Franchising is one business model that is available to persons who wish to start a business. The franchisor offers to the franchisee the right to operate a business format it created. The franchisee decides to operate a business using the franchisor’s format.
The possible benefits of a franchise is that the franchisee acquires a proven business system that has worked for the franchisor and other franchisees. The franchisee may not need to create business systems and find suppliers and products or services as these have been sourced or developed by the franchisor. A franchise allows the franchisor to provide benefits to franchisees by operating on a larger scale in terms of broader marketing campaigns and purchase arrangements based on bulk buying power.
Starting any business involves risk. It is no different with a franchise business. However, there are some risks that are specific to franchisees, including restrictions placed on franchisees through contract terms such as preferred supplier terms, approved goods or approved supplier terms, restrictions of the franchisee’s rights to control their cashflow. There are also other risks to franchisees that are not part of the franchise agreement such as the franchisor trading in competition with its own franchisee.
We can assist by advising you of the risks of entering into a franchise agreement so that you make an informed decision to purchase a franchise.
Our priority at Morgan Mac Lawyers when providing advice to clients who are seriously considering a franchised business purchase is to alert the client to specific risks that should be taken into account before a franchise agreement is signed and the client makes a significant financial and life changing investment.
If you are considering becoming a franchisee you are prepared to accept the risk of owning and operating your own business. You have also decided, or are considering, that the franchise model is suitable for you as a means of owning and operating a business.
The critical importance of obtaining appropriate professional advice is recognised in the Franchising Code of Conduct. It requires the franchisors to ensure that persons considering a franchised business purchase obtain legal advice or at least make a thoughtful decision not to obtain advice. Relevant and appropriate legal advice before buying a franchise may result in a well-informed decision and avoid future franchise disputes.
Buying a franchise usually commences a 5 or 6 year contractual relationship between the franchisee and the franchisor, and the franchise agreement you shall be asked to sign as a new franchisee shall impose many obligations on you. In our 20 years’ experience in franchising law we have reviewed many franchise agreements. In the last 2 years alone, Bill Morgan has reviewed over 40 franchise agreements. They all impose few obligations on franchisors but numerous obligations on franchisees. Our advice focuses on key obligations and what they mean, not just legally, but in commercial terms in the operation of a franchised business.
Because Bill Morgan has acted in franchised disputes for over 20 years we are aware of many franchise agreement terms that impose significant commercial risks on franchisees and the reasons why these terms lead to disputes and cause real business difficulties to franchisees. Our advice brings these terms and their risks to your attention.