How We Can Help the Entrepreneur First Considering Franchising

A better perspective on franchising.

Ask “What is franchising?” and most people will say, “McDonald’s.” Franchising is much more than that. It is a way of delivering your goods and services, under your standards, using your brand, through independent business operators who use their own money.

In franchising, you expand your business by licensing certain rights to a third party. The third party will use those rights to open and operate his or her own business. In exchange, the third party will pay you various fees and grant you the right to control the way he or she operates the business.

Most often, the rights you will license are the rights to use:

• Your trademark
• Your trade dress (i.e., the total image of your business)
• Your “know-how” or methods for operating a business

The fees you will collect usually include an initial franchise fee, a weekly or monthly royalty, and an advertising fee. However, you should also consider less-obvious sources of income. For example:

• You may offer your franchisees services they or their customers can use, like a website or a toll-free telephone line for purchases, scheduling, and payments. You may charge a fee for these services.
• Your franchisees may purchase private-label products from you, at a price that includes a markup.
• The supplier of those products may pay you rebates or give you other support, such as a marketing allowance, in exchange for such purchases.
• You may provide your franchisees with special operating assistance, for an hourly or flat fee.
• You may lease equipment to your franchisees, for a profit.
• You may offer your franchisees the right to purchase additional franchises in other territories, in exchange for a fee.

Depending on your business, your income from these additional sources may be substantial, and may even surpass your income from royalties.

With respect to the control you exercise, you will usually set standards and specifications for all the significant elements of your business operation, including the products and services your franchisees offer for sale; the size, shape, and appearance of the franchisees’ premises; how the franchisees use your trademarks and service marks; how the franchisees advertise and promote the business; the qualifications and training of the franchisees’ employees; and the territories in which your franchisees may operate. You may also control your franchisees’ activities after they exit your franchise system, through the use of covenants not to compete, restrictions on their use of your confidential information, exercising of a right of first refusal to purchase their businesses, and similar measures.

The fees, rights, and controls listed above are common to almost all franchises; however, the structure of your franchise operation is limited by little more than your ingenuity, business sense, and ability to maximize your returns in the marketplace.

What we can do for you.

Our franchise law firm represents franchisors that range from experienced global franchisors to businesses that are first considering franchising. We can:

• Help you decide whether franchising is right for you
• Advise you on your company structures
• Advise you on sources and amounts of revenue available to you
• Draft your franchise offering documents
• Register your franchise offering in jurisdictions that require registration, and obtain exemptions from registration in jurisdictions that allow exemptions
• Help you maximize your returns
• Help you minimize your risks

We can also assist you with issues that will arise once you become a franchisor. These issues include:

• Negotiating and closing franchise transactions
• Resolving issues that arise in the day-to-day operation of your franchise system:
  • Protecting you during transfers, whether the transfers are transfers of the franchise or transfers of equity in the franchisee
  • Enforcing system standards
  • Introducing improvements and changes in the system
  • Managing cures of franchisee breaches
  • Other franchise legal and business issues
• Enhancing your sources of revenue
• Updating and enhancing your franchise documents to adapt to changes in franchise laws, the franchise market, and the economy
• Protecting the confidentiality of your confidential information and the secrecy of your trade secrets
• Acquiring franchised outlets
• Selling company-owned outlets
• Licensing your trademarks and technology
• Going global

Contact us today.

If you want to discuss whether franchising is right for you, contact The Johnson Franchise Law Firm today.