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The importance of Intellectual Property to your franchise

November 12th, 2012 by Joel Caws in Franchise Legal

Intellectual Property refers to an invention or piece of work that is the result of creativity, and which is owned by a specific person or company. There are four main types of intellectual property:

  • Trade marks are symbols that can distinguish your goods and services from those of your competitors. You might also refer to your trade mark as your brand, although it can be argued that your brand constitutes more than just your trade marks. Trade marks can consist of words, logos, or a combination of the two.
  • Patents protect new inventions, covering what they’re made of, how they work, what they do and how. Patents ensure that other companies cannot copy your work and sell, use or import it without your permission. Patents can sometimes cause confusion internationally, as with the recent Apple vs Samsung legal hoopla – in the UK it was ruled that Samsung’s Galaxy tablets are not too similar to an iPad because they’re not as ‘cool’, but in the US a ruling was made in Apple’s favour.
  • Registered Designs protect the appearance of your product legally in whichever countries you register it. This covers the visual features such as shape, colours, lines, texture and materials used that make a product look unique.
  • Copyright protects a variety of work, such as lyrics or music, pieces of writing, or works of art.

When you sell a franchise to a franchisee, a lot of what you are selling – brand usage, know how etc – is Intellectual Property. In order to protect yourself and offer good value to your franchisees, it is important to make sure you are aware of what you own and that all of your Intellectual Property is appropriately registered. Often, people only think of Intellectual Property in terms of patents and inventions – avoid this by speaking to an appropriate legal expert to establish what else you can register.

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What you should consider when setting your franchise fee

November 9th, 2012 by Joel Caws in Franchise Sales and Development in the UK

The initial franchise fee you set when starting your franchise sends a very important message to potential franchisees. There are several things to consider when setting a fee that is both appealing and sustainable. Although you may think lower is always better and lower fees will get you more franchisees, there are much more important considerations. The three main points to think about are:

  • Marketability
  • Value
  • Cost coverage

Sometimes franchisors can be tempted to look only at the marketability of a franchise when setting their franchise fee, figuring that new franchisees will be attracted to the lower price. Whilst this can be true, it’s important to look at the other two factors first.

The initial franchise fee is a buy-in payment, and should cover the costs of marketing, sales, and consultants you may have to pay, any rent needed and all materials. Although you definitely don’t need to make a profit from the franchise fee, you shouldn’t be making a loss either.

A large part of what a franchisee is purchasing when they buy into a franchise is use of the brand name. The value of this name depends on the size and reputation of the franchise network – if the network is well known and popular, this adds significant value to the brand and should be reflected to some degree in the franchise fee.

Negative consequences of low franchise fees

  • If the franchise fee is too low, it might be perceived that the opportunity is worth less compared to other brands, so franchisees may be less likely to investigate further
  • Having paid less to buy in to the franchise, franchisees may be less motivated to put in the necessary work and commitment – they are literally less invested in their franchise
  • You’ll be starting every franchisee relationship at a loss. If you’re making a loss on the franchise fee and you have several franchisees signing up at once, it can be difficult for your network to weather the impact.

This isn’t to say that low-cost franchises are a bad idea – a lot really do offer great opportunities and are able to pass great value on to their franchisees. It is up to you as the franchisor to balance the three elements and come up with the right price to bring franchisees into your network.

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Franchise Futures – How the right business plan can make the difference between success and failure

October 31st, 2012 by Richard Holden in Franchise Finance
Richard Holden - Head of Franchising, Lloyds TSB Business

Richard Holden – Head of Franchising, Lloyds TSB Commercial

Richard Holden, head of franchising at Lloyds TSB Commercial, believes that the devil’s in the detail when it comes to securing bank finance:

A business plan is a prerequisite for any franchisee looking to launch a new enterprise, or expand an existing one.

A well written plan should focus on key objectives, setting realistic and attainable goals. It should be seen as a work in progress, rather than a static document and should be subject to a regular review based on the evolution of the business.

There is plenty of advice available, from lenders, professional advisers, fellow franchise owners and also the franchisor. This support will help ensure that the business plan ticks all the right boxes and provides the details necessary to make securing finance a reality.

A good business plan will go a long way to helping individuals secure finance, yet it will also act as a reference point through what will be a very busy time, setting out key objectives and the timescales involved, following the launch of the new enterprise.

As well as providing a concise, yet comprehensive look at the basic structure of the business, including an overview of the franchise, the plan should set out short term objectives as well as longer term aims.

This will enable the lender to look at what you want to achieve and more importantly how you aim to do it. The plan should also provide financial information, outlining the capital investment that is required in order to launch the new business.

No business plan is set in stone; any forward looking strategic document should incorporate an element of flexibility, taking into account market knowledge, key trends, regional differentiators and the effect that outside influences could have on the business.

This flexibility will ensure a proactive approach to changing market conditions, both positive and negative.

Whilst there’s no guarantee of success, a well-structured business plan will undoubtedly provide the foundation for future growth.

Lloyds TSB Commercial has 50 trained franchise managers located throughout the UK, all of whom have experience of working with and providing guidance and support to those operating in the franchise industry.

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