The Business Booster Conference and Supplier Showcase 2011

This year’s Business Booster Conference and Franchise Supplier Showcase takes place on Thursday 17th November in Birmingham.  The purpose of the event is to save franchisors the extensive time and effort it takes to source good suppliers that can help make their businesses more efficient and profitable, by bringing them all together under one roof for a day.

The event is organised by The Franchising Centre and Managing Director Brian Duckett commented “A frustration for many franchisors is knowing that there are good products and services out there that can help them develop their business, but they don’t have the time to go through the whole process of searching for and interviewing potentially good suppliers. The purpose of this event is to gather together lots of suppliers under one roof that know and understand the franchise market so that franchisors can speak to a number all on one day.”

The event provides a nice relaxed atmosphere in which franchisors can speak to suppliers to learn about their offering without the stresses involved in a more traditional sales environment.

The event also aims to provide information which is useful and interesting to franchisors with a number of guest speakers and presentations. Back by popular demand this year will be Brody Sweeney with more inspirational words about his own experiences in the world of franchising – anyone who saw him last year will tell you that he is not to be missed!

All proceeds from the event will go to the Trussel Trust’s Foodbank project which provides an immediate source of emergency food for those who unexpectedly hit hard times here in the UK.

More information about the event is available at www.franchisesuppliers.co.uk

Joel Caws - Technical Director, Select Your Franchise

One thing is for sure: if you are looking for a franchise you won’t be spoilt for choice! There are around 900 franchise systems operating in the UK and several hundred of those franchise systems are looking for new franchisees at any given time.  So with all those options to choose from it might seem a bit of a challenge to find the one that suits you best.

The initial stages of searching out your franchise match can be fairly straightforward. You can use online franchise directories, franchise magazines and exhibitions to effective research and whittle down your selection to those that are within your budget, have availability in your preferred trading location and that appeal to you as someone who will be running the business. Beyond that you are faced with the task of talking to those franchisors you believe represent the most suitable options for you and finding out which one suits you best. Given that you may have no experience in franchising or how a franchise operates, how do you know what questions to ask the franchisor? Well, here’s a few good options to begin:-

How did your pilot businesses perform?

A franchisor will usually have setup some initial pilot businesses to test their franchise business model. In this way they have ‘proved’ their franchise model works and can turn a profit. Finding out how well they did, and their turnover/profit figures, should give you an indication of its potential if you were to run the franchise business.

May I have a list of some of your franchisees as references?

Existing franchisees are an important reference of how well the franchise business performs ‘on the ground’. Take the opportunity to call up, or visit, a few of the franchisees and ask them how well the franchise business works for how well supported they feel by the franchisor.

What is the total investment I will need?

The franchise fee that you will see on any documentation may not be the total cost to start up the franchise. There may also be premises costs, initial stock, vehicles, staffing costs. These will obviously be dependant on the type of franchise but almost every business requires some initial finance even if it is to fund your own wages for the first month or so while you build up your initial revenue. If you do not see any mention of start up costs in the franchisors information pack make sure you ask.

What training and support will I receive?

An important part of running a franchise business is that you operate it in-line with the proven franchise system. This makes training and support important to ensure a) you are trained initially in the correct way to run the business, and b) that you are able to pick up the phone and call the franchisor if you experience any problems that you could use some advice on resolving in the course of running the franchise business.

How do I feel about working with these people?

This is not a question for the franchisor so much as a question you should ask yourself during the research process. You should have opportunities to meet and chat to the franchisor so: How do you feel about them? Do you feel enthusiasm from them about you coming on board as part of their network? Do you feel that they would be supportive to you in your new business venture?

Ultimately, the success of any business venture will come down to your own determination and commitment to make it work. You can, however, benefit from the experience of a franchisor and the proven business model of a franchise.

Jat Mann - Managing Director, PC PAL

Well, by now most people have heard of the mystical thing called ‘The Cloud’ and how it’s going to magically revolutionize IT and the use of computers in homes and businesses.

But the question most people are really asking themselves is what exactly is ‘The Cloud’ and am I really going to be left behind if I don’t use it?

The truth is that many of us are actually using the features and benefits ‘The Cloud’ brings. An obvious example is e-mail. Where many large companies have huge servers and temperature controlled, air conditioned rooms dedicated to running the IT systems (as well as teams of techies who generally don’t like users), most small business and individuals typically use Hotmail, Yahoo or G Mail as their main email addresses.

And where are these emails stored for you before you access them? Well, the answer is on other people’s servers and computers on the internet, aka ‘The Cloud’. The idea is really simple and a bit like using a PO Box service in the real world – somebody else gets the messages delivered to him or her and you can pick them up when and where you want.

