so in a limited capacity, see below), but rather will act as a sub-franchisor within a country to grow the franchise network with sub-franchisees.

The master franchise agreement will, like the development agreement, usually

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involve a commitment to open a certain number of outlets within a specified timeframe. This is an essential element in reducing risk for the franchisor that a target market will be underdeveloped. There will also likely be an agreement that the master franchisee must open and operate a number of pilot operations themselves to prove the system works in the culture, market and business environment of the overseas country.

Due to the large scale of the investment, and the substantial up-front fee required, master franchising generally only attracts high-net worth individuals who have considerable experience and ideally, proven skills in running medium to large businesses. This has obvious advantages for the home franchisor but, of course, there is no such thing as completely removing risk from any relationship.

The home franchisor still needs to inure itself against the possible failure of the master franchisee, and have structures to address what will happen if they should decide to sell up, go bankrupt, or if the agreement needs to be terminated due to poor performance.

These company-run outlets allow for adaptation of the concept and its operations to the local market and provide a base for training and development as the master franchisee recruits local franchisees to open new outlets. They are also very beneficial for the master franchisee in that they provide a useful source of revenue for their expanding enterprise while new franchisees are being recruited and developed.

On top of this, master franchisees will need to provide the training and support necessary for their franchisees and commit to the franchisors tried and tested systems – within the context of their local market conditions, of course. The master franchisee will also be contractually obliged to monitor sub-franchisees’ performance and, ultimately, to enforce these sub-franchise agreements.

The term of the master franchisee’s agreement must be long enough to allow it to recoup its investment in building a proper country infrastructure, and to issue sub-franchise agreements with a term long enough to attract sub-franchisees and enable them to do the same.

As a result, there still needs to be significant investment in putting policies, procedures and legal framework at two levels, franchisor to master, master to the sub-franchisees - in place, even if the franchisor has been extremely careful about selecting their master franchisee.

It is sensible to include options and pre-emption rights to buy-out the master franchisee which will be triggered both by an impending sale or business failure, and on termination.

Franchisors should also consider ways to recover the existing network the master franchisee has built up, should they move on for any reason, keep the franchisees up and running, and make sure they can still benefit from whatever growth has occurred. There could still be a significant income stream in place that the franchisor will not want to lose.

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There is a lot to think about, and requires a good knowledge of local market conditions, availability of suitable master franchisees, local legislation, country demarcation, probably obtained from a regional consultant, market intelligence expert and local legal advisors.

Suffice to say, master franchising is definitely not suitable for a brand which does not yet have knowledge and experience in how to be an effective franchisor, nor has the necessary robust systems in place to pass those onto their master franchisees to support their respective local sub franchisees.

However, for the right brand which is willing to put in the necessary preparation, it can certainly be an incredibly effective route for international expansion.

6. Joint venture Another variation on the above two models, but in this case a home country franchisor becomes a shareholder in an overseas company to be built and run by a foreign franchisee. In exchange for shares, usually valued at anything from 25% to 50%, the franchisor grants the overseas franchisee developmental or master franchise rights for the territory.

There may be a number of reasons for doing this. Firstly, it allows the franchisor to take a larger share of local profits than they might under a development or master franchise agreement. The profits replace the large upfront fee of the other models, but it may be that the financial projections show this to be beneficial. It also has the added benefit of attracting prospective

franchisees who have all the characteristics the franchisor needs, but not the high capital necessary for development or master franchise agreements, or have the capital but are looking for the franchisor's more in depth involvement and commitment to the market in launching the franchise.

Secondly, laws in certain countries desirable for expansion may simply not allow for classic franchising structures, particularly when it comes to charging royalty fees or foreign ownership. This model allows for share dividends to be paid instead, which is usually more feasible.

While this model has its own pros and cons in terms of revenue that will always be specific to each market, it also has both issues and benefits on a more strategic level. The franchisor will have more control as a shareholder and therefore have more rights over the joint venture company, but it can also mean they have more duties and obligations, and all the resulting extra capital and human resource burdens that come with them deployed in a non domestic country.

So, which model is right for you?

After assessing whether or not it is the right time for your international expansion, deciding which model works best for you is likely to be the biggest decision you need to make about your overseas expansion strategy, in both the long- and the shortterm. All these models have their benefits and drawbacks, and there is no such thing as a one size fits all. However, the evidence is overwhelmingly on the side of 121

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Overseas expansion is going to require a considerable amount of your time and resources. Don’t be so fixated on the goal that you forget what got you to where you are today... that’s your home market and it still needs looking after.

franchising as opposed to company run expansion for most brands who make the effort of conducting thorough market entry study.

system and concept may be ripe for growth, but fear of unknown may cause inertia which will lead to significant loss of opportunity.

You might rightly be very confident and enthusiastic about taking your brand into lucrative new markets, but my biggest piece of advice would be not to rush. You might be keen to see results but spending that extra time and resources now to ensure you are prepared will save you from potentially, very costly mistakes and reentry attempts, down the line.

Do your research This may seem obvious, but don’t forget that not everyone does business in the way you’re used to. There are hundreds of overseas markets, and billions of people to work with, so make sure you know as much as you can about your target market. Will your business concept actually work in your target country, or are there cultural, economic, commercial, or industrycompetitive differences that are likely to present barriers?

Whatever model you choose, here are my top tips for any overseas expansion strategy: Don’t take your eye off the ball at home Overseas expansion is going to require a considerable amount of your time and resources. Don’t be so fixated on the goal that you forget what got you to where you are today. That’s your home market and it still needs looking after. It doesn’t matter how much new growth you enjoy if the foundations it’s built on are starting to shake.

Eating, shopping, leisure habits, use of technology and working patterns are likely to vary a great deal too, as will taxation and employment law impacting both you and your franchisee as the employer. All may require you to tweak your business model in a different way for each market.

Increasingly, many countries also are adopting franchise-specific laws which must be addressed at the very early planning stages.

This said however, don’t shy away from periodically assessing whether or not you are ready for internationalisation with genuine experts, who truly understand the necessary steps in the journey you are about to take. Sometimes, a franchisor’s

Plan, plan, plan… and plan again I know you want to get stuck in, but before you make your move, remember the ‘ticking time bombs’ of gaps or poorly prepared DIY franchise offers, which may have worked domestically because you are 122

situate, in charge but may not work in international, substandard franchise documentation, or drafted provisions of agreements which have been done by those with insufficient experience of international transactions.

in the time to work them out thoroughly so that they are set at a level which both covers the expenses you will inevitably incur in finding, training and establishing the franchisees in business, as well as permitting a reasonable long-term income stream to flow back to the home country.

You won’t necessarily know something is wrong until later when it is way too late.

With the speed of communications and technology these days, failure in one country can go viral around the world in seconds.

They must not, however, be set so high that the master franchisee will feel under pressure, either not to invest sufficiently in its support infrastructure, or to charge subfranchisees fees which are disproportionate to the scale of their businesses and the profits which they will need to generate to make the proposition attractive.

On a more strategic level, spend some time analysing and prioritising overseas markets. The world is a big place and you can’t expand everywhere all at once.

Discover, and focus on exactly where you want to be in the next 1,5,10 years and beyond.

The same goes for your legal frameworks.

Make sure you have structures in place that cover all possible eventualities and are appropriate to the local market without restricting operations too much. The same also goes for your franchise package, documentation and legal agreements. You want to manage expectations and build in certain controls, but still make sure your proposition is attractive. You will also need to consider how you will protect your trademark, patents and intellectual property across multiple legal systems.

The devil’s in the detail When you’re busy focusing on the big picture, it’s all too easy to lose sight of the nitty gritty, and it’s those little details that can come back and bite you later.

Plan for, and resource, your exploratory steps sensibly. Flights, accommodation, key management time away, and finding and evaluating potential partners, adaptation of systems, research, all have a cost. Ensure that the domestic operation can bear it and budget for it realistically.

Don’t underestimate the power of IT systems in monitoring and supporting your international franchisees – this is now a must for any franchisor.

Carefully work out your franchise offer package in advance. Don’t negotiate on the hoof, and please ensure your fees are realistic. The latter can be especially challenging if you’re considering the development or master franchise route. Put

It's not how many franchisees, it’s the right franchisees If you take one of the franchising routes, it is all too easy to see it purely as a numbers game. You might be especially keen to get that master franchisee in place, but getting

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the right country partner is critical, and a very serious problem if you get it wrong.

Don’t rush in, please take the time to build a robust recruitment procedures and due diligence processes, as well as set out sensible criteria and characteristics for the ideal country or regional franchisee. Set up decent lead channels and seek out the right people for the job – don’t just take anyone who has the cash.

Don’t write anyone off from any unsolicited contact, either. If someone has taken the time to recognise your brand has huge potential for them and their market, and has reached out to you, they are worth spending time with. These could be exactly the characteristics you need.

Don’t be afraid to ask for help No one person can be expected to be an expert in every single nuance of all 195 countries in the world, and all their various subcultures and markets.

Seeking out support from international franchise experts with depth of experience and local experts and consultants is essential in making sure both your brand offering, and franchise package, are optimised for the local market. Experts on the ground who can provide you with the best local commercial data, franchise intelligence and legal advice are worth their weight in gold.

As a ‘wise’ man once said… there is no one way to franchise a business, but there is the right way for you to franchise your business. n 124

You might rightly be very confident and enthusiastic about taking your brand into lucrative new markets, but my biggest piece of advice would be not to rush. You’ll be keen to see results but spending that extra time and resources now to ensure you are prepared will save you from potentially, very costly mistakes and re-entry attempts, down the line.

Franchising a Business

An introductory guide to digital marketing for franchisors and franchisees

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hilst there are many avenues for a franchise to pursue when marketing itself, such as trading publications, radio and television, the results of a properly planned digital marketing strategy are much easier to measure.

