Pitfalls of franchising and how to avoid them

Pitfalls of franchising and how to avoid them

By Matthew Poli, Director at iLaw

Starting a business from scratch can be stressful, so it is easy to see the appeal of joining a franchise. Similarly, if you already own an existing brand and want to expand, but don’t necessarily want to take the risk on your own setting up a franchise can be an effective way of growing your business.

Of course, each of these scenarios brings with it some unique challenges that aren’t faced by those operating on their own.

To help franchisees and franchisors gain a greater appreciation of the challenges they face, we have put together a list of some of the common pitfalls that they face.

Research 

Franchisees

Entering a franchise can feel like stepping into the unknown, even when it is an established brand. The level of investment required can differ greatly from franchise to franchise, so it is important to find out the total start-up and franchise fee. You need to be clear on how much you are willing to put in and anticipated returns.

Franchisors

It may seem like franchisors are willing to just let anyone join as long as they have the required capital, but this is rarely the case. You are, after all, handing your brand over to someone who is unknown and it is easy for them to devalue or compromise your intellectual property. You should take time to find out about the person looking to take the franchise; whether they have previous business experience and whether they have been successful or not. If it doesn’t feel right then it is OK to reject their application, as long as it is on legitimate grounds.

Talk 

Franchisees

Franchisors will often offer to introduce you to other franchisees. This will be a good opportunity to find out more about what is involved, but take everything with a pinch of salt. They are likely to only want to introduce those who have achieved success. Ask existing franchisees what the franchisor’s support is like and if the turnover/profit projections are realistic. If possible, try to speak to less successful franchisees to find out if it is an issue with them or the franchise itself that is holding them back.

Franchisors

It is strongly encouraged that you open up a clear dialogue early on with those interested in joining your franchise. This is an opportunity to learn more about them, their level of risk and their ability to continually invest in the franchises they hope to open. You need to ensure that you can work with them regularly; a clash of personalities may be an early sign that things may not work out.

Support 

Franchisees

Most franchisors offer training and support to ensure the business has the best chance of success, but this can vary in its intensity, and may be charged for. Make sure that you are being offered sufficient support and training by the franchisor to meet your needs and level of experience.

Franchisors 

Training is an important element in protecting your brand and reputation. It is one area where you can ensure that the message of compliance is driven home, so ongoing support should be offered alongside a regular schedule of assessment. The most successful franchises, like of McDonalds and KFC, do this particularly well and have invested significantly in their support structures.

Be Aware of Fees and Costs

Both parties 

As well as an upfront fee, franchisors tend to charge a management service fee, which will usually be collected either as a percentage of monthly turnover or via the supply of the raw materials used to produce saleable products. They may also impose conditions on the sale of the franchise, for instance the requirement to pay a fee to obtain their consent to transfer the business.

Both parties need to clearly understand the structure and level of fees and agree on them. This should include a breakdown of what the franchisee will receive in return.

Many franchisees are surprised at the cost of getting their business off the ground and tend to fail to consider the cost of training and marketing, which are often part of the fee structure within franchises.

Franchise Agreements 

Franchisees

Franchises are often built around a strict set of guidelines and rules, which tend to be agreed upon via a franchise agreement. This will also include details of the fee structure that has been agreed and will often also mention expectations of the franchisee, such as not bringing the brand into disrepute.

These legally binding contracts can run for a term of five years or more. As such they can contain procedures for the early termination of the franchise relationship, similar to a break clause that will allow a franchisor to remove the right to operate under their brand.

Similarly, it may include a clause that allows a franchisee to sell their franchise or depart early, but this could result in a financial penalty.

The agreement may seek to make you personally liable (should you chose to enter into the franchise agreement through a limited company), not only for past-due royalties and advertising fees, but also any damages related to your franchise so you must have the agreement review carefully by a solicitor with experience in this area.

Franchisors

Franchise agreements are an essential part of franchising your business and will dictate how you can manage the franchisees within your group. It is, therefore, essential that they are robust and comprehensive.

Many franchisors have fallen foul of UK competition law by imposing conditions that prevent franchisees from being competitive this includes dictating the prices at which franchisees can sell their products or services or prohibiting them from selling online.

Many websites offer free templates for you to use, but these may not take into consideration the particular needs of your business, so it is best to seek independent legal advice if you are considering creating a franchise.

How iLaw can help

Whether you are looking to establish a franchise as an expansion of your own business or if you are looking to join an existing franchise as a franchisee, you must seek independent legal advice. We have helped with the creation of franchises in several sectors and can help with a variety of matters. Please contact us today to find out how we can support you.

iLaw gets behind innovative art installation at the RSA

iLaw gets behind innovative art installation at the RSA

City of London commercial legal firm iLaw is focused on assisting some of the UK’s most innovative projects and companies, which is why it has pledged its support to a new art exhibition The Enki Experience at The Royal Society of Arts (RSA).

