Entering into a franchise can be an attractive route into business ownership. It offers the reassurance of an established brand, a proven business model and ongoing support. However, a franchise agreement is a legally binding contract that can shape your financial and professional future for many years. Before signing on the dotted line, it is essential to fully understand the legal, commercial and practical implications of becoming a franchisee.

Below are some key considerations to help you make an informed decision.

1. Understand the Franchise Model You’re Buying Into

Not all franchises operate in the same way. Some offer extensive training and operational support, while others expect franchisees to be largely self-sufficient.

Key questions to explore:

· What exactly is included in the franchise package?

· How much autonomy will you have?

· What are the franchisor’s obligations to you?

A clear understanding of the business model will help you assess whether it aligns with your skills, expectations, and long-term goals.

2. Review the Franchise Agreement Carefully

The franchise agreement is the core legal document governing your relationship with the franchisor. They are usually highly detailed containing many legal clauses but at the very least it should cover issues such as:

· Initial and ongoing fees (royalties, marketing contributions, renewal charges)

· Territorial rights and whether they are exclusive

· Intellectual Property is protected and the franchisor owns / can license the rights

· Performance obligations and minimum sales targets

· Restrictions on competing businesses

· Exit and termination clauses, including post-termination non-compete obligations

Because franchise agreements are usually drafted in favour of the franchisor, obtaining independent legal advice is strongly recommended.

3. Assess the Financial Commitment

Franchising often requires a significant upfront investment, followed by ongoing costs.

Consider:

· Initial franchise fee

· Fit-out and equipment costs

· Working capital requirements

· Ongoing royalties and marketing levies

· Insurance and compliance expenses

Prepare a realistic business plan and cash-flow forecast. If the franchisor provides financial projections, treat them as guidance rather than guarantees.

4. Conduct Thorough Due Diligence

Before committing, investigate the franchisor’s track record and the performance of existing franchisees.

Due diligence should include:

· Speaking to current and former franchisees

· Reviewing the franchisor’s financial statements

· Understanding the brand’s market position and competition

· Checking for any history of disputes or litigation

· Ensuring the franchisor owns or has the right to license any intellectual property associated with the franchise.

A franchisor should be transparent and willing to answer detailed questions.

5. Understand Your Rights and Obligations

Franchisees must comply with brand standards, operational manuals, and reporting requirements. Failure to do so can lead to penalties or termination.

Make sure you understand:

· Operational rules and quality standards

· Training requirements

· Reporting and auditing obligations

· Intellectual property usage rules

Clarity at the outset helps avoid disputes later.

6. Consider the Long-Term Relationship

A franchise is not a short-term arrangement. Agreements often last many years, with options to renew.

Think about:

· Whether the business model is sustainable long-term

· Your ability to grow within the franchise network

· The franchisor’s plans for expansion or restructuring

A strong franchisor-franchisee relationship is built on communication, transparency, and mutual trust.

7. Seek Professional Advice

Before signing any agreement, consult:

· A solicitor experienced in franchise law

· An accountant to review financial projections

Professional guidance can help you identify risks and negotiate more favourable terms where possible.

Berry Smith Bottom Line

Taking on a franchise can be a rewarding path to business ownership, but it requires careful preparation and a clear understanding of the legal and financial commitments involved. By conducting thorough due diligence, reviewing the franchise agreement in detail, and seeking expert advice, you can position yourself for long-term success.

If you are thinking about franchising your business or entering into a franchise relationship, speak to our experts at commercial@berrysmith.com or on 02920 345511 and ask for the commercial team.