REPRESENTING THE FRANCHISOR – BENEFITS OF FRANCHISING YOUR BUSINESS
There are many reasons why you may consider franchising your business. Franchising can allow your business to grow at a much faster rate as you are able to mobilize multiple eager and motivated franchise owners to advance your company’s business goals and aspirations. Other reasons you may want to develop a franchise system include:
- Franchising may allow you to expand into geographical locations you otherwise would not have been able to expand into.
- Franchising may enable your business to have greater negotiating power with suppliers as you are able to purchase goods in bulk and pass on the savings to interested franchisees.
- Franchising allows the franchisor to assign the day-to-day operations and troubles of the business to the franchise owners otherwise known as franchisees.
- Franchisees will provide the capital required to grow the franchise.
- The franchise business model can build customer loyalty as there is uniformity across multiple locations of the business.
- Franchising can allow for increased marketing and advertising as the franchisees would contribute a percentage of their revenue or profits to an advertising or marketing fund.
- Potential national or internal expansion becomes much easier as motivated franchise owners all across the world may show interest in the franchise system.
- There may be reduced risk and liability associated with franchising your business. For example, the risk of business failure and liability for on-site personal injury is transferred to the franchisees.
REPRESENTING THE FRANCHISOR – DISADVANTAGES OF FRANCHISING YOUR BUSINESS
There may also be certain disadvantages associated with franchising a business. Below you will find some of the potential disadvantages of franchising a business:
- There is some up-front cost associated with franchising your business. You may have to hire a business lawyer to draft a franchise disclosure document, or franchise agreement or restructure your existing corporate ownership. Additionally, you will have marketing, advertising, and promotion costs in transitioning to a franchise system. For example, you may have to paint all your stores a certain color or change your equipment to be uniform across all corporate stores. You may also have human resource costs associated with hiring individuals that can manage the day-to-day operations of the franchise system or prepare training manuals and provide support to franchisees.
- Once you franchise your business, you will have to share profits with franchisees.
- The franchisor may have to share trade secrets or information with franchisees which mean franchisees will become familiar with the way the franchisor conducts its business.
- Problematic franchisees are another possible disadvantage of franchising a business. A franchisee may not operate the business in a manner satisfactory to the franchisor and such problematic franchisees may hurt the reputation of the franchisor by treating customers poorly and not following rules and regulations set in place by the franchisor. The risk of a bad franchisee can be mitigated by conducting extensive due diligence on a potential franchisee prior to granting them franchising rights and by having a well-drafted franchise agreement in place that adequately protects the franchisor in the case of default by the franchisee. Because of the possibility of problematic franchisees, franchisors must have experienced business and litigation lawyers to advise them on their rights when a franchisee defaults on a term of the original franchise agreement.
REPRESENTING THE FRANCHISOR – HOW WE CAN HELP
Our legal team has the experience and knowledge to assist with the following:
- Drafting of a franchise agreement and necessary schedules.
- Drafting of a franchise disclosure document in accordance with the Arthur Wishart Act.
- Assisting with the drafting of standard training manuals, if required.
- Drafting and review of other commercial agreements as necessary.
- Setting up a new corporation(s) and other business entities as necessary.
- Legal compliance with provincial and federal legislation.
- Trademark registration to protect your brand.
- Provision of legal support upon default by a franchisee.
For more information about becoming a franchisor, we invite you to visit the business law insights section of our website. If you are interested in franchising your business, contact our business law firm today to book your initial consultation.
REPRESENTING THE FRANCHISEE
If you are planning on entering into a franchise agreement with a franchisor, there are many legal implications that you must consider. You will likely receive lengthy documents from the franchisor including a franchise disclosure document, franchise agreement(s), and other commercial contracts such as commercial lease agreements, general security agreements, and personal indemnification agreements. We can help you review the documents to ensure you are aware of what you are signing, and we will notify you of any clauses that may pose a potential legal risk to you and your business. Our business law team will set up an initial consultation for you where you will be able to ask any questions you may have about entering into the franchise agreement with the franchisor. We will advise you of your rights and obligations under the terms of the franchise agreement and negotiate its terms on your behalf as necessary.
For more information about becoming a franchisee, we invite you to visit the business law insights section of our website. If you are interested in becoming a franchisee, contact our business law team today to book your initial consultation.