Author: John Paiva, Mayfly Internet Marketing You may be given rough estimates from PR agencies or advertising salesmen, but with a well-implemented digital marketing strategy you can get a clear overview of how many people are seeing your marketing messages and what impact they are having.

This empowers you with the data to make informed decisions on what actions you

should take next to better market your franchise business.

Both franchisors and franchisees can benefit from a well–planned digital marketing strategy, however, before you take any further steps, it’s important to ensure synergy between both parties.

Should franchisees manage their own digital marketing?

One of the key draws for choosing a franchise is the brand recognition that accompanies the business from day one.

Granting franchisees a degree of autonomy over their digital marketing is by no means a bad idea, but it’s worth considering the extent to which this happens, as each franchisee will be responsible (to a lesser or greater extent) with upholding the brand voice and values.

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All content should be kept on the same website.

Splitting out content across different websites will just multiply your marketing efforts and lead to cannibalisation of the keywords that you’re targeting.

Whilst most franchisees’ training is likely to involve an element of education in regards to the importance of upholding brand values, you may decide that franchisees may not either have the time or appropriate skills required to market their business effectively, whilst sticking within the pre-arranged company values.

those interested in the services or products of the business, and those interested in the franchise opportunity.

All content should be kept on the same website. Splitting out content across different websites will just multiply your marketing efforts and lead to cannibalisation of the keywords that you’re targeting.

This article serves as an introduction to digital marketing for both franchisors and franchisees. For franchisors at the start of their journey, this article can provide a starting point for your digital strategy. For those currently in the midst of a strategy, you may spot opportunities to improve what you currently have.

Website Design Divide your franchise and service content Your website should serve two audiences -

Franchising information should be signposted on the website, but not in such a way that detracts from the typical serviceuser audience. A link to this section of the site can be included in the main navigation, or you could create a banner in the footer that highlights your franchise opportunity.

From a structural point of view, it’s also important that all franchising content is

About the author

John Paiva has worked across the full range of digital marketing channels with dozens of clients in a wide range of industries including private schools, independent hospitals and international franchise businesses.

In 2020, he completed the Chartered Institute of Marketers’ Level 6 Digital Diploma in Marketing. His work with Mayfly Internet Marketing includes managing Google Ads accounts, developing organic content strategies, managing web design projects and designing email marketing campaigns. john.paiva@may-fly.co.uk www.mayflyinternetmarketing.co.uk 126

kept in its own sub-folder. For example, your guide to starting a franchise could be placed on a URL such as: myrestaurant.com/franchise/how-to-opena-franchised-restaurant

● Environmental Policy - Depending on the

niche you’re operating in, it may be prudent to provide a policy laying out your organisation’s impact on the environment. ● Press/media page - Listing the places where your franchise has been mentioned (either online or offline) is a way to build trust with both audiences.

Not only will following a logical URL structure provide users with a clear understanding of where they are in relation to the rest of the website, but this will also assist Google’s bots in better understanding how content relates to each other and its importance.

What’s required for potential franchisees: ● Price of package - Providing transparent

Basic content requirements Setting aside the ongoing content strategy that you’ll need as part of your long-term search engine optimisation (SEO) strategy, there are crucial pieces of content that visitors to your website will expect. Whilst some of these may seem like ‘no-brainers’, you’d be surprised with how many are omitted in some new website builds.

Content required for both audiences: ● Basic contact information - such as your

business’ HQ address, phone number and email should be included in the footer of your website. ● Privacy Policy - A link to this legal document should be kept in the footer of your website too. Don’t rely on a free template from the internet. ● Contact us page - Provide all the contact information in the footer, along with any additional contacts for franchising enquiries and a contact form. ● About page - This should detail your company history and show-off any USPs, awards, experience or notable people within your organisation.

pricing information gives users the opportunity to accurately assess and compare your offering to other franchises. ● Monthly fees or commission - The same goes for any ongoing fees or commission you charge as a franchisor. Don’t hide this information behind an enquiry form. ● Testimonials - These are one of the most popular selling tools at your disposal.

The more you can feature, the more appealing your offering will appear to newcomers. ● History of your franchise - A more indepth article detailing your organisation’s history can help provide much-needed context for visitors unfamiliar with your brand. ● Information about founder/lead franchisor - Similarly, a profile detailing the career and experience of the lead franchisor will lend authority to your offering as a whole. ● ‘What’s included’ guide - In addition to an overview of the features and benefits that your franchise offers, a more detailed guide can help visitors envisage the on-boarding process you have in place for new franchisees.

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● Franchise specific FAQs - The questions

of web design. They’re a core element of the user experience of all websites, helping to nudge web visitors into taking action on a website, instead of passively absorbing the information and bouncing away.

that potential franchisees have will be different to those of service-users, you should endeavour to research and answer as many as possible.

What’s required for potential service users: ● Information regarding service/product -

Potential customers require basic information such as prices, your processes and locations covered. Have you covered everything your competitors have mentioned? ● Location/branch pages - Depending on the type of sector you’re in, you may consider setting up locally-targeted landing pages to support each location or branch in your franchise network. ● Service specific reviews - Reviews from other customers should be placed prominently across the service-focused elements of your website. Location pages should be supported with location-specific reviews to provide users with an accurate portrayal of the kind of service they’re likely to receive. ● Service specific FAQs - Every sector will have its unique set of frequently asked questions that you’ll need to answer in order to assist customers in making an informed choice. ● Supporting top-of-funnel content Providing supplementary content that is topically relevant to your niche can help build trust with potential customers and can provide the foundation for a strong flow of organic traffic from search engines.

CTAs Calls to action (CTAs) are a crucial element

Whilst there’s plenty of research that has been done over the years in terms of the best approaches to take when using CTAs this can be distilled down into a handful of points that should cover a variety of usecases and niches: ● Place them prominently on the page -

For landing pages whose purpose is to drive enquiries or sales, you should ensure that your call to action is placed as high up on the page as possible. If the content you’re publishing is particularly lengthy, then you may want to consider placing a handful of them throughout the page. ● Don’t forget mobile - Depending on the niche you’re operating within, you may find that more visitors browse your website on mobile devices rather than desktop. Don’t forget to test your new pages on mobile devices to ensure that CTAs are just as prominent and enticing as they are on desktop. ● Choose contrasting colours - Your CTAs need to stand out from the main body of your web page. Choose a contrasting colour or accent for your CTA, so you can guarantee that it’s not missed by users.

Remember that many people will be scanning your page for an answer instead of reading - can you ensure it’s spotted by those speedy readers too? ● Make your CTA text clickable and inviting - Don’t skimp on this part. Your CTA can be so much more than a simple

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Understanding the competitive landscape that you’re operating within will give you the best opportunity to gather your keyword research, which will heavily inform how you structure and write the content for your website.

‘Contact Us’ or ‘Get In Touch’. Hone in on what you’re offering, as well as what you’re asking of the user. For example: ‘Get A Free Franchise Consultation’ or ‘Download Your Guide Now’.

SEO Search Engine Optimisation (SEO) is too diverse of a subject to be neatly boxed off in a few paragraphs. It’s a constantly evolving discipline which no individual can truly master. With that being said, there are a handful of tactics that can be implemented by the uninitiated.

Before work begins, however, it’s vital that you take the time to do the necessary research before jumping into implementation. All decisions that you do make in regards to SEO for your website should be founded on data-driven research, as opposed to mere guesswork.

Your competitor landscape Your success when vying for organic search visibility depends as much on your website content as your online reputation and the competitive landscape that you operate within.

For example, if you operate an extremely niche or unique business franchise opportunity, then you’ll be well positioned to gain visibility for search terms related to that niche (although few people will be searching for you).

Meanwhile, those operating in more competitive franchise landscapes, such as the cleaning sector, may find it much more difficult to take the top positions for nonbranded search terms - although at least more people will likely be searching for them!

Understanding the competitive landscape that you’re operating within will give you the best opportunity to gather your keyword research, which will heavily inform how you structure and write the content for your website.

Keyword research Keyword research is a process used to discover the search terms that your website content should be focused around. By mapping relevant search terms to each page on your website, you can focus your content creation efforts and provide both search engines and people with the best page experience possible.

The better you can meet the intent of your target keywords with the content you publish, the more likely you are to have your pages appear higher up in the search results pages, which then results in more clicks through to your website and more enquiries or sales.

Keyword research is simplified through the use of a purpose-built SEO tool (such as SEMrush or Serpstat), however they’re not

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compulsory. Free tools such as Google’s Keyword Planner can be just as useful when conducting keyword research, providing the ability to scan competitor websites for keywords opportunities and compare search volumes for keywords.

Basic on-page optimisation If your franchise is in a competitive landscape then there’s only so far that you’ll be able to get by putting these basics in place. However, they will at the very least, clearly communicate to the search engines what each of the pages on your website is about.

Basic on-page optimisation of webpages is only possible once you’ve completed keyword research and mapped out realistic target keywords for each page of your website.

The following on-page elements should be optimised across all pages of your website: ● Page titles - This element informs both

users and search engines of the topic of your page. Use a unique, genuinely useful title that is informed by your keyword research. Google may use this title as the main link to the page on their results pages, so try and make it as enticing as possible. ● Meta descriptions - This element performs a similar role to a page title, however where a page title is a few words, a meta description will typically be one or two sentences. These may be used on Google’s search results too, so it makes sense to feature your target keyword here as well. ● Headings - The headings in your content

should be wrapped in HTML tags which look like this: <h1>text</h1>. They’re a simple tool to assist structuring content and indicating the important themes you’re writing about. Only use one H1 tag, at the top of the page, and then use the other tags as subheadings to make your content easier to read for both search engines and users. ● Image alt tags - These elements are attached to each of the images on your pages. They should accurately describe the image, so that someone who can’t see it can understand what it is portraying. Alt tags will appear when an image fails to load or when assistive technologies such as screen readers are used to view your website.

