If you are thinking of turning your business into a franchise, then although this may be worthwhile, you need to know how expensive it is to do.
So it definitely requires careful thought and some expert franchising legal advice before you commit to anything. Read on to find out about some of the key costs associated with franchising.
If you are the franchisor, you will need to recruit franchisees and this will naturally cost money. You’ll need to be able to prove the profitability and sustainability of your business, which might cost you (if you need to hire an accountant or franchise solicitors, for instance), as will the adverts to actually recruit people in trade magazines and newspapers.
If you are the franchisee, you will have to pay up-front costs in order to buy in to the business and be able to operate under the existing brand. The costs of this will vary from business to business, but the average cost is currently around £46,000 so it is definitely something you need to be aware of. Having a finance plan will help you immensely; talk to your franchise solicitors if you are uncertain of anything.
Franchisees also generally have to pay royalties to the parent company, which will normally be based on the profits they make. This essentially means that the more money you make, the more you will have to pay to the parent company. This means that getting a fair deal is vital and franchising legal advice will be able to help you with this. This is a cost that you’ll have to incorporate for the life of the agreement with the other party, so getting the deal right at the start is really important.
Depending on the type of agreement you have with the franchisor, the franchisee might have to purchase products from them to sell under the brand name. This is something your franchise solicitors will be able to advise on and it’s important you know whether or not this will be a requirement of your agreement.
Finally, both the franchisee and franchisor will have to pay for the franchising legal advice. It is definitely worth paying for legal services, though, as the area of law is quite complex and it involves not only national law but also EU law and a code of ethics. The success of a franchise also often depends on the quality of the agreement that is drawn up; this is one of the main areas where legal advice will definitely help you.