Each franchising arrangement can be entirely unique, but there are a number of key considerations that ought to be at the forefront of any franchising arrangement. Below are just a few of the key considerations for franchising.
1) What does the franchising arrangement provide? Both the Franchisor and the Franchisee should examine whether or not the franchising arrangement covers off at least the key elements that are expected in a franchise. These key elements include:
a. Intellectual property and brand – it is particularly important that the Franchisor actually owns the trade mark and associated intellectual property and has control over brand fundamentals. Ownership of the brand name by the Franchisor is critical and the brand name ought to be trade marked. If the Franchisor does not have the trade mark, there can often be substantial risks to all the parties in a franchising arrangement longer term;
b. Business systems and manuals- these should be comprehensive, clear and valuable. Whether you are the Franchisor trying to encourage Franchisees to set up a franchise with great business systems and manuals, or whether you are the Franchisee looking to see what you’ll be getting for your franchisee fee, the business systems and manuals are paramount; and
c. Exclusivity- It is important the parties are happy with the area that the Franchisee will control and benefit from under the franchising arrangement. Protections are typically put in place to ensure that the Franchisee obtains good value for money for a clear, defined, exclusive area or territory for the franchise.
d. Goodwill – the franchise and Franchisor should have an excellent reputation built (typically) a significant period of time.
2) How is risk allocated between the parties? – which party is in the better position to control the risks associated with the franchise arrangement? What are the particular risks for each franchise and how have these been covered off in the franchising arrangement and documented?
3) What level of control is appropriate for the Franchisee? Both the Franchisor and Franchisee should be clear and upfront about what the Franchisee will control and what will be controlled by the Franchisor. Often a Franchisee will control the day to day business, client interactions and transactions and the Franchisor’s role in this regard is to ensure that the business systems and manuals provide transparency and an effective, demonstrated way to run the franchise business in these areas.
For example, the business systems and manuals may provide a process and manner for the Franchisee to manage and control its own social media, marketing and incoming client calls. The Franchisor provides an efficient system and consistent way to deal with these things, as opposed to the Franchisor centrally controlling all the social media, marketing and incoming client calls. Generally speaking, the parties should consider the end client and which party is best to manage that end client relationship.
4) From the Franchisor’s perspective, how do each of the individual franchises interact or overlap? How the Franchisor deals with other franchises from a broad, overarching perspective is critical. It can be easy for a Franchisor to simply deal with each individual franchise independently, without taking stock of how each of those individual franchises stack up as a whole and the impact of one individual franchise on another franchise. Individual franchises should be considered by a Franchisor particularly as to how each one will protect its exclusivity and customer base transparently and fairly and maintain the key things that make the franchise arrangement viable. From the Franchisee’s perspective, the benefits of the franchise arrangement can be watered down if there are insufficient overarching considerations given by the Franchisor to the viability of each individual franchise.
At Coutts, we regularly prepare franchise agreements and suites of documents for Franchisors including disclosure statements and franchise agreements. We also review and provide legal advice on franchising documentation for Franchisees. We love conducting risk allocation workshops to ensure that each franchise is set up properly from the onset.
Please contact Alexandra Johnstone if you require assistance with your franchising arrangement or want legal advice or assistance on any proposed franchise. We are here to help!
02 4607 2110
This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.