Ongoing content plans All franchise websites should have a content plan in place to ensure that the business can best leverage organic search traffic and better serve all target audiences.

SEO is an iterative process which is constantly being driven by innovation of both content creators and Google’s own algorithm changes, of which there are thousands every year.

Many websites confuse the term ‘content plan’ with writing generic blog updates or news articles. Whilst these may add some value to the overall user experience, they’re unlikely to contribute to improving organic traffic.

To ensure that your website is best positioned to generate organic traffic from search, you should have a process in place to regularly audit all content on your website. Auditing content includes

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identifying which pages are currently ranking well, driving organic traffic or generating conversions.

may wish to include a clause in your franchise contract that gives you permission to share your franchisees’ stories in marketing materials.

Once you have a clearer understanding of how the pages on your website are performing, you can create a plan of action. In broad terms, you can decide whether to leave pages the same, update them or remove them.

You may also want to file away important information about your franchisees, including their previous occupations or work experience, before coming on board.

After they’ve been operating for a reasonable length of time, you can then get in touch for a testimonial of their experience, along with supporting sales/business statistics.

During your competitor research you may notice that competing websites have pages on topics that you’re currently not covering. Taking note of these will allow you to add to your content plan, so that you can make your website more competitive in its niche.

Collecting reviews and testimonials Social proof has become a vital component of SEO. If you’re trying to convince a newcomer to your website of the value of your service or franchise offering then there’s no better way of doing it than with a glowing review from one of your franchisees or service users.

Collecting testimonials from your franchisees Your potential franchisees will likely require more convincing than your service users, due to the higher entry-level of investment required. As such, testimonial and case study content is vital to providing the social proof required to drive consistent franchise enquiries.

It’s worth putting a process in place to ensure that you have the necessary information to hand when compiling case studies and testimonials. For example, you

Review collection strategy for service users How you go about collecting reviews from service users will depend on the type of franchise business you operate. For example, restaurants may choose to print a QR code on their receipts which takes customers to a custom page with options to leave a review on different websites (ie.

Google, Facebook, TripAdvisor etc.).

If you’re managing a service-area based franchise business, then you may wish to utilise a review collection system that can be easily rolled out to multiple locations.

These tools can be used to automatically reach out to customers after they’ve been served, requesting a review to a platform of your choice.

What review platform to choose?

There are benefits and drawbacks to all review platforms. If in doubt, however, you should favour Google. The number of reviews that you receive on your Google Business Profile has a direct impact on how high you appear in the local map pack (the

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map that appears on Google’s search results page). The drawback to requesting a Google review from your customers is that they will require a Google account to do so, something which the older generation are less likely to have.

results pages, your Business Profile can serve as a valuable form of social media.

How to show reviews on your site Collecting reviews on 3rd-party platforms is great for building the off-site reputation of your franchise business, but each review can also serve a dual purpose by providing unique, trust-building content on your website. When it comes to how many reviews you should have on your website: the sky's the limit.

You can never show off enough about the success of your business on your website, but the message will have much more penetration when it comes from a happy customer, as opposed to your franchisees or marketing team.

Google has guidelines in place prohibiting the act of ‘keyword stuffing’ in Google Business Profiles. This is the term used to describe placing your target keywords unnaturally in a bid to manipulate Google’s algorithms for greater visibility.

Unfortunately, whilst these guidelines may be in place, it doesn’t stop some from bending the rules.

Businesses can benefit from taking this approach, however, there’s a robust system in place which allows all users on Google to report such bad actors.

Google doesn’t have an official widget, however there are plenty of affordable widgets and plugins available that allow you to easily embed all your reviews on your website.

Google has automated and manual processes in place to review these reports and amend Business Profiles based on these reports. So whilst you may benefit initially from keyword stuffing your profile, you may not benefit for that long!

Some 3rd-party platforms make populating reviews on your website easy, providing widgets implemented using simple code.

Optimising your Google Business Profile The Google Business Profile (formerly known as Google My Business) is vital to all types of service-area businesses and branch/location-based franchises. In addition to providing an easy way for customers to review your business and supporting your visibility on the search

Optimising your Google Business Profile includes ensuring that you’ve selected the appropriate categories for your business, along with providing relevant information regarding your services.

Social Media Marketing Depending on the sector that your franchise is operating within, social media can be an important weapon in your digital marketing arsenal.

Whether you’re posting reels on Instagram or videos on YouTube - social media offers you the unique opportunity to promote your business in a way that can engage people from all walks of life.

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Which platform to choose?

There seems to be a new social media platform cropping up every year, making choosing which one you want to focus on a difficult task. Whilst franchise businesses with large budgets at their disposal have the freedom to experiment with any and all of them; franchisees balancing running and marketing their businesses will need to be more prudent with their choices.

Below is a quick summary of the current social media platforms and what type of businesses they’re best suited for: ● Facebook - Suitable for a wide-range of

businesses and content. Associated more and more with an older age demographic ie. 30-60 ● Instagram - Suitable for businesses who can present a compelling visual element with images or videos. Demographics skew younger between 20-35. ● LinkedIn - A primarily B2B platform that could benefit franchisors seeking to connect with potential franchisees. The majority of users are between 25-34 years old. ● TikTok - Suitable for businesses who can produce short-form video that is both reactive and trend-following. Majority of users are female and aged 18-24. ● Google Posts - Suitable for all businesses with a Google Business Profile. Shown to all Google users, so it's applicable to a wide demographics of users. ● Twitter - Suitable for all businesses. Ideal for connecting with other business owners and posting service updates.

Bear in mind that 70.4% of users are male. ● YouTube - Suitable for businesses with

the time and resources to create longer video content and market it via this widely used platform.

Organic content ideas Once you’ve chosen your platform, you’ll need to decide what content to post and what topics to cover. If you’ve settled on Facebook as the main focus of your marketing campaign then you may be overwhelmed at the breadth of options that you have.

It’s important that you plan out your social media content ahead of time, so that you can post strategically. Just like website content, you can theme your organic social media content around different stages of the customer journey: awareness, interest, consideration, purchase, retention and advocacy. ● Awareness - Content that quickly and

succinctly communicates either your franchise offering or service, its key selling points and how they can benefit the reader. ● Interest - Deeper dives on the processes involved in your franchise, showing the evidence and proof behind the claims you’ve initially made. ● Consideration - Focused messaging pushing the user to take action and interact with your business. ● Purchase - Harder-hitting, sales-focused content that pushes engaged users over the finish line to make a purchase. ● Retention - Follow-up content that targets those who have already purchased, offering assistance or customer support. ● Advocacy - Content designed to activate

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those customers or franchisees who hold your business closest to their hearts.

Request reviews or ask them to share their experience on their own pages.

The above guide has just scratched the surface of the potential that digital marketing has to promote your franchise business.

Ideally, your digital marketing strategy should work in tandem with your business’ goals and all your marketing channels (SEO, Social Media, Pay Per Click advertising, emails, PR, TV) so that you can deliver a consistent, strategic message that has the best impact possible. n

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“

You can never show off enough about the success of your business on your website, but the message will have much more penetration when it comes from a happy customer, as opposed to your franchisees or marketing team.

Franchising a Business

Sample franchise contract

T

his sample franchise contract is for illustrative purposes only for both potential/existing franchisees and franchisors alike.

WHEREAS:A. The Franchisor has spent time money and effort in obtaining and developing knowledge of and expertise ("the KnowHow") in .......... hereinafter called "The Services".

It must not be used by any party seeking to buy a franchise or franchise their business without taking the author’s prior advice. See also master franchise contract.

B. The Franchisor wishes to expand the Provision of the Services, and is willing to grant to the Franchisee the rights set out herein.

Author: Mark Abell, International Franchise Consultant FRANCHISE AGREEMENT THIS AGREEMENT is made .......... day of .......... 202( ) between .......... the registered office of which is .......... (hereinafter called "the Franchisor") of the first part and of .......... (hereinafter called "the Franchisee") of the second part

C. The Franchisee desires the right during the continuance of this Agreement to provide the Services from the premises specified in Schedule One hereto ("the Premises") under the Marks (detailed in Schedule Two), as directed in the operation manual ("the Manual").

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D. The business of providing and marketing the Services is hereafter called "the Business".

Agreement, the Franchisor and the Franchisee will enter into a new standard Agreement in such form as is currently being offered to new Franchisees at that time, to operate from the date of the expiry of this Agreement.

E. The equipment from time to time required by the Franchisee for use in the Business is hereafter called "the Equipment".

4. Franchisor' s obligations The Franchisor shall:-

NOW IT IS AGREED AS FOLLOWS:● (a) Assist the Franchisee to establish and

1. Rights Granted The Franchisor grants to the Franchisee during the period of this Agreement and subject to the terms and conditions hereof the rights to carry on the Business in accordance with this Agreement from the Premises, to utilise the Know-How and to use the Marks.

2. Term Subject as herein appears this Agreement shall be for a period of .......... years, commencing the ......... day of .......... 202( ).

3. Renewal If the Franchisee gives written notice of his desire to renew the Agreement, then provided that at the time such notice is given this Agreement is valid and subsisting and the Franchisee shall not be in breach of his obligations under this

efficiently operate the Business from the Premises and to provide him with a Manual, the copyright in which shall at all times remain the property of the Franchisor; ● (b) Train the Franchisee and the Franchisee's staff in the correct operation of the Business at the cost specified in Schedule Three. ● (c) Train the Franchisee and the Franchisee's new and existing staff in the Services. The cost of this training shall be as detailed in Schedule Three. ● (d) Give the Franchisee such reasonable continuing assistance and advice as the Franchisor considers necessary for the efficient running of the Business. ● (e) Ensure that the Manual shall be kept up to date with any alterations and/or improvements in or to the operation of the Business.

