The bfa Natwest survey recently confirmed that franchising is firmly on the boardroom agenda as a way of achieving faster expansion, whether that’s in the UK or overseas.
This is being driven by trends like multi-unit franchising, which enables franchisees to use their existing infrastructure to manage and acquire a number of sites and leverage their expertise. For franchisors, it allows for accelerated expansion with a professional and talented franchisee.
Investors with long term goals to develop a high growth franchise business as a franchisee need to consider their strategic plans and appetite for risk and how these will fit with the expectations and requirements of the franchisor.
Unless the franchise proposition has been developed with high growth franchisees in mind, it is likely that the franchisor will need to change its standard approach to accommodate the prospective franchisee's ambitions. Otherwise the investors will not have the confidence to make their investment and put the building blocks in place to achieve accelerated growth. With this in mind, the franchisee must consider the constraints of the proposed franchise agreement and any changes that may need to be discussed with the franchisor when negotiating the terms of the agreement and documenting the franchise relationship.
To be clear, a prospective franchisee shouldn’t be looking to change the fundamental operating model of the franchisor. It is more a case of the parties mutually recognising that what works with a smaller franchisee isn’t an attractive proposition for a more sophisticated franchisee with substantial management experience and/or investment levels and with plans to establish a multi-unit operation, or when adding the franchise brand to its existing portfolio.
Of course, the franchisor may not agree to make any changes, but our experience shows that there are advantages to be had by addressing the particular concerns of a high level investment or experienced investor with high growth plans and going about this in the right way. Commercial considerations will dictate whether the deal on the table will work for both parties and whether the franchisor will be willing to deviate from its tried and tested approach.
The franchisee must consider how its proposed structure will impact the franchise agreement, particularly where there are a number of different shareholders involved that may have other investments and business interests. Issues to consider include:
While there is no standard approach to this, investors should consider their risk appetite and the impact that certain standard provisions in franchise agreements might have on their other business interests and investments, and how to structure their relationship with franchisors.
For franchisors, none of these potential adjustments should come as a surprise or adversely affect their position with franchisees. The important thing is to make sure that the agreement with the franchisee and its investors reflects what needs to happen in practice and that everything is properly addressed at the outset. This will help to ensure that all parties are protected in a fair and reasonable manner.
This article first appeared on www.what-franchise.com
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
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