The other concept to grasp is that because the emails are stored in a central area in ‘The Cloud’ (i.e. the internet), you can access these emails when on the move or via your PC, Laptop, iPhone, iPad, Blackberry and smartphone – both in the UK or abroad. This is great for homeworkers and ‘road warriors’ or even travellers who don’t have a dedicated place of work.

The vast majority of people are actually using ‘The Cloud’ without realizing and without cost as the main Email providers like Gmail (Google) provide their services for free.

And it’s not just about email. Services such as Facebook, LinkedIn and YouTube are all examples of the uses of ‘The Cloud’. The general theme being that information is stored on the Internet and not on each individual’s computer and can be access from any internet connected device, anywhere, anytime.

Now with the concept of ‘The Cloud’ tackled, lets focus on where it could help your franchise. Wouldn’t it be wonderful if you knew in real time your franchisees performance, their customer lists and be able to send e-mailshots out to them to generate more business? Wouldn’t it be wonderful if you didn’t have the headache of looking after IT servers and associated maintenance costs (as well as worry of backing up your critical data and wondering what you would do if your HQ building was destroyed).

Well, by using  ‘The Cloud’ services, you can store your data on the Internet, allow your franchisees to use on central CRM system and also know in real time their performance and turnover figures. You could also have a worry-free existence as the backup of your data would be all taken care of. And if the worst did happen, and your HQ was destroyed, you would still be able to access your information from home, abroad or alternative premises swiftly by logging onto the Internet.

Some people might be familiar with Salesforce.com (which is a Customer Relationship system such as Azura’s www.webchise.co.uk)  and online accounting software (such as the ones provided by Dennis & Turnbull: www.xero.com ) or even shared document hosting such as www.dropbox.com.

Well although these services aren’t completely free when used for larger business teams, these services are now mature, robust and cost effective enough to be used by businesses – especially for franchises. We use these technologies ourselves and couldn’t imagine being without them!

The costs saving are quite large as well as the ability to work where you like, when you like and how you like!

The future’s bright… the future really is ‘The Cloud’!

Jat is the founder & Managing Director of PC PAL, UK’s leading on-site Computer Repair and Support franchise network providing rapid, reliable & affordable IT support to homes and small businesses.

Steven Frost - Partner, Smith & Henderson

Recent events have made it difficult to build trust. The forced nationalisation of banks, for example, saw many life-long customers queuing for hours to withdraw their savings. The MPs expenses scandal hardened the public’s widely-held scepticism about politicians and the phone hacking scandal damaged the media’s integrity.

Closer to home, franchisors are now likely to find that they need to give prospective franchisees more “reasons to believe”. Rather than just saying that their training and support are good, franchisors need to prove it. Otherwise, prospective franchisees may perceive the risk too high and either choose an alternative to franchising or worst still, their competitor.

In addition to the need to build trust in today’s business climate, there is another factor that makes this more critical. There are now around 1,400 franchise opportunities in the UK competing for the same talent and the figure is increasing. Franchisors can, however, build trust with prospective franchisees in a variety of ways.

1. Communicate your approach

There is an old saying in franchising – good franchisors award franchises, bad franchisors sell them. By explaining to prospective franchisees at the start of your process that you turn away many more candidates than you recruit, you start to exude trust. For example, instead of using an email address like sales@franchisor.co.uk think about a more appropriate message.

2. Display your trust badges

A major benefit of joining the BFA is being able to include its logo in your franchisee recruitment marketing. Many prospective franchisees use this (or the lack of it) to form an opinion about your franchise. Membership of other organisations, like Investors In People, can also provide positive associations for your professional standing.

3. Enter the awards

Marketing collateral doesn’t come much better than being independently recognised as being the best at what you do. Invest time in submitting strong entries for franchising and trade awards. If you are shortlisted, don’t forget to exploit the PR opportunities.

4. Offer case studies

Success stories act as testimonials and what makes these even more powerful is when prospective franchisees can relate personally to a franchisee, perhaps because they are from
a similar background.

5. Provide evidence

Share statistics about how many of your existing franchisees renew their agreements. Be specific about the level of support you provide, the length of your initial training and the investment that has been made in your brand.

6. Prove it

In the US, Canada and Australia, hundreds of franchisors participate in annual franchisee satisfaction surveys.  These are independently administered and provide franchisors with insight to improve their franchise system and also unique marketing collateral.  Rather than just say how good their franchise is they can prove it by sharing details of the percentage of their franchisees who would recommend it.