About the author

Dr Mark Abell LLB has been acknowledged as a world leading expert in franchising for over 40 years.

Abell now works with a select portfolio of world leading franchise brands on the development and implementation of their international and domestic strategies.

DrMarkAbell2022@gmail.com 136

5. Franchisee's obligations concerning the marks (1) The Franchisor authorises the Franchisee to use the Marks solely for the purpose of promoting the Business and any usage will be in accordance with the reasonable directions of the Franchisor; (2) The Franchisee undertakes not to do anything to prejudice or damage the goodwill in the Marks or the reputation of the Franchisor, but may challenge the Franchisor's intellectual property rights; (3) If the Franchisee becomes aware of any infringement of the Marks by any other party trading with Marks similar or identical to the Marks, the Franchisee shall immediately notify the Franchisor thereof in writing;

conform to the terms of the said registered user agreement.

6. The Franchisee's obligations concerning the Equipment The Franchisee agrees in order to protect the Franchisor's intellectual property rights and maintain the common identity and reputation of the network to comply with quality specifications laid down for the Equipment.

7. The Franchisee's general obligations In order to maintain the uniform high standards of the Services, and to protect the Franchisor's intellectual property rights and maintain the common identity and reputation of the franchise network, the Franchisee hereby agrees;

(4) The Franchisee shall use only the Marks in connection with the Services;

Carry on business (a) To carry on the Business under the Marks and no other name;

(5) The Franchisee shall comply with all reasonable requirements from time to time laid down by the Franchisor as regards the use and presentation of the Marks;

Premises (b) Not to carry on the Business from any location other than the Premises without the Franchisor's prior written consent.

(6) The Franchisee shall ensure that any items of equipment regularly used by the Franchisee in carrying out the Services, shall carry such words devices and/or designs and in such prominence and colour, as may be specified by the Franchisor;

Commencement (c) To commence the business from the day of .......... 202( ) and to carry it on as a legally and economically independent party.

(7) Where required by the Franchisor the Franchisee shall join with the Franchisor at the Franchisor's cost and expense in making or to make application to become the registered user of the Marks and to

Hours (d) To provide the Services from the Premises at least between the hours of 9.00 am and 5.30 pm on Monday to Friday inclusive; Diligence (e) To use his best endeavours and the 137

highest standards in all matters connected with the Business and to carry on the business diligently and in a manner in all material respects to the reasonable satisfaction of the Franchisor and as may be reasonably required by the Franchisor from time to time in accordance with its image and reputation; Personnel (f) To ensure that all personnel employed by him in the Business shall at all times be clean and tidily clothed in any designated clothing or otherwise. The Franchisee shall ensure that they comply with all of the Franchisor's requirements as regards cleanliness, clothing, appearance or demeanour; Staff training (g) To ensure that all his employees are trained by the Franchisor before actually working in the business; Access to staff and customers (h) To permit the Franchisor and or his agent without any further or other authority or notice, to speak to customers and the Franchisee's staff about the Services being provided by the Franchisee; Franchisor's requirements (i) To comply with all reasonable requirements consistent with the terms of this Agreement as are from time to time notified by the Franchisor for the efficient conduct of the Business; Insurance (j) To insure with a major reputable insurance company in an adequate sum against all normal and reasonably

foreseeable risks relating to the conduct of the Business including product liability howsoever arising negligence or other acts or omissions by the Franchisee or any person for whom the Franchisee is responsible and cover all public and employees liability and death of or injury to any customer or any other person or damage to any motor vehicle used by the Franchisee and provide copies of such insurance policies and proof of premium payments to the Franchisor upon its request and the Franchisee will provide to each insurer full and complete information relevant to or which may be required in respect of any insurance policy and, ensure that he does nothing which in any way invalidates it; Notice of status (k) To clearly indicate on all literature and correspondence and by way of a prominently displayed notice board at the Premises the fact that it is an independent franchisee of the franchisor and is in no other way connected with it.

Indemnity (l) To indemnify and keep indemnified the Franchisor from and against all loss damage or liability suffered by it as a result of the Franchisee's acts or omissions.

8. The Franchisee's financial obligations The Franchisee shall pay to the Franchisor the following sums; ● (a) Immediately upon signing this

agreement a franchise fee in the sum specified in Schedule Three below. ● (b) Upon the Franchisor's request and prior to receiving initial training to pay 138

the Franchisor for the initial and continuous training referred to in clause 4 above. ● (c) A monthly Service Management Fee equivalent to 5% of the previous month's turnover. ● (d) Subject to clause 9 below at the request of the Franchisor, a contribution to the Franchisor's Advertising and Promotion Fund.

9. Promotion and advertising (1) The Franchisee shall upon receiving written notice from the Franchisor pay on a monthly basis, a sum equivalent to 2% of the previous month's gross turnover or £2,000 per annum whichever is the higher into the Franchisor's Promotion and Advertising Fund.

11. Audit (1) The Franchisor or its Auditor or authorised representative shall be entitled to inspect and audit the books of account and all supporting documentation of the Franchisee relating to the Franchisee's Business at anytime in respect of the whole or any part of the period of this Agreement and within six months after the receipt by the Franchisor of the audited accounts for the year or other period of this Agreement up to the termination or surrender of this Agreement or sale or transmission of the Franchisee's Business to a new Franchisee by the Franchisor giving written notice to the Franchisee such inspection or audit to be during reasonable business hours;

(2) The Franchisor shall keep records of the fund and shall pay the monies into a separate designated bank account in the name of the "Advertising and Promotion Fund" The Franchisor shall use these funds solely for the national and regional advertising of the services.

10. Franchisee's accounts The Franchisee shall maintain proper books of account relating to the business and shall employ a Chartered/Certified Accountant to prepare annual accounts for the business and the Franchisee shall supply the Franchisor: ● (a) within thirty days after the end of each

financial year with an audited certificate as to the Franchisee's gross turnover during such period calculated in accordance with this Agreement; ● (b) within ninety days after the end of

each financial year with a certified copy of the audited profit and loss accounts and balance sheet of the Franchisee's Business and such other accounting and financial information relating to it as may reasonably be required by the Franchisor; ● (c) The Franchisee shall provide to the Franchisor any certificates etc. set out in (a) and (b) above which shall be prepared after the termination of this Agreement but which shall relate to any financial period of the Franchisee which falls in whole or in part within the period of this Agreement.

(2) If the audit (or any other periodic inspection not being a full audit) shows that the accounting of the Franchisee as to the calculation of the payments due under this agreement, and/or any other financial matter is incorrect, the Franchisee undertakes promptly to rectify the defect in the amount accounted for and/or the

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accounting system defect as the case may be.

12. Anti-Bribery and Modern Slavery The Franchisee will not (and will procure that no person acting on its behalf shall) directly or indirectly make or facilitate: ● (a) any expenditure for any unlawful

purposes in connection with the Franchisor‘s Business or in connection with any activities in relation thereto; nor ● (b) any offer, payment or promise to pay any money or to give anything of value to any government official, political party or any other person with a view to influencing any action or decision of such person; nor ● (c) commit or consent to or participate in any other way in any act of bribery (howsoever called) under the laws of any jurisdiction.

The Franchisee will comply with all applicable legal requirements and our policies against corrupt business practices, money laundering and facilitating or supporting persons who conspire to commit crimes or acts of terror against any person or government.

The Franchisee will comply with the Modern Slavery Act and will not be directly or indirectly involved in the use of child labour or modern slavery or be involved in human trafficking.

13. Data Protection In accordance with the requirements of the Manual (including privacy policies and standards), the Franchisee will maintain a customer database containing all

Customer Data and you will accurately record on the customer database prescribed by us for use in Your Franchise Business the Customer Data of all persons who supply such information or details to you or whose information and details you obtain, when such person purchases, or makes enquiries in relation to Your Franchise Business in such a way as to allow the transfer of such Customer Data to us for the purposes of: ● (d) contacting those persons and making

them offers subject to the declared preferences of such persons; ● (e) conducting quality control activities; and ● (f) maintaining a database of all Your Franchise Business's customers.

For the purposes of Applicable Data Protection Law, the Franchisee acknowledges that the Franchisor and the Franchisee will each be acting as separate data controllers in respect of the Customer Data collected for the purposes of this Agreement.

As a data controller, the Franchisee shall comply with the provisions of all applicable privacy and data protection laws, regulations or best practice (including without limitation the Applicable Data Protection Law) in the use and processing of any Customer Data and take such steps as shall enable the compilation, processing and use of the databases referred to or created pursuant to the provisions of this Agreement.

14. The sale of the business (1) The Franchisee may not assign or

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delegate his Franchise or any other right or obligation under this Agreement, but may sell his Business with the prior written consent of the Franchisor and subject to the conditions listed in (2) below, the Franchisor undertakes to grant to a purchaser of the Franchisee's Business who is acceptable to the Franchisor, an Agreement for the period of not less than ..... years commencing on the date of the sale of the said Business such Agreement to be in the form of the standard Agreement offered by the Franchisor to its Franchisee's current at that time; (2) The conditions required to obtain the written consent of the Franchisor to the sale of the Franchisee's Business shall be: ● (a) any proposed purchaser shall meet

the Franchisor's standards in all respects; ● (b) the Franchisee shall pay to the Franchisor the sum of 20% of the sale price if the Franchisor has introduced the purchaser, and 5% otherwise (except that where the Franchisor exercises these options under Sub-Clause (3) below to purchase the business, no such payment shall be due to the Franchisor); ● (c) the Franchisee must not be in breach of any obligations to the Franchisor under the terms of this Agreement; ● (d) the sale must be completed in time to enable the Franchisor to enter into a replacement Franchise Agreement with the purchaser before the expiry of this Agreement.

