Franchising · 21 May 2018

What to include in your franchise agreement and operations manual

Continuing his latest series, Grid Law founder David Walker explains every aspect of the franchising process for small business owners looking to franchise their company.

Franchising offers some really exciting opportunities for anyone wanting to grow their business. If you’re ambitious, have a strong brand and a business system you can replicate, it’s definitely something to consider.

Successfully franchising your business takes time and careful planning. You’re also going to need professional help, especially when it comes to finalising your operations manual and preparing the franchise agreement.

The operations manual and franchise agreement will be the foundations of your franchise business so it’s vital not to cut corners here. However, I know from experience that escalating legal fees are always a big concern. When clients come to see me, their budgets are tight but they still want the best advice they can have.

An easy way to keep costs under control without compromising the advice needed is for my clients to be well prepared for our meetings. To help them with this, I give them checklists of all the information I need to prepare the agreements.

They can then take their time and carefully think about the answers in advance of our meeting without worrying that costs are already escalating. When they’re ready, we can discuss their answers and really focus on the advice and support they need.

Unfortunately, we don’t have the space here for a complete checklist, so instead I want to look at a few key points that are going to be most relevant for the majority of franchises.

The operations manual

Introduction. Give a summary of what your business does and what both you (the franchisor) and the franchisee can expect of each other. Explain your philosophy and what your brand stands for. You will want your franchisees to buy into this and live and breathe it in their businesses too.

The system. How does your business work? Break down all of your processes into clear instructions for the franchisee to follow. Anticipate any likely problems the franchisees will encounter and how they should deal with them.

Operations. What equipment, stock, IT systems (hardware and software), vehicles etc will the franchisee need to start the business and run it on a day to day basis? Do you need to give specific instructions on how to operate a particular piece of equipment to ensure consistent results?

Staff. How many staff will the business need? What are their job descriptions and do they need any particular qualifications or experience? Do they need uniforms or training?

Premises. Should the business premises be in particular location? Is there a minimum size?

How should it be fitted out?

Compliance. Does the business need any specific permits, licences or insurance before it can start trading? Is there any specific legislation that the franchisee must comply with? Will this require the franchisee to undertake any specific training?

Disputes. The franchisee is representing you and your brand so you will want to ensure complete customer satisfaction. How should the franchisee deal with customer complaints?

Perhaps most importantly, how do you ensure that the franchisee has the best chance of running a successful business? What training and support will they receive from you?

The franchise agreement

Exclusivity. Most franchisees will want an exclusive area to operate in. They won’t want to be competing with your other franchisees so how are you going to organise them? For example, are you going to split territories according towns or counties? Alternatively, you could decide not to allow another franchisee to open within a five, 10 or 15 mile radius of an existing franchisee.

Term. How long will the franchise last? Five years? Indefinitely? You may consider an initial term of, say, three to five years and then give the franchisee the option to renew. However, you may not want a struggling franchisee to continue, so renewal of their agreement may be conditional upon the franchisee hitting certain performance targets.

Fees. How much will the franchisee pay to buy the franchise? Then how much will they pay in ongoing management fees and/or contributions to advertising budgets? Will this be a fixed fee or a percentage of sales?

Termination. Under what circumstances can you (or the franchisee) terminate the franchise agreement? At what point does a failure to follow your systems become such a serious issue that you’re entitled to terminate the agreement? Can either of you terminate on notice if the relationship isn’t working or the franchise isn’t as successful as you would hope it to be? If so, how long should that notice period be?

Restrictions post termination. Following termination of the franchise agreement, what restrictions do you want to place on the franchisee? How long do you want to prevent them from competing with an incoming franchisee? Remember, if you’re putting restrictions on a franchisee, they must be reasonable or they won’t be enforceable.

These are just some of the key issues that you will need to cover in your operations manual and franchise agreement. As you can imagine, thinking about the answer to these questions in advance of a meeting with a solicitor will save you a huge amount of time and therefore drastically reduce the costs you will have to pay.

However, don’t think that you have to have all the answers worked out in advance of a meeting. We’re here to help and advise you and protect your business. So, make the most of our expertise and the experience we have gained working with other franchise businesses.

If you would like a full checklist of issues to consider when franchising your business or if you have any other questions, please feel free to email me at editors@businessadvice.co.uk and I’ll happily answer them for you.

Catch up on the first three articles in David’s franchising series:

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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