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How franchising works: the two sides of the story

Business-format franchising, according to the British Franchise Association (BFA), is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and make use of an entire business package.

Standards set by the British Franchise Association

It is a truism that the majority of franchisors that are able to join the BFA do so. The many benefits range from ongoing exposure to best practice and developments in the industry to being counted amongst the band of ethical franchise practitioners.

Franchise contract – the rights and obligations

The franchise contract is the document in which the whole transaction is drawn together. It must accurately reflect the promises made and it must be fair, while at the same time ensuring that there are sufficient controls to protect the integrity of the system.

Sample franchise contract

This sample agreement is for illustrative purposes only and must not be used by any party seeking to franchise their business without taking the author’s prior advice. See also master franchise contract.

Projections: fact or fiction

Everyone going into business will sooner or later need to get to grips with the figures. With franchising you should be looking at a tried and tested business format, so you should be provided with projections showing how the business could perform.

Role of disclosure in reducing risk for both parties

Risk 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.

Make sure your business plan packs a winning punch

Despite recession, it is clear that financial assistance for franchises is readily available from banks specialising in the sector. Apart from a strong business proposal what is it that the bank manager will be looking at when applicants present them with their business plan?

Remedies if the franchise affair must end

A franchise relationship should be capable of withstanding the test of time. Indeed, the lack of failure among franchisees, as highlighted annually by the NatWest/BFA survey, is one of the strongest selling points of franchisors.

The easiest and least risky way to start your own business

An introduction for aspiring franchisees and franchisors
This guide, offers advice from major figures in the industry on such essential areas, for prospective franchisees, as the ethics of franchising, raising finance, assessing franchises, the benefit of buying a resale; and, for prospective franchisors, on turning a business into a franchise, the structures available, preparing operations manuals, setting fees and performance targets for franchisees, and expanding internationally.

Advice for franchisees

How franchising works: the two sides of the story
Cathryn Hayes QFP, former head of business support at the British Franchise Association (BFA).
An introduction to franchising from the perspective of both parties – the franchisor and franchisee.

The code of ethics that protects the interests of both parties
Brian Smart QFP, former director-general of the BFA.
The code of ethics that provides self-regulation for the industry.

The agreement at the heart of the relationship
Dr Mark Abell, is head of the franchise practice at the City law firm, Bird & Bird.
The contract that sets out the rights and obligations of the two parties.

Franchisor projections – fact or fiction?
Lorna Smith QFP, former senior franchise manager at HSBC Bank.
Guidance on assessing the viability of the franchisor’s projections.

Make sure your business plan packs a winning punch
Richard Holden, head of the franchising team at Lloyds Banking Group.
Preparing a business plan that will merit a bank loan.

Advice for franchisors

Turning your business into a franchise
Brian Duckett QFP, chairman of the Franchising Centre, the consultancy, training and staff recruitment group.
How the franchise formula enables businesses to develop nationally and internationally through the capital and commitment of franchisees.

The different choices in structuring the franchise
Nicola Broadhurst, of the law firm, Stevens & Bolton.
Review of the ways in which a franchise system can be structured from unit franchises to master franchises.

The operating manual ... make sure the blueprint is right
Penny Hopkinson, founder of Manual Writers International.
The operating manual controls the quality and reputation of the franchise as well as protecting its intellectual property.

Setting targets for franchisees
Manzoor Ishani, of the law firm, Sherrards.
How franchisors can avoid losing income through their franchisees falling into the comfort zone.

A fair fee for both parties or a tax on success?
Paul Monaghan QFP, director of the Franchising Centre.
Franchise fees need to be finely balanced if the relationship is to endure – neither party should get rich at the expense of the other.

Why a planned resales strategy is needed for the last step of the way
Derrick Simpson QFP, founder of Franchise Resales.
Resales need to achieve the best price for the retiring franchisee, whilst attracting the right successor.

The big challenges of franchising in the global market
Chris Wormald, co-head of the franchise practice at the City law firm, Fieldfisher.
The options and opportunities for expanding UK franchises internationally and bringing in foreign systems.

Sample unit franchise agreement
Dr Mark Abell, Bird & Bird.
Unit franchise agreement between the franchisor and a franchisee.

Sample master franchise agreement
Dr Mark Abell, Bird & Bird.
Master franchise agreement between the franchisor and a master franchisee to operate the system in an entire country.

The book is available to purchase from the BFA at £7.99 (UK), £11.99 (other countries).
www.thebfa.org

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