(3) (a) the Franchisee shall submit to the Franchisor a copy of the proposed purchaser's written offer (the Purchase Offer) to purchase the said Business from

the Franchisee together with a financial statement of affairs and a business history of the proposed purchaser and any further information which the Franchisor may reasonably require; (b) upon receipt of the Purchase Offer accompanied by such items the Franchisor shall have in addition to its other rights hereunder, an option to purchase the said Business for the same amount and on the same terms as those set out in the purchase offer such option to be exercised by notice in writing given to the Franchisee within twenty-eight days after the receipt by the Franchisor of the purchase offer during which period the terms of the Purchase Offer can not be altered; (c) if the Franchisor does not exercise such option and consents to the proposed purchase a condition thereof is that the proposed purchaser shall deposit 25% of the purchase price with the Franchisor and that upon completion of the sale the purchaser shall pay the balance of the purchase price to the Franchisor's solicitor (as agent for the Franchisee) subject to a lien for any monies owed to the Franchisor by the Franchisee, and the Franchisor shall deduct from the said purchase price the amount of any unpaid obligations of the Franchisee to the Franchisor together with the amount due in accordance with this agreement and shall remit any outstanding balance of the purchase price to the Franchisee within thirty days after the date of the receipt of the final amount of the purchase price by the Franchisor; (d) if the sale of the business proceeds under (c) above, it is a condition of the

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consent of the Franchisor that the terms of the offer notice are the terms of the sale and if the sale price or any other significant term of the offer notice is changed the amended terms shall constitute a new offer notice which shall be submitted to the Franchisor to be processed under this subclause in place of the original offer notice.

(4) This Agreement is only granted to the Franchisee on the condition (which is of the essence of this Agreement) that it is granted to him as an individual person and if the Franchisee intends to change the structure of his trading style to a partnership or to a Limited Company or in any other manner it is agreed that any such intended change shall be deemed to be an assignment of this Agreement which shall require the prior written consent of the Franchisor under this Clause; (5) The Franchisor shall be entitled to assign the benefit of this Agreement to any other party at anytime and shall inform the Franchisee thereof in writing within a reasonable time thereafter.

15. The death of the franchisee In the event of the Franchisee dying during the period of this Agreement and if a replacement Franchisee nominated in writing by the personal representative of the Franchisee and who is acceptable to the Franchisor as set out in Clause 12 above enters into a written undertaking with the Franchisor within twenty-eight days from the date of the death of the Franchisee to observe and perform all the obligations imposed on the Franchisee by this Agreement then this Agreement shall continue in force with the substitution of

the new Franchisee. In the event of no replacement Franchisee being nominated or accepted or in the event of him declining to undertake with the Franchisor as aforesaid then: ● (a) The Franchisor shall manage the

business on behalf of the personal representative of the Franchisee until such time as a new Franchisee is appointed or the Franchisor terminates this Agreement pursuant to this Clause and during such management period, the Franchisor shall be entitled to the Caretaker fee specified in Schedule 4 below together with the cost of the travel accommodation and subsistence of any employee or other representative of the Company engaged in such management and entitled to 20% of the pre-tax profits of the business (such profits to be calculated in accordance with generally accepted accounting policies applied on a consistent basis). ● (b) Both the Franchisor and the Franchisee's personal representatives shall try to find a purchaser who shall be acceptable to the Franchisor and if a purchaser is found the Franchisor shall grant to him an Agreement according to Clause 12 above and the Franchisee's estate shall be entitled to such sum as the purchaser is willing to pay for the grant of such Agreement (after deducting 20% thereof which shall be payable to the Franchisor). ● (c) If such a replacement Agreement has not been entered into within six months from the date of the death of the Franchisee, the Franchisor shall have the option at any time thereafter to terminate this Agreement on paying to

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the Franchisee's personal representatives a sum equal to 5% of the annual turnover of the last accounting period.

16. Termination (1) The Franchisor may terminate this Agreement forthwith by notice in writing to the Franchisee: ● (a) If the Franchisee shall have committed

any material breach of his obligations hereunder or shall have failed to remedy any remediable breach within a period of twenty-eight days of the receipt of a notice in writing of the Franchisor requiring him to do so; ● (b) If the Franchisee shall commit an act of bankruptcy or have a receiving order made against him or make any arrangement or assignment with or for the benefit of his creditors or suffer distress or execution to be levied or threatened on any of its properties; ● (c) If any sum or document required under the terms of this Agreement is not paid or submitted at the latest within twenty-one days following its due date; ● (d) If the Franchisee ceases or takes any steps to cease his business; ● (e) If the Franchisee challenges the Franchisor's intellectual property rights.

(2) The termination or expiry of this Agreement shall be without prejudice to any rights and obligations conferred or imposed by this Agreement in respect of any period after such termination and shall also be without prejudice to the rights of either party against the other in respect of any antecedent breach of any of the terms and conditions hereof.

17. Post termination provisions (1) In the event of the termination of this Agreement howsoever arising. In order to protect the Franchisor's intellectual property rights and reputation: (a) the Franchisee shall forthwith return to the Franchisor all stationery and signs bearing the Marks then in its possession whether or not supplied by the Franchisor; (b) the Franchisee shall not at anytime thereafter: ● (i) disclose or use any confidential

information or Know-How related to the business acquired by him during or as a result of this Agreement (save that it shall be allowed to use such Know-How that has come into the public domain by means other than the Franchisee's breach); ● (ii) make any use of the Marks; ● (iii) purport to be a Franchisee of or otherwise associated with the Franchisor; ● (iv) use any recommendation or reference provided as a result of his work as a Franchisee; (2) The Franchisee shall not for a period of one year thereafter directly or indirectly be engaged concerned or interested in a business which competes with the Services within a radius often miles from the Premises (save for a financial interest which does not allow it to influence the economic conduct of such a business).

(3) The Franchisee shall not for a period of one year thereafter directly or indirectly be engaged concerned or interested in a business similar to the Business which operates within a radius of ten miles from

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any premises in the United Kingdom from which the Business is being carried on by any franchisee of the Franchisor or by the Franchisor itself (save for a financial interest which does not allow it to influence the economic conduct of such a business).

18. Copyright (1) The copyright and all other rights in the text of the Manual photographs all other documents supplied by the Franchisor and all secret or confidential information contained therein are the property of the Franchisor and the Franchisee undertakes not to copy the Manual photographs and other documents supplied by the Franchisor or to disclose any of its contents or concepts to any other party and not himself to make any direct or indirect use thereof otherwise in providing the Services.

(2) For the purpose of this Clause: ● (a) The Manual shall be deemed to

include the Manual as originally provided to the Franchisee together with all additions and amendments thereto from time to time; ● (b) Secret or confidential information shall include all confidential information provided to the Franchisee from time to time by memorandum or correspondence or otherwise howsoever appertaining to the provision of the Services and the business of the Franchisor (save for that which has come into the public domain other than through the Franchisee's own breach).

19. Entire agreement This Agreement and the Manual expresses the entire agreement between the parties

hereto which supersedes any other negotiations or agreements on the subject matter hereof and; ● (a) the parties confirm that the whole of

their negotiations and intentions have been included herein within the context of and expressing clearly the requirements of the parties. ● (b) there are no warranties representations or other matters relied upon by the Franchisee causing his signature hereto which have not been satisfied herein; ● (c) this Agreement shall not be modified in any way except by a written instrument signed by both parties hereto.

20. Waiver The failure of the Franchisor to exercise any power given to it hereunder or to insist upon strict compliance by the Franchisee with any obligation hereunder and no custom or practice of the parties shall constitute any waiver of any of the Franchisor's rights under this Agreement.

Waiver by the Franchisor of any particular default by the Franchisee shall not affect or impair the Franchisor's rights in respect of any subsequent default of any kind by the Franchisee nor shall any delay by or omission of the Franchisor to exercise any rights arising from any default of the Franchisee affect or impair the Franchisor's rights in respect of the said default or any default of any kind.

21. Severability If any item or provision contained in this Agreement or any part thereof (in this Clause called the "offending provision") shall be declared or become

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unenforceable invalid or illegal for any reason whatsoever including but not detracting from the generality of the foregoing a decision by the competent domestic or European courts an Act of Parliament, European Economic Community legislation or any statutory or other bye-laws or regulations or any other requirements having the force of law the other terms and provisions of this Agreement shall remain in full force and effect as if this Agreement had been executed without the offending provision appearing herein.

or of any other provision contained in this Agreement.

23. Improvements (1) The Franchisee shall use all reasonable endeavours to conceive and develop new and improved methods of carrying out the Services and improvements in the apparatus operating procedure and other additions or modifications to the Services (hereinafter referred to as "Improvements"). The Franchisee agrees to disclose fully any Improvements to the Franchisor and the Franchisor shall determine the feasibility and desirability of incorporating them into the relevant Services. Any non-patentable Improvement approved by the Franchisor may be used by the Franchisor and all Franchisees of the Franchisor without any obligation to the Franchisee for royalties or otherwise;

In the event that the exclusion of any offending provisions shall in the opinion of the Franchisor adversely affect either the Franchisor's right to receive payment of fees or remuneration by whatever means payable to the Franchisor or the Franchisor's Marks and Known-How methods of the business then the Franchisor shall have the right to terminate this Agreement on thirty days notice in writing to the Franchisee.

22. Warranties The Franchisee shall make no statements representations or claims and shall give no warranties to any customer or potential customers in respect of the Business save such as may have been specifically authorised by the Franchisor such authority to be given either in writing or in the Manual in force at the relevant time. The Franchisee hereby undertakes with the Franchisor to keep it fully and effectively indemnified against all claims demands losses expenses and costs which the Franchisor may incur as a result of any breach by the Franchisee of this provision

(2) The Franchisee shall give the Franchisor the right of first refusal at a fair price (to be fixed by an appropriate independent arbitrator in the event of disagreement) of all rights in any Improvement which is capable of being patented.

