Issues of Finance and Franchise Solicitors
In every franchise agreement there will be a description of how the franchise is to be financed and how any such arrangement will work.
This is definitely an area where good franchise legal advice will be needed, so you should raise the issue of financing with your franchise solicitors as soon you possibly can. Read this article to discover more information about what financial responsibilities are held by both the franchisor and franchisee.
Franchisor
In terms of the parent company, one of your main financial responsibilities is to make sure your company is viable as a business. After all, there is no point in franchising your business, if your franchisees won’t be able to make any money. You need to be able to prove the sustainability and profitability of your business; this is something that you can get help with from your expert solicitors.
Something else you will have to do is to work out how much you are going to charge your new franchisees to buy in to the business. This will normally include an up-front fee and then they will subsequently pay you royalties once their business is up and running. The value of these royalties will be dependent on their profits, so one option if you are confident that their business will perform well is to put the weight on the royalties rather than the initial start-up fee.
Franchisee
As a would-be franchisee, it’s vital that you seek specialist franchise legal advice about your financial responsibilities as you need to make sure you’ll be able to handle them before signing any agreement.
One of the main costs you’ll have to pay is the up-front fee to the parent company. You’ll need to set up your own company to do this and the average cost is currently somewhere around £46,000 although it varies between franchises. This means you need to know you can raise the capital to pay for the investment. You will owe the franchisor royalties for the arrangement, therefore you will need to include the cost of these into any financial calculations you make – your franchise solicitors can advise you on this.
People whom are new the franchising should also be aware that they will incur additional costs through the day-to-day running of the franchise. There needs to be an agreement with the parent company as to who is going to pay for costs such as staff training, uniforms and so on; if the responsibility falls to the franchisee then you’ll have to make allowances for this in your budget, too.