The new art installation will be available to view for the next 12 weeks at the RSA and focuses heavily on the concept of sustainability and purpose beyond profit.

As part of its mission to invest in projects that seek to advance discussions on a broad range of topics, iLaw is excited to be teaming up with sculpture Ellen Mulcrone and Alex Lambie – the entrepreneur and multi-media artist behind the campaign.

The exhibition is made up of a distinctive wooden sculpture, as well as audio recordings and sounds that seek to engage guests on the issues that face the modern world, including the pressures placed on corporate entities to balance the needs of shareholders, employees and the wider environment.

Speaking about the exhibition, Alex Lambie said: “ This installation opens a programme of work to engage individuals, communities and businesses with concepts, tools and practices that offer alternatives to the rivalry and greed through which consumer society has previously perceived problems and sought solutions.

“Our work shares a new prism through which to innovate with a true connection to compassion. iLaw’s support has been key to the development of this installation and further events starting in 2020”

Tom Clark, a Director at iLaw, said: “Commercially astute businesses are increasingly recognising the need to embrace sustainability and are under greater pressure from customers, shareholders and their peers to act ethically and ensure that the environment is considered in their actions.

“The Enki Experience takes a unique approach to this issue and we are proud to be sponsoring this forward-thinking and engaging exhibition.”

To raise awareness of the issues highlighted by the installation, the team behind the project hope to hold an event in 2020 aimed at organisations involved in corporate social responsibility and patrons of the arts.

To find out more about the Enki Experience, please visit https://www.withenki.org/rsainstallation

iLaw assists TV personality and entrepreneur, Spencer Matthews, with launch of low-alcohol drinks company

iLaw assists TV personality and entrepreneur, Spencer Matthews, with launch of low-alcohol drinks company

Spencer Matthews’ The Clean Liquor Company has released its first product, CleanGin, after seeking expert advice from innovative legal firm iLaw.

The London-based practice works with a variety of start-ups and entrepreneurs, assisting with the creation of contracts, the sourcing of funding, and importantly, the protection of intellectual property.

The experienced team at iLaw worked closely with Spencer and his team on a range of issues, including the registration of the brand’s trade marks, to ensure the product was delivered on time.

The firm was excited to work with the former reality TV star who created the “ultra-low” alcohol CleanGin. Bottled at 1.2 per cent ABV and containing only two calories per 25ml serving, the drink has been designed as a new healthy choice for the growing number of people seeking alternatives to high alcohol spirits.

Spencer Matthews, the founder of The Clean Liquor Company, said: “Sobriety is a lifestyle choice I made a few months before becoming a dad. I quickly realised that the drink choices for the sober curious were limited, mainly made of sugary and unhealthy options. So, I worked with a great team to build a premium no/low brand and flagship product that offers a new option for people.”

CleanGin will be available from January in nearly 500 Sainbury’s stores across the UK as well as being served in some of the country’s top pubs and clubs.

Justin Ellis, a Director at iLaw, said: “We work with a wide range of innovative brands that are fundamentally changing the sectors in which they operate. We have a passion for providing proactive, forward-thinking advice and support so it was great to team up The Clean Liquor Company, which is leading the way in the area of ultra-low alcohol beverages. We are delighted to see that the launch has gone so well and we look forward to providing ongoing support to this exciting brand.”

iLaw Employment lawyer responds to Com Res study on “sickies”

iLaw Employment lawyer responds to Com Res study on “sickies”

Com Res working with the BBC has released a report on “sickies”,which found that two in five adults would fake a sick day if they just needed a day off.

In response to this Julian Cox, Head of Employment at iLaw believes that the acceptance of sickie culture may just go beyond wanting additional days off and feels employers should take heed of this research.

Julian Cox, Head of Employment at iLaw, said: “As the evidence in this survey suggests, there may be a ‘sickie’ culture in many workplaces and that raises questions about why employees feel the need to have unauthorised time off, or feel that it is fair to do so.

“In today’s high strung work environment, it is important that employers speak with staff to find out what issues are affecting them, so as to provide solutions that would limit the number of sick days in a year. It is easy to trivialise the word sickie and assume that people are only using them to catch up on their favourite Netflix series or recover from a hangover, but there are many reasons for people pulling a sickie.

“For some, it may be that they experiencing a mental health crisis and do not feel they are able to have an open and honest conversation with their employer, while for others it could be related to issues with caring for another, such as a child or elderly relative.