24. Force majeure This Agreement shall be suspended during the period and to the extent of such period that the Franchisor reasonably believes any party to this agreement is prevented or hindered from complying with its obligations under any part of it, by any cause beyond its reasonable control including but not restricted to strikes, war, civil disorder, and natural disasters. If such a period of suspension exceeds 180 days, then the Franchisor shall upon giving

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written notice to the Franchisee, be able to require that: ● (1) all money due to the Franchisor shall

be paid immediately, and ● (2) the Franchisee shall immediately

cease trading, until further notice from the Franchisor.

25. Arbitration If any dispute shall arise between the parties hereto concerning the construction interpretation or application of any of the provisions of this Agreement whether during the continuance of this Agreement or after the termination thereof by whatever cause such dispute shall be referred to the arbitration of a single arbitrator to be appointed by the President for the time being of the Law Society of England, provided always that this Clause shall have no application to terms of this Agreement concerning restrictions against competition and non-disclosure, and the parties hereto agree to be bound by the terms of such arbitration and to bear the costs of such arbitration in equal shares.

26. Definition Masculine includes the feminine and the singular the plural and vice versa and obligations undertaken by more than a single person including a company or firm are joint and separate obligations.

shall have been notified (in accordance with this Clause) by the party concerned as being its address for the purposes of this Clause. Any notice so sent by post shall be deemed to have been served two days after posting and in proving this service it shall be sufficient proof that the Notice was properly addressed and stamped and put into the post. Any notice sent by e-mail or fascimilie shall be deemed to have been served on the next day following the date of despatch thereof which is a business day.

Schedule One: “The Premises” Schedule Two: “The Marks” Schedule Three: “Payments” Schedule Four: “The Caretaker Fee” Signed for and on behalf of .......... Limited by ................................. ................................. ................................. .................................

27. Notices Any notice required to be given for the purposes of this Agreement shall be given by sending the same by prepaid First Class post, e-mail, to, or by delivering the same by hand at, the relevant address shown in this Agreement or such other address as 146

Director Witnessed by Signed by Witnessed by

Franchising a Business

Sample master franchise contract

T

his sample master franchise contract is for illustrative purposes only for both potential/existing master franchisees and franchisors alike.

It must not be used by any party seeking to buy a master franchise or master franchise their business without taking the author’s prior advice. See also franchise contract.

Author: Mark Abell, International Franchise Consultant Dated [

] 202[ ]

LES PIEDS D’OR LIMITED – and – SHAKE-A-LEG LIMITED

MASTER FRANCHISE AGREEMENT THIS AGREEMENT is made the [ ] day of [ ] 202 [ ] BETWEEN LES PIEDS D’OR LIMITED whose registered office is situate at [15 Bugle Street, London EC1 2AA] (hereinafter called the “Franchisor”) and SHAKE-A-LEG LIMITED whose registered office is situate at 15 Orchard Road, Singapore (hereinafter called the “Master Franchisee”).

WHEREAS: (A) The Franchisor trading as “Tootsies” has established a reputation and demand for high quality mobile unisex foot restoration services (the “Services”) within the United Kingdom.

(B) The Franchisor, through its extensive research and practical business experience 147

has developed secret, substantial and identified know-how which forms a system as described in this Agreement (the “System”) for the profitable operation of the Services, a written record of which is contained in the Franchisor’s operational manual (the “Manual”) and which is the Franchisor’s sole property.

and financial management; the Know-how is useful for the franchisee by being capable, at the date of conclusion of the agreement, of improving the competitive position of the franchisee, in particular by improving the franchisee’s performance and helping it to enter a new market.

(F) “Identified” means that the Know-how is described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantially.

(C) “Know-how” means a package on non patented practical information, resulting from experience and testing by the Franchisor, which is secret, substantial and identified.

(G) The development of the System is by virtue of having acquired knowledge and international experience and skill in electro and hand massaging, oiling, manicuring, tanning and otherwise beautifying tired and aching feet at the clients home or work place and other activities related to the same, including (amongst other things) water and air jetting of every description.

(D) “Secret” means that the Know-how, as a body or in the precise configuration and assembly of its components, is not generally known or easily accessible, it is not limited in the narrow sense that the individual component of the Know-how should be totally unknown or unobtainable outside the Franchisor’s business.

(E) “Substantial” means that the Know-how includes information which is of importance for the sale of goods or the provision of services to end users, and in particular for the presentation of goods for sale, the processing of goods in connection with the provision of services, methods of dealing with customers, and administration

(H) The Franchisor now wishes to further extend the Services on a world-wide basis, and in particular to establish them in Singapore (the “Territory”).

(I) The Franchisor owns in the Territory and other places including France, Italy and Belgium the registered and unregistered

About the author

Dr Mark Abell LLB has been acknowledged as a world leading expert in franchising for over 40 years.

Abell now works with a select portfolio of world leading franchise brands on the development and implementation of their international and domestic strategies.

DrMarkAbell2022@gmail.com 148

1. Rights granted (1) Subject to and in accordance with the terms hereof the Franchisor hereby grants to the Master Franchisee:-

Trade and Service Marks listed in Schedule I (collectively known as the “Marks”), used in relation to and in connection with the Services. In addition, the Franchisor owns valuable goodwill in slogans, distinctive motor vehicle markings and other identifying characteristics.

● (a) The exclusive right to carry on the

Business within the Territory. ● (b) The right to use in the Business the

(J) The business of providing the Services in accordance with the System under the Marks is hereinafter referred to as the “Business”.

(K) The success of the Franchisor within the Territory depends amongst other things upon the provision by the Master Franchisee and its Franchisees of a prompt efficient and satisfactory and courteous service to the public using the materials which are the subject matter of the franchise and detailed in Schedule II hereto and the Equipment, which is also detailed in Schedule II hereto, and upon the vigorous cultivation and extension by the Master Franchisee of the market for the Services.

The Franchisor is entering into this Agreement upon the Master Franchisee’s assurance that it will be committed to developing the Business within the Territory.

(L) The Master Franchisee has no prior experience of foot restoration services but desires the right to develop the Business within the Territory, including the rights granted in Clause 1 below.

NOW IT IS HEREBY AGREED AS FOLLOWS:-

Marks and other symbols, insignia, distinctive designs and plans or specifications owned or authorised to be used by the Franchisor together with the benefit of the accumulated experience and knowledge relating to provision of the Services.

(2) The Master Franchisee shall not hold itself out as being the agent or partner of the Franchisor, or as being entitled to pledge the credit of the Franchisor, and will identify itself as an independent undertaking in all dealings with third parties and on all stationery, signs and other object bearing the Marks.

2. Term This Agreement shall, subject to the provision of termination below, subsist for a period of ten years commencing on the [ ] day of [ ] 202( ), or immediately upon the Master Franchisee obtaining any relevant consents and/or filing any relevant registrations, whichever is the later, subject to Clause 5(b) below.

3. Franchisor’s initial obligations In order to assist the Master Franchisee in launching the Business in the Territory, the Franchisor will, in addition to the training to be provided pursuant to Clause 6 hereof, provide to or make available to the Master Franchisee the following:-

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● (a) Advice in regard to the establishment

and efficient operation of the Business and in particular the first Franchise unit to be established within the Territory. ● (b) Operational support for a period of [ ] months from the [ ] day of [ ] 202( ), by providing such suitably qualified staff in such numbers and for such periods as the Franchisor shall reasonably consider necessary to assist the efficient launch of the Business in the Territory.

4. The franchisor’s continuing obligations To assist the Master Franchisee in conducting the Business, the Franchisor will, in addition to the training to be provided pursuant to Clause 7 hereof, provide or make available to the Master Franchisee the following:● (a) The continual up-date if any

alterations and/or improvements in or to the System, to enable the Master Franchisee to keep the Manual up to date. In the event of any dispute, the authentic text of the Manual shall be the copy kept as such by the Franchisor at its head office. The Manual shall at all times remain the property of the Franchisor.

The Master Franchisee hereby acknowledges that the copyright in the Manual is invested in the Franchisor. ● (b) Copies of all other advertising materials suitable for use in the Territory. ● (c) At the Master Franchisee’s reasonable written request, advice Know-how and guidance in such areas as management, finance and promotion of the Business and any equipment to be employed in connection therewith. ● (d) Two visits per annum (not exceeding

10 days per visit) by such members of the Franchisor’s staff as the Franchisor shall, after consultation with the Master Franchisee, consider appropriate for the purpose of monitoring the standards of the Master Franchisee and any franchisees. ● (e) Up to date information regarding all conventions, seminars, franchise meetings organised by the Franchisor or any other Master Franchisees of the Franchisor, and permit or arrange for the Master Franchisee at its own expense to attend such events. No charge will be made by the Franchisor or other Master Franchisees of the Franchisor for attendance at conventions, seminars or meetings. ● (f) Not to sell the materials or equipment to third parties in the Territory. ● (g) Not itself to exploit the franchise or market the services, materials or equipment in the Territory under a similar formula. ● (h) Not grant the right to exploit all or part of the franchise in the Territory to third parties.

5. Master franchisee’s obligations In order to protect the Marks and maintain the identity and reputation of the franchised network, the Master Franchisee agrees to:● (a) Ensure that it has adequate finances

including working capital to discharge its obligations under this Agreement. ● (b) Register this Agreement with any relevant authorities, and obtain any necessary governmental or other comments as soon as possible, and in any event within 2 months of the date of the execution of this Agreement.

