Social Franchise Agreements
Key Points:
A Franchise is only as good as the agreement underpinning it. It is essential that the franchise agreement be drafted in a thorough and robust way. It must cover all of the relevant issues and perhaps, even more importantly, all the possible eventualities.
What Should the Agreement Include?
The number of issues that must be covered is quite exhaustive but some of the key points can be summarised as follows:
1. The Grant: Will be found at the beginning of the agreement and in effect allows the franchisee to operate the business and use the intellectual property of the franchisor in a specific area. From the grant everything else flows.
1. Fees: The fees will likely include an initial set fee as payment for support during the start-up phase and also an ongoing fee which may be fixed or based on a % of revenue/profits. There may also be an annual fee to cover any advertising done by the franchisor on behalf of the franchise at large.
2.The Term: How long will the franchise last? Generally the agreement will be for a 5 or 10 year period. At the end of term the agreement should contain rights of renewal which will allow the franchise to continue unless a major breach of the agreement has occurred.
3. Exclusivity: A franchisee will want to know that they have exclusive rights to the franchise in a particular geographical area. If you set up a fast food franchise the last thing you want to see is another franchisee setting up just down the street.
4. Franchisors obligations: Can be divided up into the initial obligations such as start-up advice and training and the on-going obligations which will include the parting of general know how, advising on on advertising and the continued training of staff as and when required etc.
5. Franchisees obligations: The franchisee will be expected to meet its numerous obligations. They will include adhering to the franchise system, protecting the brand and maintaining standards etc.
6. Intellectual property: The intellectual property of the franchise will include:
-the business name
-the goodwill generated by the franchise
-the copyright of all manuals, websites, promotional materials, software and all other confidential information.
-the trademarks of the business
The franchisor should ensure that the agreement ensures the protection of all of the above.
7. Right to sell: The franchisee will of course want the right to sell on the franchise. From the franchisors perspective, they will want any agreement to give them a veto over any sale if they do not feel that the buyer meets the required standards.
8. Right to Intervene/Terminate: The franchisor may wish to intervene in a more direct fashion if the franchisee is not meeting required operational standards or they may simply wish to terminate the agreement due to major breaches of the agreement.
Useful Resources
For a number of interesting articles on social franchising/replication see the work carried out by UnltdVentures on the Unltd website
Showing posts with label social francise. Show all posts
Showing posts with label social francise. Show all posts
Monday, 17 May 2010
Sunday, 25 April 2010
Social Franchising
Two scenarios:
1. You are a charity/community organisation which seeks a more sustainable means of funding. You want to establish a business which will generate profits and/or achieve social objectives and reduce dependency on grants. There is one small problem though, you don't have a business idea and even if you did, you wouldn't know where to begin to make that idea a reality.
2. You are an established social enterprise with a proven profit making business and strong brand. You want to grow as a business and maximise the social benefits but you are unsure as to how you can carry this out.
A possible solution?
Social Franchising
Similar in many respects to ordinary commercial franchising, social franchising can deliver the outcomes required in the two scenarios.
But what is it?
In effect franchising is where two parties enter into a contractual agreement in which one party (the franchisor) will give the blue-print (business model) for its successful business to the 2nd party (franchisee) which will set up a copy of that same business with the ultimate aim that both sides make a profit. Social franchising simply follows this formula and throws in the added social dimension.
In conjunction with the blue print comes a substantial support package which the prospective franchisee will utilise. This will include staff training, technical support, help with marketing/promotion of the business and access to the general know how that the franchisor has developed over the years to make their business a success.
Such support may prove particularly appealing to a charitable/community organisation which is entering the commercial world for the first time and which would otherwise be daunted by the complexities of starting a business.
But what does the franchisor get in return?
Generally in any franchise agreement the franchisee will pay an initial fee to the franchisor for the business model. The franchisee will then pay a % of turnover each year to the franchisor in return for its continued support and access. The franchisee will also invest its own money in the initial start-up which reduces the financial risk for the franchisor.
Such an arrangement offers real advantages to both parties but is not without its drawbacks.
Although the franchisee will operate the business on a day to day basis the franchisor will still exercise significant control over operations. It may dictate how services/goods are sold and marketed. It will also be keen to ensure that all activities undertaken by the franchisee do nothing to bring the brand/business into disrepute. Such control may not sit well with some prospective franchisees who would chaff at such restrictions. This will also be labour intensive for the franchisor as they must assiduously work on maintaining quality and standards.
Franchising your business model could soon become a nightmare if the franchisee destroys the painstakingly created brand through mismanagement and your lack of oversight. Therefore the franchisor must be prepared to invest the time and effort into making the franchisees operation a success.
Social franchsing is something we are likely to hear more of in the future.
1. You are a charity/community organisation which seeks a more sustainable means of funding. You want to establish a business which will generate profits and/or achieve social objectives and reduce dependency on grants. There is one small problem though, you don't have a business idea and even if you did, you wouldn't know where to begin to make that idea a reality.
2. You are an established social enterprise with a proven profit making business and strong brand. You want to grow as a business and maximise the social benefits but you are unsure as to how you can carry this out.
A possible solution?
Social Franchising
Similar in many respects to ordinary commercial franchising, social franchising can deliver the outcomes required in the two scenarios.
But what is it?
In effect franchising is where two parties enter into a contractual agreement in which one party (the franchisor) will give the blue-print (business model) for its successful business to the 2nd party (franchisee) which will set up a copy of that same business with the ultimate aim that both sides make a profit. Social franchising simply follows this formula and throws in the added social dimension.
In conjunction with the blue print comes a substantial support package which the prospective franchisee will utilise. This will include staff training, technical support, help with marketing/promotion of the business and access to the general know how that the franchisor has developed over the years to make their business a success.
Such support may prove particularly appealing to a charitable/community organisation which is entering the commercial world for the first time and which would otherwise be daunted by the complexities of starting a business.
But what does the franchisor get in return?
Generally in any franchise agreement the franchisee will pay an initial fee to the franchisor for the business model. The franchisee will then pay a % of turnover each year to the franchisor in return for its continued support and access. The franchisee will also invest its own money in the initial start-up which reduces the financial risk for the franchisor.
Such an arrangement offers real advantages to both parties but is not without its drawbacks.
Although the franchisee will operate the business on a day to day basis the franchisor will still exercise significant control over operations. It may dictate how services/goods are sold and marketed. It will also be keen to ensure that all activities undertaken by the franchisee do nothing to bring the brand/business into disrepute. Such control may not sit well with some prospective franchisees who would chaff at such restrictions. This will also be labour intensive for the franchisor as they must assiduously work on maintaining quality and standards.
Franchising your business model could soon become a nightmare if the franchisee destroys the painstakingly created brand through mismanagement and your lack of oversight. Therefore the franchisor must be prepared to invest the time and effort into making the franchisees operation a success.
Social franchsing is something we are likely to hear more of in the future.
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