Buying a franchise

 

If you are considering buying a franchise, a number of things should be considered.

First, if you want to know more about the basics of franchising have a look at this article.

Do you have enough money?

When a franchisee is considering buying a franchise, they must ensure that they have the capital to do so. The price of purchasing a franchise will depend on the success and reputation of the business being purchased. If the cost of purchasing the franchise is high, the franchisee should consider how long it will take them to recover their money through profits.

Is the franchise agreement fair?

There are also legal considerations to consider when buying a franchise. The franchise agreement should give the franchisee the right to use the franchisor’s intellectual property rights.

Such intellectual property rights could include the name of the franchisor’s business (which is likely to be a registered trademark). If the franchisor does not give the franchisee the right to use their intellectual property rights then it may not make commercial sense to buy the franchise.

In the franchise agreement the franchisor may insist that the franchisee:

  • Only uses their products and services in a certain way
  • Withhold from any activity that could compete with the business

When considering buying a franchise, the franchisee should consider whether they are willing to submit to such terms.    

What are the positives and negatives of buying a franchise?

There are many advantages of opening a new franchise:

  • The business model is already set-up, and the trademarks and various marketing procedures are already established
  • A new franchise in a business which is already proven has less chance of failing as a business
  • The new franchise may benefit from the support and training of the franchisor, as well as the power of an already established brand

However, there are also disadvantages to consider when buying a franchise:

  • A new franchise is often expensive
  • Franchisees do not have the same flexibility as a person opening their own business, since third parties need to be given consideration too
  • Furthermore the law relating to a new franchise is often highly complex

Franchise agreements must be very detailed to ensure that the relationship between franchisee and franchisor is as agreed. Both parties’ rights and obligations must be clearly defined, and other areas of law, such as intellectual property rights and property rights, must also be considered.

Purchasing or selling a new franchise is an extremely important business decision, and one which is encompassed within many areas of the law.

A franchise can be an excellent investment and a profitable way of owning and operating a business. The decision to make a franchise investment must be analysed in both legal and financial terms. The legal set up provided by a particular franchise agreement will substantially influence the financial reality of the investment.

For more advice on what to look for before signing the agreement, see our page on franchise agreements.

If you are considering buying a franchise, Contact Law can put you in touch with a specialist franchising solicitor who can check your franchise agreement for fairness, and assist with any legal questions you may have throughout the process. Please call us on 0800 1777 162 or complete the web-form above.

 

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