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● (c) Within three months of the date

hereof or of the Master Franchisee obtaining any necessary governmental or other comments, whichever is the later to commence the Business within the Territory through a Franchisee as herein specified. ● (d) Check, on a monthly basis, that all Franchisees are fulfilling their duties and obligations as contained in the relevant Franchise Agreement, and take all such reasonable steps as the Franchisor may require, to ensure that such duties and obligations are fulfilled. ● (e) Provide sufficient organisation to enable the Franchisees to carry on the Services in the Territory on a 24 hour a day basis, seven days a week, including holiday periods and bank holidays, and carrying out checks as to efficiency, as prescribed from time to time by the Franchisor. ● (f) At all times to use the Marks in the Business and to maintain the high standards associated with the Marks. ● (g) Use best endeavours to increase the profits of the Business and provide the services. ● (h) Not to bring the Services, System or Business into disrepute. ● (i) Use all reasonable efforts to ensure that Franchisees deal fairly and honestly with all customers, handle all customer complaints speedily and fairly. Render prompt workmanlike, courteous and willing service and conduct the Business in such a manner as not to detract from or bring into disrepute the marks. ● (j) Hold any additional goodwill generated by the Master Franchisee as bare Trustee for the Franchisor. ● (k) Obtain a signed confidentiality

undertaking in the form of a draft undertaking set out in Schedule II hereto from each employee present and in the future within 2 weeks from the date of commencement of employment or of the date of this Agreement, which ever shall be the later. ● (l) Comply with all statutes, bye-laws and other regulations or requirements from time to time in force relating to the operation and conduct of the Business, with particular regard to ensuring that all statutory requirements as to safety standards and precautions are observed at all times. ● (m) Comply with all procedures which the Franchisor may from time to time lay down for its Franchisees in order to ensure compliance with obligations advertised by the Franchisor and to assist in promoting the standard of the Services and the market for them. ● (n) Permit the Franchisor and any person authorised by the Franchisor at all reasonable times to visit any premises from which the Master Franchisee administers the supply of the Services for the purpose of checking the quality of the Services being supplied and the manner in which the Business is being carried on and of inspecting the apparatus being used in connection with the Business. ● (o) Maintain proper books of account as directed by the Franchisor, and preserve them for at least 3 years after the end of the relevant financial year. Such books of account shall include all supporting documents and correspondence relating to the Services which shall be made available to the Franchisor and any person authorised by it at such times and

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place as the Franchisor may reasonably require for the purposes of inspecting the same.The Master Franchisee shall permit the Franchisor and any person authorised by it to enter at all reasonable times and upon reasonable notice upon the premises on which may be any such book of account voucher supporting document or correspondence. ● (p) Ensure that all Franchisees correctly return their gross income figures and return these together with the Master Franchisee’s own correct gross income figures to the Franchisor. ● (q) Provide to the Franchisor:(i) As soon as the information is available to the Master Franchisee details of costings, pricings and techniques utilised in respect of carrying out unusual or distinctive types of work; (ii) Upon request by the Franchisor information in respect of the Master Franchisee’s and Franchisees’ employees’ wages structure, over-head expenditure, trading profits and all incoming telephone calls from Customers and prospective Customers. ● (r) Further, not acquire any financial interests in the capital of a competing undertaking which would give the franchisee the power to influence the economic conduct of such an undertaking. ● (s) Not furnish any information as to the methods of operation, publicity, profits, financial affairs, present or future plans or policies of the Franchisor or any other information relating to the operation of the Franchisor. ● (t) Not be engaged in any similar business directly or indirectly which may compete with the Services or any part of

them in the Territory or in any other area where it may compete with a member of the franchised network. ● (u) Ensure that only the Equipment specified in Schedule III (as from time to time amended by the Franchisor) are used in the Business, unless in any particular case, a Franchisee can demonstrate beyond reasonable doubt that an alternative uniform item of at least the same standard is available elsewhere on more favourable terms. If such an alternative supply is found by a Franchisee, it may purchase the equipment and/or materials on those more favourable terms. ● (v) Trains its own staff and Franchisees in the operation of the System in all its aspects, in the case of Franchisees to such a standard that will discharge the training obligations of the Franchisor under the Agreement. ● (w) Not engage or seek to engage in the manufacture, sale or use of Materials which compete with the Materials. ● (x) To sell the Materials only to franchisees, end-users, other subfranchisors and resellers within other channels of distribution supplied by the Franchisor or with its prior written consent. ● (y) Use its best endeavours to keep a minimum stock of the Materials as stated in Schedule III hereto. ● (z) Communicate to the Franchisor any experience gained in exploiting the franchise, and other franchisees nonexclusive Know-how resulting from that experience.

6. Target In order to protect the Franchisor’s

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intellectual property rights and maintain the common identity and reputation of the franchised network the Master Franchisee shall use best endeavours to open, through its Sub-Franchisees, at least ten new outlets for the Services within one year of the date of this Agreement.

In the event of the Master Franchisee failing in any year to use best endeavours to open the outlets stated in this clause, the Franchisor may within 90 days from the end of the relevant year serve a notice in writing on the Master Franchisee terminating its right to open any future outlet other than ones in respect of which a Franchise agreement has previously been granted.

7. Initial training (1) The Franchisor will train the Master Franchisee’s initial General Manager in the operation of the Services. The training course will last for a period of two working weeks, and will be conducted at such place or places in Europe as the Franchisor shall require.

(2) The Franchisor shall also train the proprietors or General Managers of the Master Franchisee’s first five Subfranchisees. The training course will be conducted in English, will last for a period of two working weeks, and will be conducted at such place or places in Europe as the Franchisor shall require.

● (a) The full salary of their respective

General Manager ● (b) The return business class air fare and

all other reasonable travel expenses to, from and within the place of training of the Master Franchisee’s General Manager and the proprietor or General Manager of the Franchisees ● (c) Reasonable hotel accommodation plus the cost of food and other expenses properly incurred by the General Manager and Sub-Franchisees’ General Manager or Proprietor ● (d) All other incidental expenses.

8. Continuing training The Franchisor will train any replacement General Manager of the Master Franchisee in the operation of the Services. The training course will last for a period of two working weeks, and will be conducted at such place or places in Europe as the Franchisor shall require.

9. Franchise and management service fees (1) The Master Franchisee shall pay the Franchisor in pounds sterling the sum of £10,000 net of tax by way of initial fee payable as to:● (a) £5,000 on the execution of this

Agreement; ● (b) £2,500 three months after the date of

the execution of this Agreement; ● (c) £2,500 six months after the date of the

(3) The cost of the training shall be covered by the Management Services fee described in Clause 9 below. The Master Franchisee and the relevant SubFranchisee shall be responsible for the payment of:-

execution of this Agreement.

(2) The Master Franchisee shall pay to the Franchisor a franchise fee at the rate of 10 per cent of the total value (excluding Value Added Tax) of all invoices rendered by the 153

Franchisees during each accounting period before deduction of any taxes (other than Value Added Tax) expenses, commissions or other charges or debits whatsoever. The Master Franchisee shall also pay any Value Added Tax properly chargeable by the Franchisor on the said Franchise fee.

(3) The accounting periods in any year shall be periods of one calendar month.

(4) The Franchise fee shall be paid monthly by the Master Franchisee to the Franchisor in pounds sterling on or before the 10th day of the month following the month to which the fees relate.

(5) In the event of any default in the payment of any sum which may be due to the Franchisor by the Master Franchisee, the Master Franchisee shall, without prejudice to any other remedy that the Franchisor may have under this Agreement, or at law, pay to the Franchisor interest at the rate of 2 per cent per month, or part of a month, on the amount of any sums due but not paid, whether before or after judgment.

10. Invoicing The Master Franchisee undertakes:● (a) to provide the Franchisor not later

than ten days after the end of each monthly accounting period, with a written detailed summary showing the aggregate and gross invoice value of all Services provided by the SubFranchisees during such period. ● (b) The Master Franchisee shall diligently monitor the financial performance and accuracy of invoice returns of all SubFranchisees.

● (c) The Master Franchisee shall within

ninety days after the end of each financial year of the Sub-Franchisee submit to the Franchisor a period balance sheet and profit and loss account certified by an independent accountant (approved by the Franchisor) relating to the Business. ● (d) The Master Franchisee shall collect from all Franchisees within ninety days after the end of their respective financial years a balance sheet and profit and loss accounts certified by an independent accountant, and forward the same to the Franchisor.

11. Promotion and advertising In order to protect the Franchisor’s intellectual property rights and maintain the identity and reputation of the franchise network the Master Franchisee shall establish and maintain an advertising and promotion fund for the promotion of the Services within the Territory by imposing an advertising levy upon all Franchises of 1.5 per cent of their respective gross turnover, payable in the same manner as the Franchise fee specified in Clause 9(2) above.

12. The marks (1) The Master Franchisee shall join the Franchisor in making any applications for the Master Franchisee to become a registered User. The Master Franchisee shall also ensure that at the Franchisor’s request the Sub-Franchisees shall apply for and become Registered Users of the Marks.

(2) The Master Franchisee acknowledges that it holds the use of the Trade Marks for

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the benefit of the Franchisor and undertakes to assign to the Franchisor any such rights therein which it may acquire upon being requested to do so by the Franchisor.

(3) The Master Franchisee shall at the Franchisor’s request enter into a Registered User Agreement with the Franchisor, in the form annexed hereto as from time to time reasonably amended by the Franchisor, and shall procure that each Sub-Franchisee shall do so.

(4) The Franchisor and the Sub-Franchisee shall co-operate in taking whatever steps are reasonably necessary to defend the Marks or the Franchisor’s assertion of rights over the Marks.

(5) The Franchisor gives no warranty that the Marks cannot be set aside.

(6) The Master Franchisee shall notify the Franchisor of any suspected infringement of the Marks or other rights of the Franchisor within the Territory and at the expense of the Franchisor to take such reasonable actions thereupon as the Franchisor directs.

