Setting up a franchise package - advice please!

SarahLou

Hi everyone,

I'm hoping this is the right place for this thread (if its not, please feel free to move it).

I'm looking to sell franchises in my business but I've never sold a franchise package before. I've researched all the documentation I'll need to write (information documents, operations manual, etc) and all that is absolutely fine. However, obviously I don't want to get diddled or anything if anyone ever purchases a franchise package so I have a few questions (for any solicitors or other people in the know!)

1. If I sold a franchise to someone and they did something seriously wrong - say something that was clearly negligence on their part - would that have any come back on me? I.e. could anyone sue me?
(As part of the fee I would charge them, I'd get them their own insurance so - I have my own so I'm assuming if they had their own too it should fall on their heads?)

2. What legal documents do I need to get drawn up exactly? I'm assuming it would just be some sort of contract wouldn't it - can I just write the operations manual myself?

3. With regards to licence fees that people have to pay to renew after a 2 or 3 year period (usually) - does every franchise package have these charges or are some just one-time-fees at the time of startup?

I've researched what other people in my line of business are charging for their franchise packages and some are absolutely ridiculous - they must be making £10K easily out of anyone that applies - I don't plan on charging such silly amounts - I've worked out the costs it'll cost me (apart form the solicitors fee) and obviously added a bit on but am I being silly in not adding that much on?

Any advice greatly appreciated - please save me some money on solicitors fees if anyone happens to be able to offer any advice on any of the above!

paulwf

Without knowing what industry you are in it is hard to give much advice, could you give us some details please?

1) With regards to negligence it is impossible to comment without knowing your business structure, but the franchise agreement can cover what happens in each scenario.

2) Franchise agreements are very weighty documents, 50+ pages is not uncommon. Any sensible franchisee will get the document vetted by their solicitor before proceeding and you should stress to them the importance of getting this done as it is essential they understand what they are undertaking. Your best course of action is probably to go to a company that specialises in putting franchise packages together as they will be able to adapt templates to suit your needs. You will of course need a solicitor that specialises in commercial law, your average family solicitor won't know the specifics of franchising.

3) The first step is usually for the potential franchisee to sign an NDA before anything more than brief details are given. Once they then have a few details a nominal fee (£1,000?) which you may or may not decide is refundable should then be paid by the potential franchisee to show that they are serious and not just trying to gain inside info about your business. Now you can start getting serious and they can have a sample agreement for their solicitor to vet and you can talk specifics.

Ideally the franchise fee should just cover your costs and is not designed to make a profit. If you only make your money from up front fees it isn't really a franchise, you are just selling them a "business in a box" if that makes sense. Franchises are generally renewed every 3-5 years and the cost is nominal, generally the franchisee just has to pay your legal costs.

Ongoing franchise fees can be broken down into 3 parts:

- Franchise fee (the bit where you make a profit, although as you will be providing support and information you will incur some costs, a franchise is a 2 way thing)

- Administration fee, if you provide a specific service such as book keeping

- Marketing levy, which goes into a not for profit account to benefit all franchisees on a national level.

Fees are generally a percentage but there are plenty of cases where a fixed fee may be used when you can't verify their income accurately, for example a gardening franchise when there are lots of cash payments and you can't really audit how accurate their figures are.

Good ethical franchising is a huge step and you will have massive commitments to your franchisees for years to come so please think carefully before proceeding. Most of the franchise problems come across on this board are because people are sold a franchise for a one off fee then the franchisor has very little further input. Good franchising is where the franchisor only makes money from an ongoing percentage fee, this way the franchisor is very motivated to make the franchisees succeed, when the business grows both franchisee and franchisor will make more money. (Technically a franchisor cares more about a franchisee growing their turnover not their profit but the two are closely linked.)

paulwf

http://franchise.success.tv/ has some good videos on it, I think you need to register but that is free and takes seconds. Some of the videos are in a very cheesy corporate video style and some a bit long and boring but it is worth spending some time to pick up the good bits.

There is of course the BFA website and a couple of franchise magazines that are readily available in WHSmiths and more than enough franchise exhibitions. Don't be afraid to go your own route though, good franchises sometimes keep under the radar a bit.

SarahLou

Thank you very much.

I've had a good read through the BFA website and I've emailed a solicitor from their website and asked whether:
a. they have any experience with franchise agreements (as didn't want to assume they did just because they were on the BFA website)
and
b. how much their fees would be

They've replied to say "yes" to a. but ignored point b. unfortunately so I'm still none the wiser as to how expensive it might be! :eek:

As for what my line of business is - its pet sitting and dog walking. (Although I also offer training, behaviour consultations and grooming - but the latter three required specific training that I've had for years so I'd only be offering franchise opportunities in pet sitting/dog walking - initially at least).

I am more than happy to help any franchisee with any advice, hints, tips, get them up and running, advice about getting their own bank account, etc. I'd get their insurance sorted and a CRB done for them - I've been doing it for years so feel I have a lot to offer. I've scoured the "market" and there appears to be a fair few pet sitting/dog walking type companies that appear to have franchisees all over the country (and many have paid £15K for the chance to set up!! :eek:) (And that is before any commission is taken off their earnings too).

Thanks for clearing up the question I had about recurring licence fees - I presume a clause would have to be in the licence contract to state that after the term of 3/5 years they can't just simply not renew their licence and then set up themselves in the same line of business in their postcode area? (Otherwise who would be silly enough to pay for another licence term - by that point they'd know all they really needed to know and they'd have their own local client base).

