1. Align your trademark portfolio with your franchise tactic
A franchise system's trademark is a crucial intellectual property right and generates value in the franchise system. Capitalizing in a registered trademark should, therefore, be the precedence. It is imperative to ensure that the trademark registration covers all of the essential classes of products and services which encompass the franchise system. Trademark protection should also form a central plank of any global expansion tactic, to ensure that a franchisor can enlarge into significant strategic markets. They say mock is a form of flattery, but some international jurisdictions function a "first to file" structure, meaning that if a franchisor does make its application initial, it might have to pay a substantial fee to eliminate an incumbent registrant. Also, the procedure of applying for a trademark should flag the presence of any third party rights, meaning that a franchisor can then take a sight on whether to enter that market at all or whether the system requires to trade under a substitute name – all very significant to know before proceeding deliberations with a franchise partner. A number of household brands have run into this delinquent.
2. Crisscross that you own it before you license it
In accumulation to trademarks, franchise systems will encompass of a number of other intellectual property privileges, such as design rights, patents copyright, and database rights. It is probable that the franchisor has affianced third parties to create aspects of the structure or occupied licences from third-party providers. It is therefore significant that prior to instigation a franchise expansion, a franchisor recognizes the intellectual property within its structure and determines whether it either owns it or has the right to sublicense it. A general snag is copyright possession – it must be allocated in writing, waning which it vests in the author. If you have engaged a third party to inscribe your manual, create store designs or publicizing materials or software but the terms of engagement do not asylum copyright assignment, you may find yourself having to pay double.
3. Learn to walk before your run
Operating a fruitful corporate business and running a franchised business necessitate different skill sets and are diverse business models. It is therefore worthwhile to "road test" your franchise business model before rolling it out. Indeed, "pilot" franchising is a membership necessity maximum national franchise association. A pilot permits a franchisor to fine-tune the concept and model, so it is demonstrably feasible for both franchisor and probable franchisees. If a franchisor does not take this preliminary step, it runs the menace of edifice a castle made of sand. If a franchisor organizes pilot the franchise, it is imperative to ensure that the pilot phase is controlled properly by contract, as the pilot franchisee is still privy to intimate information and know-how and may generate IP for the system. In the initial years, franchisors should be cautious not to sign up too many franchisees too swiftly before they have the management structure to assist them appropriately. This can create a litigation menace if franchisees do not feel sufficiently supported.
4. Know your franchisee
It is significant to make sure you know whom your potential franchisee is, the individuality of their owners and their business interests before entering into the franchise treaty. This can be an awkward conversation to have when the parties are still deliberating the potential deal, but the sooner it happens, the better. This prior knowledge might have an influence on terms you necessitate to include – for example, does the potential franchisee having any contending business interests, do they operate using allied or third-party operators, is there an issue under any sanctions laws and do they have adequate capital? It is also vital to ensure that any preliminary documentation permits you to back out of a deal without glitches.
5. Make sure the franchisee knows you
In several jurisdictions, it is a lawful requirement for a franchisor to issue a revelation document, or make "satisfactory disclosure," about a franchise system before the franchise treaty is signed. Even in markets whether it is not a lawful obligation, it is the finest practice and serves to protect both franchisor and franchise. From a franchisor's viewpoint, key litigation risk is a parody and the process of pre-contractual disclosure can aid to diminish and limit that exposure. It also boosts franchisors not to oversell the franchise, to be genuine, to manage opportunities and to provide authentic, dependable financials.
6. Don't fling in the kitchen sink
If a franchisor is proposing a territory-based franchise, it should only give the least and impose performance goals, to ensure it is fully exploited and that the franchisee has the capability of utilising it abundantly. Understanding your target region and the capability of the franchisee is decisive. For example, it is very rare that a single partner can convincingly cover markets as vast as China, India and Russia. Franchisors should resist the enticement to grant blanket exclusivity and if essential use rights of the first denial. It is easier to upsurge the region later than reduce it. Franchisors of certain systems (predominantly in the retail and leisure and hospitality sectors) should think progressively about exclusivity both in terms of layout and "channels".
7. Ensure you can develop the system
Franchise treaties are often extensive term commercial contracts which are set in stone on the day they are contracted. The functioning manual is a living and breathing document which will develop over time as the system changes, and it is therefore indispensably important to ensure that the franchise treaty and operational manual work in tandem and strike the right balance between lawful and monetarist certainty for the franchisee and the franchisors necessitate to modernize and drive changes through the system to certify that the franchise remains modest. If the right balance is not attained, a franchisor may find itself unable to develop the system or forced into emerging a two or multi-tiered system in which a consumer's understanding of the brand may vary from market to market, or from franchisee to franchisee. Contrariwise, franchisors should feel duty bound to progress and innovate the system and franchisees will see this a crucial responsibility.
8. Manage your credit
In maximum franchise systems, the franchisor will source products to its franchisees. As the network raises, it becomes progressively important for franchisors to manage the supply chain in a standardised way and to safeguard that the credit menace exposure is kept under control. If franchisees are late in compensating or don't pay because they are in monetary difficulty, the situation can swiftly spiral out of control – a natural enticement is keeping supplying product in the anticipation the franchisee will trade its way out of effort, but if it doesn't, a franchisor could find itself in an existential disaster. It is, therefore, significant to ensure that a franchisor's finance team is fully involved with the network, regular evaluations are made and suitable safeguards are put in place, such bank guarantees, guarantors, letters of credit, credit menace insurance and/or contractual rights to adjust to pre-payment terms.
9. Police the network
A common criticism amongst franchisees is that the franchise treaty is one-sided and drafted severely in favour of the franchisor. However, this does advantage franchisees that follow the system and operate fruitful businesses. Their business can be unfavourably impacted by the actions or lapses of a non-compliant franchisee, and they will look to the franchisor to take deed. This can only be done if the franchise contract gives the franchisor strong contractual rights. Franchisors, therefore, have the duty to themselves and the rest of the network to safeguard that franchisees are audited regularly and that non-compliant franchisee is not permitted to endure without sanction.
10. Know your exit strategy
Franchisors should plan for an exodus that is smooth, causes the least disruption to the network and maximises the value. It is significant that your franchise contracts enable this and do not act as a blocker on any budding investment into or sale of the franchisor. Change of control and assignment provisions must empower a franchisor to dispose of its business without having to seek out individual accords from franchisees.
All of the above is pertinent to domestic and international franchisors. However, for international franchisors, an 11th snag to dodge is to failing to take local law advice on your franchise treaty before the deal is signed. Common issues which arise in international franchising include compulsions for pre-contractual expose, franchisor and/or franchisee registration, trademark licence registration, limitations on settling franchise fees overseas, the international tax treatment of payments and enforceability of foreign regulation contracts in local courts.
Franchisors and potential franchisors should, therefore, ensure that they are capitalizing satisfactorily in their franchise systems and administration teams and using qualified franchise counsel, all to ensure that their networks are built on compact foundations and that deal menaces and local law issues are acknowledged, condensed and managed excellently.
Conclusion
At Frantastic, we help our clients with ample of franchising opportunities.
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