Franchisees - Frequently Asked Questions

Thinking of investing in a franchise?
Roz Goldstein (pictured), founder of Goldstein Legal. gives you the answers to the 10 most frequently asked questions

1. Is franchising a successful format for doing business?

It certainly can be. The UK franchising industry is worth over £13billion and it saw a 20 per cent growth during the last recession, compared with the economy in general, which shrunk by 2.5 per cent. Because successful franchise concepts have a strong and proven business model behind them, your chances of failure are much lower if you buy into a franchise than they are if you start up your own concept. 

But these are just statistics; not every franchise is a path to a guaranteed pot of gold. Some franchises are more successful than others, and some franchisors provide better support and training than others. Very few franchisors hand their franchisees a customer base on a plate, and the success of your franchise is therefore in large part down to how good you are at marketing it, and how hard you work.

Do your research before you commit to a franchise. Especially important is talking to existing franchisees - would they recommend the franchise to you? How happy are they with their franchisor?

2. Can I earn an income from day one?

Short answer: Very probably not. All franchises involve a start-up cost, often a substantial one, and there could be a period of months ahead before you start getting an income. Ask your franchisor how long it will take you to make profits. Ask for financial projections and check these with your accountants. Ask other franchisees in the system how long it took them to recoup their investment.

3. Do I need relevant experience?

Not necessarily, as many franchises are geared up for franchisees who are new to their particular sector, but it pays to think carefully about whether the franchise really plays to your strengths. Be honest with yourself. You might be good at, say, gardening, but that doesn’t mean you will necessarily enjoy being a desk-bound manager of a team of gardeners. And how do you feel about being a salesperson? If selling is something you really do not enjoy, franchising may well not be for you.

4. Do I need to know how to run a business?

Not if you have the right support. Look critically at how much ongoing support the franchisor is providing, as well as the initial training. Ask them to describe the profile of their most successful franchisees. Did they all have prior business experience? It also pays to have a good accountant on your side, so appoint one at the start.

5. Is my investment safe?

There is no such thing as a risk-free business. Even though franchising has proved more resilient in recent times than other business sectors, inevitably some franchises will fail. You can reduce your risk by doing your research, and thinking carefully about whether or not you are choosing a business that really suits your personality. But if risk is something that you cannot afford or bear to tolerate in any shape or form, franchising is probably not for you.

6. Can I believe what the franchisor is telling me?

7. Does it matter if the franchisor is not a member of the bfa?

The better established franchisors are more likely to be bfa members, as the bfa imposes some minimum standards (see www.thebfa.org). If the franchisor isn’t a member of the bfa, ask them why not.

Are the franchise fees negotiable?

Make sure you don’t miss a trick on this. Competition amongst franchisors to find franchisees is often fierce – there are more franchises for sale than there are franchisees wanting to buy them. If you are one of the franchisor’s first five or so franchisees, they may well agree to significant discounts to get you on board.

8. Do I get exclusivity?

Often, but not always. Make sure you understand this before you commit to the franchise. If other franchisees will be able to compete in your territory, you need to think carefully about how you will secure your customers.

9. Can I leave the franchise if things don’t work out well?

No! Most franchises do not give the franchisee a right to terminate early and most franchises have at least a five-year term. This means that if things do not work out well, your initial fees and set-up costs are at risk, and they will not be refunded. On top of that, if you abandon the franchise early, your franchisor may claim damages from you, in the form of the fees that they would have received from you for the rest of your contract term. Worse still, your franchisor is likely to hold you to post-termination obligations in your agreement – preventing you from being involved in any similar or competing business for a period of time after termination.

10. My franchisor has told me that the agreement is non-negotiable. Is there any point getting it reviewed by a lawyer?

Very simple answer: Yes! Remember the principle of ‘buyer beware’. Your franchise is a business-to-business arrangement. There are no cancellation rights, and no ‘implied’ terms of reasonableness. Even if your agreement is non-negotiable, then:

• Franchisors can, and very often do, agree to make changes that are recorded in a ‘side letter’ to the agreement
• A legal review will ensure that you understand what you are letting yourself in for. Your franchise lawyer will be able to advise you on what you are committing yourself to, whether your agreement has untypically unfair provisions in it, and what the long-term implications are for you.

Once you have signed, there is no going back. So getting good advice before you sign is essential. 

Roz Goldstein gained almost 20 years of experience as an in-house lawyer in some major publicly-listed companies before founding Windsor based solicitor firm, Goldstein Legal.

She qualified as a lawyer with Alsop Wilkinson (now DLA Piper), and then became Legal Manager at Laura Ashley, where she gained commercial legal experience on an International level, managing contract negotiations, corporate acquisitions and disposals, and managing Laura Ashley’s Global Intellectual Property portfolio.