AS the downturn continues the number of new franchisees is increasing as those made redundant consider alternative careers.
For those who have decided they want to start a new business but want the security of promoting an existing brand, operating a franchise may provide a number of advantages.
Franchising effectively allows you to buy into a successful existing business model, providing immediate access to expertise and brand recognition.
Franchising is not for everyone, as it requires individuals to follow an established businesses plan which may dictate every aspect of the daily activities of the franchised operation.
It is essential that anyone considering a franchise carry out due diligence and prepare a business plan before agreeing terms.
Your rights under a franchise will be governed by an agreement setting out the terms upon which you are allowed to use the franchisor’s brand.
This will often be supported by a franchise manual providing details of how to replicate the established business of the franchisor.
You will be responsible for hiring staff, buying stock and managing your business on a daily basis, within the boundaries set by the agreement.
Often franchisees will sub-let retail premises from the franchisor. As franchisee you will be responsible for the property, employees and working capital.
You are likely to have to pay an entry fee and ongoing payments during the period of your franchise agreement. These can be as a management services fee, from a percentage of your turnover, or as a mark-up on the products sold to you by the franchisor. The agreement usually lasts for at least five years.
The majority of franchises have a much lower failure rate than brand- new start-ups. Each franchise, however, requires you to adhere to the ideas and culture of the franchisor.
If you do feel that franchising is for you, it is important that you take appropriate professional advice to ensure that you fully understand the terms of the franchise agreement.
You will have to agree to keep to the business plan and meet set targets and minimum sales figures for the business. Failure to do this may lead to loss of initial capital investment, as well as jeopardising future potential earnings.
Gillian Hall is head of corporate law at Watson Burton, Newcastle