If you’re running a profitable franchise overseas, is that success guaranteed to transfer in the UK? Grid Law founder David Walker clarifies the legal processes that international franchise owner must understand before entering the UK market.
I having been reading quite a lot about franchising and your articles have been super useful.
In your article “A step-by-step guide to franchising your small business”, you mentioned that:
“Before selling a franchise to a potential franchisee, you need to prove that someone other than you can follow your systems and run a successful business.
“To do this, set up a pilot operation (or preferably two). The pilot operation may be a new business owned by you, or it could be a franchisee who you offer preferential terms to because this exercise will be a learning curve for both of you.”
I already operate my business as a franchise system in another country and I am looking into entering the UK market. This would be done by either a master franchise or an area development agreement as I already have a partner in this country.
Do I still need to run a pilot operation, and if so, who should run it?
Thanks for your question and I’m so pleased you have found my articles useful.
It’s great that you are already running a successful franchise operation in another country. Hopefully, this means it will also be a success here, but there are no guarantees. There can be variations between how businesses are run in different countries and your products and services may have a different appeal.
In my opinion, it’s therefore a good idea to run a pilot operation to ensure your business model works here. Then, if you need to, you can make the necessary changes before selling your first franchise.
It’s up to you who runs the pilot, but your partner is most likely in the best position to do so as they will understand any local nuances of the business and know all the local suppliers etc. If you wanted to, you could run it with them to increase your knowledge and understanding of how your business works in a new territory.
Another reason to run a pilot operation before recruiting franchisees is that there will be some legal issues to consider.
A strong brand is one of the most attractive features of a franchise business. So, make sure your existing brand translates internationally. If it doesn’t, you may need a new brand for the UK market.
When you have decided on the brand you will use, you must protect it.
Trademarks are territorial. This means they only offer protection in the areas in which they are registered.
If you don’t already have any UK or EU-registered trademarks protecting your brand you should register them as soon as possible.
Next, you must update your franchise agreement so that it’s compliant with English law and enforceable in the English courts.
Many laws across the world, and in particular throughout Europe, are similar. However, there are differences so it’s important that the franchise agreement is valid and binding under English law.
In addition to your franchise agreement, franchisees will have to abide by your operations manual. Whilst it’s not a legal document, the franchise agreement will contain a provision that says new franchisees must operate their business in accordance with the operations manual.
You therefore need to ensure that your system works in the UK or it will be impossible to follow. You can’t blame a franchisee for not following the operations manual if it simply doesn’t work. This can be tested and if necessary adjusted during your pilot operation.
Finally, you will have to think about the way the franchise, your products and your services are promoted. Your advertising will have to comply with the Advertising Standards Authority’s CAP Code and this could well be different to what you are doing now.
Again, this is something you can work on whilst running the pilot operation.
So, in summary, it’s great that you have a successful business up and running but you need to ensure that it works just as well in the UK.
This is the purpose of the pilot operation.
Whilst running the pilot operation you can also get all the “legals” sorted out to ensure the business is properly protected and runs as smoothly as possible in the UK.
If you need any help with this, please feel free to email me again at firstname.lastname@example.org.
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