Understanding Franchising With Examples

Franchising is a powerful business model that allows businesses to expand rapidly while sharing the risks and responsibilities of growth with franchisees. It can be a great way to grow your business if you already have a proven business model. However, the franchising model can often seem complex. This article will break it down, explaining the meaning of franchising and providing examples of the franchise model in practice. It will also share several crucial legal insights you should consider if you want to franchise your business. 

What is Franchising?

Franchising is an approach to business expansion in which the franchisor (the original business) permits independent operators (franchisees) to use their brand, business model, and operating systems. The franchisees operate their own locations within the franchisor’s established brand. 

The basis of the franchisor-franchisee relationship is a franchise agreement. As a franchisor, you must draft a robust franchise agreement, protecting your brand and business model. An expert franchise lawyer can help you do this. This legally binding contract outlines the rights and responsibilities of both parties. It typically includes details about the following:

• the franchise fee and ongoing royalties;
• use of intellectual property (such as brand names and logos);
• operational guidelines;
• training provisions; and
• termination and renewal conditions.  

For example, take McDonald’s. McDonald’s is one of the most successful global franchises. Franchisees pay an initial fee and ongoing royalties in exchange for the right to use McDonald’s brand, recipes, and operational methods. The franchise agreement also ensures cross-location consistency, which is why every McDonald’s looks and feels the same, regardless of location. 

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How Does Franchising Work?

Successful franchising relies on the concept of replication. The franchisor provides a proven business model, training, and ongoing support while franchisees invest in and directly manage their locations. Franchisees use the franchisor’s established methods and benefit from the credibility of an existing brand, while franchisors benefit from brand expansion with reduced capital investment. 

Since franchisees will use your branding, it is essential to protect your intellectual property (IP) through the following:

• trade mark and patent protection;
• explicitly outlining how franchisees can use your IP; and 
• including non-disclosure clauses in the franchise agreement to protect your trade secrets. 

For example, Subway franchises rely heavily on the brand’s well-known name, menu items, and distinctive marketing. The company has secured its brand’s trade marks and other vital elements through IP protection. Franchisees must adhere to specific guidelines about logos, colours, and even sandwich assembly methods to ensure consistency across all locations. 

Training and Support in Franchising 

Training and support are vital components of the franchising model. As a franchisor, you must provide your franchisees with the tools, training, and systems they need to replicate your business’s success. You must also offer support regarding aspects such as operational methods and marketing strategies. You will detail training programs and operational standards in the franchise agreement and operations manual.

For example, Costa Coffee provides extensive training to its franchisees, ensuring they meet the brand’s high standards for customer service, quality, and operational efficiency. The franchise agreement ensures that franchisees remain independent operators responsible for hiring staff and complying with relevant regulations. 

Managing the Franchise Relationship 

The long-term relationships between franchisors and franchisees require careful balance. Franchisors are independent business owners, and exercising too much control over your franchisees could blur the legal distinction between a franchisor-franchisee relationship and an employment relationship. In the UK, franchisees are independent business owners, not the franchisor’s employees. 

Moreover, disputes between franchisors and franchisees can arise over various issues. Your franchise agreement should include clear dispute resolution procedures to avoid conflicts escalating to costly litigation. Your franchise agreement must also outline the conditions under which you or your franchisee can terminate the franchise relationship. Reasons for termination may include:

• the franchisee’s repeated failure to meet performance standards; 
• breach of contract; or 
• insolvency. 

Key Takeaways

Franchising can enable you to grow your brand while sharing risks with franchisees. In the UK, several well-known businesses operate as franchises. These include:

• McDonald’s
• Subway; and
• Costa Coffee.

The success of a franchise business depends on several factors, including a robust franchise agreement, intellectual property protections, and the ability to manage your franchise relationships carefully. With these in place, you can set your franchise network up for long-term success. 

If you want to franchise your business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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