SarahLou

paulwf wrote: »

Fees are generally a percentage but there are plenty of cases where a fixed fee may be used when you can't verify their income accurately, for example a gardening franchise when there are lots of cash payments and you can't really audit how accurate their figures are.

In relation to the point above - in this case, I suppose a fixed fee would be required as there is a lot of "cash in hand" work in this line of work. It is rare I have anyone wishing to pay by cheque or by bank transfer.
What sort of fixed fee is the norm?

Also, with regards to administration fees for things like services like book keeping - is it acceptable to not get involved in any franchises book keeping and tax returns - mine are a pain, would rather not have to do theirs too! :rotfl:

stephenni1971

I personally reckon that anyone who would pay money to buy a franchise to do pet sitting and dog walking is bonkers...

That said one reason many do go down the franchise route is not, as the OP has mentioned, to get advice on opening a business bank account or CRB checks, but to buy a ready made and recognisable BRAND

So your competitors may change a lot more for the franchise, but bring with it access to a marketing budget and profile you can't compete with.

If you want it to work, you will need to provide a lot more by way of backup and support than what you have listed so far.

paulwf

SarahLou wrote: »

In relation to the point above - in this case, I suppose a fixed fee would be required as there is a lot of "cash in hand" work in this line of work. It is rare I have anyone wishing to pay by cheque or by bank transfer.
What sort of fixed fee is the norm?

That really is "how long is a piece of string". I don't say that to be flippant, what I mean is it depends on how strong your brand name is, whether you were to provide ongoing marketing, training, handle customer questions, seek new suppliers of products at better prices etc.

Also, with regards to administration fees for things like services like book keeping - is it acceptable to not get involved in any franchises book keeping and tax returns - mine are a pain, would rather not have to do theirs too! :rotfl:

You don't have to get involved in book keeping at all. However for a large franchise the franchisor will probably specify the franchisee set up a limited company so that more financial info is in the public domain. Franchisors will also require a set of accounts from the franchisee, although if you charge a fixed fee this may not be applicable.
You don't have to get involved at all.

SarahLou

Thanks for the advice. (I agree - I wouldn't have paid to set up as a franchisee back when I first started doing this line of work - BUT with hindsight and all the experiences I've had along the way, if I'd known how difficult it could be at times, I would have given some consideration to becoming a franchisee). So I suppose that is all down to personal opinion and confidence in setting yourself up in self employment.

I was confident I could do it and I've succeeded. Many people out there might not be so confident but to go it completely on their own but they have the right skills to make a success of it once its off the ground. Which is where becoming a franchisee is the best option.

paulwf

SarahLou wrote: »

They've replied to say "yes" to a. but ignored point b. unfortunately so I'm still none the wiser as to how expensive it might be! :eek:

You'll be looking at several thousand if you wanted to do it properly to then roll out on a large scale. You should be able to find some franchise formation companies rather than a solicitor though.

Thanks for clearing up the question I had about recurring licence fees - I presume a clause would have to be in the licence contract to state that after the term of 3/5 years they can't just simply not renew their licence and then set up themselves in the same line of business in their postcode area? (Otherwise who would be silly enough to pay for another licence term - by that point they'd know all they really needed to know and they'd have their own local client base).

Franchise agreements cover EVERYTHING, such as several different scenarios if the franchisee were to die They will cover non competitive clauses in detail.

Now then...the reason I have put one of your sentences in bold is because that is the "bingo" moment that shows you don't yet understand what a true franchise really is. A franchise is a ongoing relationship and a 2 way process, you have to be offering something to them throughout the franchise period, such as handling marketing campaigns, updating facebook/twitter/website and handling emails, finding new suppliers and renegotiating contracts, attending exhibitions where you can promote your service to the public...these are just examples but you have to be doing something that is growing the business.

To be honest what you have is a "business in a box", you might be able to put a package together to help someone set up then all that is required after that is minimal support. A one off fee is all that is required but I wouldn't call it a franchise. What you are really offering is a consultancy, although for pet sitting and dog walking I can't see why anyone would want to pay any sort of fee.

Sorry if that sounds blunt...why not make a list of what concrete things you really have to offer? Your advice IS very valuable, but I think it could be covered in a manual and short period of training/consultancy with a little bit of ongoing support by phone/email. Getting insurance is something I'd call my insurance agent for and should take 5 minutes. Franchisors generally don't get involved with sorting bank accounts and that is very simple to sort out. Will you be able to get someone CRB checked when they don't work for you?

SarahLou

Thanks again, paulwf. All very good points raised. From what I can see of the vast majority of other pet sitting type companies out there who offer franchises, they seem to be bringing in a lot of franchisees. (Which I was very surprised to see when I first considered this 12 months ago). I was baffled as to why people were paying to set themselves up under their various business trading names. Maybe they're all fibbing about having these fanchisees all over the country (but then when I've looked into them as individuals they do all seem kosher).

I enquired with the CRB people - I could get it done apparently if anyone registered as a franchisee. (Although I've never done it before so I'm not 100% sure on that one).

Savvy_Sue

I didn't think that you could carry out CRB checks without becoming an Umbrella Body, and I thought that you had to be doing at least 100 checks a year to do that. We (the charity I work for) used to be an Umbrella Body but now have to use a larger Body because we weren't doing enough.

How did you get your own done?