New year, new career – time to strike out with a franchise?
Flexibility, family-friendly hours and a ready-made brand make franchising an attractive option – but always read the small print, warns a local legal expert.
With more of us working from home all or part of the time recently, the 9 to 5 has really been turned on its head. From walking the dog to the school run and fewer wasted commute times, it’s led many of us to question what we’re doing careers wise – and where and when we’re doing it.
The most recent survey from the British Franchise Association (BFA) suggests the number of women choosing to take up a franchise rose 20% in three years. And it’s easy to see the appeal – being the boss gives you greater freedom and flexibility, which can be hard to find in traditional employment. Compared to going into business alone, running a franchise can be less risky too, with a significantly lower failure rate.
Sounds interesting, right? Sure – but if you’re thinking of taking the plunge, you need to get to grips with the small print on those franchise agreements, advises Emily Sadler, Partner, Commercial and Franchising at Southampton’s Paris Smith Solicitors (above). Emily – it’s over to you.
What’s the basics?
Legally, franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trademark/trade name of the franchisor. They can also use the entire business package, comprising all the elements needed to get a previously untrained person set up in the business.
Big name franchises include household names such as McDonald’s and Costa Coffee, but there are in fact over 1,250 franchise brands, representing 200 business categories within the UK.
The franchise agreement
Both parties will sign a franchise agreement which is a lengthy, legally binding contract and typically lasts for five years. Navigating the small print on franchise agreements can be pretty onerous, and it’s almost always weighted in favour of the franchisor. So before signing, it’s important to take advice from a BFA-affiliated solicitor.
While the terms might say they’re non-negotiable, it’s vital that you’re at least aware of your legal position if you take the plunge.
Family friendly hours?
Some franchises are promoted to prospective franchisees as ‘family friendly’ on the basis they can be operated part time to work around family commitments. Many franchisees who are parents agree this has been true for them, especially in terms of work-life balance and being around for important family events when they need to.
However, if this flexibility is one of the reasons for taking up the franchise, it’s essential to check the agreement reflects what you have been told about the hours of operation required, performance targets and whether the business can be operated on a part-time basis.
If there’s any doubt at all over the commitments required in the agreement you should take legal advice – and ask for a side letter to confirm what you’ve been told. Never rely on a verbal discussion if the written terms of the agreement contradict or are silent on it.
It’s worth considering that, as a franchisee, you’re in business on your own account and therefore not automatically afforded the same rights you would have as an employee, such as the right to take maternity leave.
Most franchise agreements don’t contain express contractual provisions dealing with what happens when a franchisee/the individual who operates the business day to day becomes pregnant during the term and needs to take leave from the business. Generally, the franchisee would not be able to cease carrying on the business in order to take maternity leave as that would likely place them in breach of the terms and at risk of termination.
If you are told by a franchisor that they will assist you through maternity leave – and that you will be able take maternity leave – you should have this confirmed in a side letter, along with how this is proposed to work. Without this, there may be little protection from a breach of contract claim if you cease operating the business.
Check that the initial franchise fee and ongoing royalty payments tally-up with what you’ve been told by the franchisor. Also, it’s important to confirm if you will have to pay for other costs like equipment and additional training. And will there be further costs if you wish to renew at the end of the term or sell the business?
Where the franchisee is a newly formed limited company, the franchisor will likely require the person behind the franchisee company to give a personal guarantee. If the franchisee company is in breach of any of its obligations under the agreement, you will be personally liable for the full extent of any losses suffered by the franchisor, meaning that your personal assets could be at risk.
You can almost certainly expect termination provisions in favour of the franchisor, enabling them to terminate early if the franchisee is in breach of the agreement. However, once the agreement is signed, generally franchisees are unable to terminate until the end of the initial term – even if the business is not working. A franchisee may be able to argue that there has been a misrepresentation by the franchisor in terms of what they have been sold, or that the franchisor is in breach of the agreement. However, such cases can be difficult to establish – and are rarely clear cut.
Post franchise restrictions
Something franchisees can be unaware of are the restrictions contained within their franchise agreements. These frequently prevent them from being involved in a similar/competitive business for period of time after termination. As such, they could have a significant impact on franchisees’ ability to carry on in the same industry once they have ceased to operate the franchise business.
Thinking of moving forward? Here’s a few more quick tips:
Franchisee Anna Morgan is Director of Footlights Sale Performing Arts Classes:
“For me, the big advantage of choosing a franchise was the support, training and access to an established business model with a good reputation. My advice to others is to choose a franchise in an area that you have interest or experience. Building a business is challenging and relentless but it helps to reduce the pressure and stress when you’re doing something you love. Another tip is to be organised and proactive in your first year of business. The hard work you put in initially will pay off in the future.”