(7) The Master Franchisee shall have the right to challenge the validity of the Marks subject to the Franchisor’s right to terminate the agreement as detailed in Clause 15(f) below.

13. Audit (1) The Franchisor or its Auditor or authorised representative shall be entitled to inspect and audit the books of account and all supporting documentation of the

Master Franchisee relating to the Master Franchisee’s Business at any time in respect of the whole or any part of the period of this Agreement and within six months after the receipt by the Franchisor of the audited account for the year or other period of this Agreement up to the termination of surrender of this Agreement or sale or transmission of the Master Franchisee’s Business to a new Master Franchisee by the Franchisor giving written notice to the Master Franchisee such inspection or audit to be during reasonable business hours.

(2) If the audit (or any other periodic inspection not being a full audit) shows that the accounting of the Master Franchisee as to the calculation of the Franchise fee and/or any other financial matter is incorrect, the Master Franchisee undertakes promptly to rectify the defect in the amount accounted for (together with interest on any sums outstanding, at the rate of 2 per cent above the base rate of National Westminster Bank Plc from time to time) and/or the accounting system defect as the case may be.

14. Termination (1) The Franchisor shall have the right to terminate this Agreement, subject to Clause 15(2) below, without prejudice to any other rights or remedies available under this Agreement, if the Master Franchisee shall; ● (a) Fail to commence the Business within

the period of three months from the date of this Agreement. ● (b) Neglect or fail to perform or observe any of the obligations or conditions undertaken by the Master Franchisee.

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● (c) In its franchise application or

supporting details have provided the Franchisor with information which contains any materially false or misleading statements or omits any material fact which may make any statement misleading. ● (d) Pass a resolution of Voluntary Winding-up (other than for amalgamation or reconstruction) or shall have a Petition of Winding-up presented against it or shall call a meeting of its creditors, or receivers, shall be appointed over its assets. ● (e) Not pay or submit any sum or document required under the terms of this Agreement at the latest within twenty-one days following its due date. ● (f) Cease or take any steps to cease the business. ● (g) Cause the Franchisor to suspect on reasonable grounds that any confidential information concerning the Franchisor’s Business or particulars of any communication from the Franchisor to the Master Franchisee or his agents has been disclosed to third parties, and the Master Franchisee cannot reasonably satisfy the Franchisor that this is untrue. ● (h) Challenge the validity of the Marks.

(2) (a) In the case of any default neglect or failure (which is capable of remedy) affecting the quality of the Services provided to the Customers, the Franchisor shall have the right to terminate the agreement if only the Master Franchisee fails to remedy such defect neglect or failure to the Franchisor’s reasonable satisfaction within 48 hours of the written notice thereof from the Franchisor. ● (b) In the case of any other default

neglect or failure the Franchisor shall have the right to terminate the agreement only if the Master Franchisee fails to remedy it within ten days of the written notice thereof from the Franchisor. ● (c) In the case of persistent default neglect or failure, the Master Franchisee shall not be entitled to any period of grace within which to remedy any neglect default or failure. If any default neglect or failure occurs more than twice in any period of twelve consecutive months, this shall be deemed to be a persistent default, failure or neglect.

15. Consequences of termination Upon the termination of this agreement: (a) The Master Franchisee undertakes: ● (i) To cease forthwith to advertise or

make use of the Marks and to return to the Franchisor all copies and translation of the Manual and all stationery documents, promotional materials, signs and other items then in its possession or under its control owned by or relating to the Franchisor or the Services or the Business or the Marks whether or not they shall have been supplied by the Franchisor and the Franchisor shall have the right to enter upon the premises of the Master Franchisee to ensure that all of the obligations of the Master Franchisee howsoever arising are being complied with. ● (ii) To take all such steps as the Franchisor may reasonably require to ensure that the Master Franchisee is removed from the Trade Marks Register as a Registered User, and ● (iii) To pay to the Franchisor any and all

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sums due at or after the date of termination to the Franchisor howsoever arising and without any right of deduction or set-off, and thereafter to pay to the Transferor any sums subsequently discovered to be due to the Franchisor arising out ● (iv) To return to the Franchisor all manuals, service specifications, bookkeeping and accounting procedures in its possession and not to keep any copies thereof.

the Franchisor or its nominee (but subject to the Franchisor or its nominee assuming the future burden thereof) all Franchise agreements granted by the Master Franchisee including those granted to subsidiaries of the Master Franchisee.

(b) The Master Franchisee undertakes not at any time thereafter:● (i) To disclose to any third party or directly or indirectly to make use of the Manual or of any confidential information, trade secrets or Know-how relating to the Business, the System, the Services or the Franchisor acquired by the Master Franchisee during or as a result of this Agreement except that which has become generally known or easily accessible other than by breach of an obligation by the Master Franchisee. ● (ii) To make use in any manner of the Marks or any name, slogan or device similar thereto or which may be confusing therewith or which may reasonably be considered to impute an association therewith. ● (iii) To purport to be a Master Franchisee of or otherwise associated with the Franchisor or advertise or promote itself as having been a Master Franchisee of the Franchisor. ● (iv) To use directly or indirectly any of the Franchisor’s (c) The Master Franchisee shall immediately upon termination assign to

(d) The Master Franchisee shall immediately upon termination cease trading as a franchisee in all Company owned operations, unless the Franchisor shall specifically agree, and the Franchisor or a nominated Area Master Franchisee enters into a unit Franchise Agreement with such operations. (e) The Master Franchisee shall not for one year after termination directly or indirectly be connected with a business in the Territory similar to the Business nor otherwise compete with or assist anybody else to compete with the Franchisor nor its Area Master Franchisee or Franchisees in the Territory. (f) The Master Franchisee shall not within the Territory at any time solicit customers of the Franchisor or of any franchisee of the Franchisor (or of a Master Franchisee appointed by the Franchisor). (g) The Master Franchisee shall not at any time use or duplicate the Business or the System or any part thereof. (h) In order to ensure that each and every part of this clause shall be carried out by the Master Franchisee, the Master Franchisee hereby grants to the Franchisor in accordance with Section 10 of the Power of Attorney Act 1971 the power to take as the Master Franchisee’s Attorney any

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action necessary to ensure the Master Franchisee’s compliance with this Clause.

Modern Slavery Act and will not be directly or indirectly involved in the use of child labour or modern slavery or be involved in human trafficking;

16. Assignment by franchisor The Franchisor shall be entitled to assign the benefit of this Agreement to any other party at any time, subject to the Assignee assuming responsibility to discharge the Franchisor’s obligations to the Master Franchisee and the Franchisor shall inform the Master Franchisee thereof in writing within a reasonable time thereafter.

17. Anti-Bribery and Modern Slavery The Master Franchisee will not (and will procure that no person acting on its behalf shall) directly or indirectly make or facilitate: ● (a) any expenditure for any unlawful purposes in connection with the Franchisor‘s Business or in connection with any activities in relation thereto; nor ● (b) any offer, payment or promise to pay any money or to give anything of value to any government official, political party or any other person with a view to influencing any action or decision of such person; nor ● (c) commit or consent to or participate in any other way in any act of bribery (howsoever called) under the laws of any jurisdiction.

The Master Franchisee will comply with all applicable legal requirements and our policies against corrupt business practices, money laundering and facilitating or supporting persons who conspire to commit crimes or acts of terror against any person or government.

The Master Franchisee will comply with the

18. Data Protection In accordance with the requirements of the Manual (including privacy policies and standards), the Master Franchisee will maintain a customer database containing all Customer Data and you will accurately record on the customer database prescribed by us for use in Your Franchise Business the Customer Data of all persons who supply such information or details to you or whose information and details you obtain, when such person purchases, or makes enquiries in relation to Your Franchise Business in such a way as to allow the transfer of such Customer Data to us for the purposes of: ● (d) contacting those persons and making them offers subject to the declared preferences of such persons; ● (e) conducting quality control activities; and ● (f) maintaining a database of all Your Franchise Business's customers.

For the purposes of Applicable Data Protection Law, the Master Franchisee acknowledges that the Franchisor and the Master Franchisee will each be acting as separate data controllers in respect of the Customer Data collected for the purposes of this Agreement.

As a data controller, the Master Franchisee shall comply with the provisions of all applicable privacy and data protection laws, regulations or best practice (including without limitation the Applicable Data

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Protection Law) in the use and processing of any Customer Data and take such steps as shall enable the compilation, processing and use of the databases referred to or created pursuant to the provisions of this Agreement.

ANNEX 1 Franchise agreement ANNEX 2 Registered user agreement

19. Arbitration Standard clause.

SCHEDULE I The marks “Funky Feet”

20. Notices Standard clause.

SCHEDULE II Confidentiality undertaking

21. Applicable law Standard clause.

SCHEDULE III Equipment (1) 2 X MARK V ISOTONIC FOOT WAGGLER Manufactured by F Heicder GMbH of Germany (2) 5 X TINY TIMMY TOE TONER Manufactured by Berkinsmaw & Co Ltd of UK (3) 3 X BENIGN – ANKLE BOOSTERS Manufactured by G E Rookey & Sons Ltd of UK (4) 2 X A1500 NAIL SCRAPPERS Manufactured by G E Rookey & Sons Ltd of UK

22. Language Standard clause.

23. Whole agreement Standard clause.

24. Force majeure Standard clause.

AS WITNESS the hands of the parties hereto the day and year first before written: For and on behalf of the Franchisor Director ………………………………………

Director ………………………………………

For and on behalf of the Master Franchisee Director ………………………………………

Director ………………………………………

Materials Minimum stock (1) Les Pieds D’or Early day foot lotion …...…… 10,000 packs (2) Les Pieds D’or Oily boy toe tonic ….......…… 15,000 packs (3) Les Pieds D’or Eau d’ankle ……................…. 10,000 packs (4) Les Pieds D’or Big toe grease mix ….....…… 15,000 packs

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