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As a business owner, you may consider becoming a franchisee. A franchise business model can be highly beneficial for your business. For instance, joining a successful franchise can give you access to more customers and information about a working business model. This article will outline what it means to become a franchisee, when it might be good for your business, and how to set up a franchise in the UK.
Is Becoming a Franchisee a Good Idea?
Joining a franchise by becoming a franchisee can be a good idea in several situations. First, being a franchisee will mean that you have access to your franchisor’s:
- business model;
- intellectual property; and
- knowledge.
Intellectual property is usually in the form of a trademark, copyright, or patent. Having access to a franchisor’s intellectual property will allow you to use their brand. This means that you can avoid the costly investment of setting up your own brand.
However, if you enter into a franchise agreement, you will have to pay royalties and an initial franchise fee to the franchisor. Therefore, if you consider using a franchise model for your business, you must ensure the benefits outweigh the costs. Entering into a poor franchise relationship can seriously hurt your business. Thus, you must guarantee that your franchise fees are not hurting your cash flow.
How Do I Become a Franchisee?
You should consider some key points if you are seriously considering opening a business as a franchisee.
Self-Evaluate
The first step is to ensure that you are ready to open a business as a franchisee. Most importantly, you must be comfortable with the fact that your business’ brand and image depends on the franchise network on the whole, rather than your performance within your individual business.
Do Your Due Diligence
Once you are sure you want to enter into a franchise agreement, you should do your thorough due diligence on the franchise. Due diligence refers to the detailed research process conducted as part of a business agreement.
This will include looking at financial documents such as financial statements and the franchise business’ assets and liabilities. In addition, before agreeing to join a franchise network, you may have access to a franchise disclosure document from the franchisor. This will outline key features of the franchise business as well as some of the operational areas that you can expect to be your obligations as a franchisee. These features include, items like, franchise fees, the structure of your royalty fees, and the finances of the franchisor’s business.
Sign the Agreement
The final step of becoming a franchisee is to sign the franchise agreement. This may be accompanied by the franchise disclosure document, which you should review thoroughly again to ensure it is consistent with any earlier disclosure reviewed as part of your research.
Before signing, you may also be able to negotiate the terms of the franchise agreement with the franchisor. For example, the franchise owner could be willing to negotiate royalty fees, among other things. However, if the franchise owner is too willing to negotiate franchise fees, that could be a red flag. For instance, it could signify that the franchise business is not a quality business model. As franchises rely on their proven business model, this could be problematic for you as a future franchisee of that model. It would be best to seek professional legal advice to protect your position at this stage.
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Key Takeaways
Franchise opportunities can be an effective way of growing a business. As a prospective franchisee, you must be familiar with why the franchisor’s business is a good product that suits you. Ultimately, the benefits from the franchise agreement must outweigh the cost of being a franchised business. As a result, if you want to set up a franchise business as a franchisee, you must carry out thorough due diligence before signing any agreement. This could include reading the franchise disclosure document carefully with an expert.
If you need help with setting up a franchise, 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.
Frequently Asked Questions
The franchise disclosure document is a document that the franchisor may give you alongside the franchise agreement. It will include several key features of the franchise agreement and the franchisor’s business, such as financial statements and your royalty fee obligations.
Due diligence is the process of research that happens in a business negotiation. You must carry out the due diligence process carefully, as it will inform whether the franchise opportunity matches what you are looking for.
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