“Although there are provisions in the law for these scenarios, sometimes employees are either unaware of these or feel that using them could have a negative impact on their career and employment.

“Tackling sickie culture is important due to the cost, disruption and lack of productivity it creates but If a company is experiencing a significant number of sick days then they may need to evaluate the work environment to remove the toxicity that leads to ‘sickies’.”

Top tips for avoiding contract disputes in the tech sector

Top tips for avoiding contract disputes in the tech sector

Contracts and projects in the IT, tech and telecoms industries can cause immense amounts of pressure for parties on both sides.

Due to the rapid changes in these sectors and the demand for improved services at a lower cost, many businesses face contract re-appraisals and re-negotiations, which can often lead to disputes and disagreement.

Regardless of your position within a dispute or your relationship to the project in distress, the main focus should always be to manage the situation effectively.

This is where it is important to have expertise and experience in dispute resolution at hand.

We have worked with a wide range of clients in these sectors on various disputes and conflicts and over many years.

Calling upon our considerable experience, we have put together a list of points for businesses to consider.

Make sure it is in writing 

It may seem obvious, but many intended agreements are made orally or in a very loose fashion on paper or via emails. These types of potential agreements may end up being deemed unenforceable, so far better to put the matter beyond doubt and prepare a carefully drafted, written contract.

This should set out what both parties envisage as the outcome of the contract and the responsibilities and obligations of each business. Contract law can be complex, as can the process of negotiation, so one should ideally take legal advice.

Obligations

Any contract should set out what is expected of each party and what the remuneration and consequences for failing to meet the obligations should be.

If an obligation is not laid out in a written contract, then it could be difficult or impossible to enforce it at a later date.

In addition, no business should accept any risk over and above that which it is comfortable with.

Laying the groundwork early on, and considering every likely scenario, will pay dividends should a dispute arise.

Be clear

The key terms should be drafted in simple and clear language.

Whether it is a service or goods which are being supplied, a written agreement should set out the parties’ expectations.  In the majority of situations a detailed specification will be required; otherwise there may well be a dispute at a later date as to what exactly was being sold.  Express clauses also need to be included dealing with matters such as performance levels and the timing of delivery.

Spell out clearly what processes will be used for monitoring and reviewing performance and what recourse there should be if the agreed standards are not met.

Exit Strategy

A contract should allow for early termination (particularly from the user’s point of view), by providing break clauses under which a contract may be ended.

Provision should also be made for early termination in the case of breach.

The parties will also want to agree which clauses of the contract, if any, shall continue post termination.  An example might be provisions concerning confidentiality or perhaps even some restrictions on the poaching of staff.

Maintain a record 

Where possible, all written correspondence between the parties should be kept and safely stored, with back-ups.

Should a dispute arise, or a relationship fundamentally breakdown, this may provide evidence that can be used to support arguments concerning the intention of the parties or the construction of clauses in the contract.  It will also assist in proving when complaints were made and what losses were suffered.

In the modern age, this may also include instant messaging logs and WhatsApp data. Where telephone calls are made instead of sending an email, make a note of the time called and what was discussed. This can help with recollection in future. If you are particularly concerned about your relationship with the other party, follow calls up with an email confirming everything relevant which was discussed.

Do research (due diligence)

In a world awash with information it has never been easier to access details about a potential business partner. Take time to make sure they have the necessary expertise and check whether they have the means to pay you for the work (or if you are the user, that the supplier has the means to pay compensation if something goes wrong). There is nothing wrong with asking for references or proof of previous results.

Changes 

Things can and do change during a contracted period of work. It is vitally important that any changes that are likely to affect the initial agreement are made in writing.  A clear process for “Change Control” should be included in the contract.  Among other things, this will set out what additional work is “in scope” and what is “out of scope”; the latter possibly attracting further charges.

Be level-headed

If you are running a business then it is reasonable to assume that you are emotionally invested in its success and so it is easy to see how disputes can become quickly heated. If possible, try to take a step back and keep level-headed. Don’t escalate a dispute if you don’t have to.

Indeed, the Courts have made it clear that they expect suppliers and users to try and work together to overcome problems which might occur.

Speak to us

One of the best ways to avoid disputes and litigation is to seek advice early on from professionals who understand your field. When iLaw was founded, it was created with a vision to help those businesses and entrepreneurs in the most innovative sectors to succeed.

By working with our clients, we have helped them to craft contracts that suit their needs and commercial goals. However, if things do go wrong then we have an outstanding record for negotiating settlements or enforcing our clients’ rights in Court.

To find out how we can help you to prevent disputes from arising, why not contact us