Closer to home, Smith & Henderson launched the Franchise Satisfaction Benchmark in June 2011.  It works by inviting existing franchisees to complete an online survey about their franchise ownership experience.  Franchisors receive a free franchisee satisfaction summary report and can also upgrade to a 20-page analysis of the results. They can use these independent statistics, such as the proportion of existing franchisees that would recommend their franchise, to boost their marketing and instantly win trust.

Within four weeks of the launch of the scheme, 18 franchisors have registered to participate in the benchmark.  For more information please visit www.FranchiseBenchmark.co.uk

Stephen Thorns - Managing Director, Qutis Clinics

Are there really 10 things to consider? There may be more but probably fewer than 10 are really important:-

1. Have I got the energy and time to devote to properly package and present my business as a franchise?
   My experience is that even in a well-organised business with clear and documented processes, this is still an enormously time-consuming and mentally testing task. My years of corporate experience as a director in several multinational businesses as undoubtedly helped me. However, if I had planned out all the work required in detail at the beginning I may have found the task too daunting. I believe when you are recruiting franchisees and they are considering investing tens of thousands of pounds in your franchise, you have to have all the pieces of the jigsaw assembled. I believe this can take 6 to 18 months.
    
2. Do I have sufficient finance in place to invest in creating a franchise model?
   The predominant reason why new businesses fail is often cited as lack of capital.
    
3. Where do I go for advice?
   There are several companies offering consultancy in setting up a new franchise offer. Who is established, who is experienced, who do I get on with and what do their recent clients say about them?
    
4. How will I recruit franchisees?
   Exhibitions can be expensive and require a lot of administration and staffing. Traditional advertising in newspapers and magazines is less effective than it used to be. National TV and radio advertising is very expensive and out of most people reach. Pay per click advertising, such as Google ad words can be very effective but takes time and investment to set up, so it can be more cost-effective to run. There are many websites where you can advertise your franchise opportunity alongside many others. These websites often priced differently and take time to assess but can be very effective at providing well-qualified prospects.
    
5. How good is my website?
   This is probably more important than you may appreciate. In my own case it has been possibly my steepest learning curve. Especially when combined with pay per click advertising.
    
6. How will I use technology to develop and maintain a franchise manual?
   There are many options available which can allow a manual to become a great tool for training and development. It can hold video, interactive training and conference tools, be readily updated easily shared and monitored.
    
7. Who will prepare my legal agreement?
   
    
8. Do I want to be a member of the British franchise Association?
   You may decide there are benefits for franchisees in you being able to demonstrate third-party approval of your franchise package.
    
9. and 10. What two final points have I not listed that are important to you?
    

Stephen Thorns is the founder and managing director of Qutis Clinics, a new franchise model based on our success owning and operating skin care clinics in Oxfordshire since 1998.

Sally Anne Butters – Head of Media, Coconut Creatives LLP

Too often, companies forget that they need to take action to manage their reputation. They could have very happy customers but very few people really know about how great their products are or how superb their customer service is. How can you grow your business into new regions or markets without shouting about the great reputation you have? How will you attract the best franchisees?

The Chairman of the Institute of Directors, Neville Bain explains:

“Organisations need to apply more attention to managing reputation. Firms with strong positive reputations attract better people. This gives rise to a virtuous circle of greater efficiency, better relationships with customers and suppliers, and enhanced legitimacy in the eyes of society as a whole.”

“In the absence of a good reputation, the ability of a company to create value is severely impaired. Boards need to be aware that reputation, like trust, takes time to build but can be lost in the blinking of an eye.”

In its most basic form, a franchise is a business opportunity that should already have a track record of profitability and market need which means that a franchisor just needs to help that good reputation become known to prospective franchisees.

In the Natwest bfa franchise survey 2011, word of mouth is top spot on how people first find out about franchising and specific franchise opportunities:

“When asking franchisees how they first heard about franchising, it immediately becomes apparent the extent to which word of mouth is key, both in terms of hearing about franchising in general, and about specific franchises. Friends and relatives are the most mentioned single source (24%) of initial awareness.”

Whilst the survey continues to evidence that people use a variety of sources and online and offline media in their research phase of the journey to becoming a franchisee and confirms that a franchisors should take a multi-channel approach to franchise recruitment, it is clear that testimonials are a must have in a franchisor’s marketing kit. This is confirmed within the decision-making process of a prospective franchisee:

“Again, as with the initial awareness of franchising, we see the importance of the personal touch in this industry, with high proportions citing a reason as ‘liking the people’ and ‘recommendation from existing franchisee’.

“Franchisees make careful decisions. Unsurprisingly given the personal and financial investment involved. On average franchisees said they had sought advice or made checks with 6 different sources prior to signing their franchise agreement.

Judgements relating to the franchisor offer and the impact of running the franchise on their lives are the most frequently made assessments, In terms of external consultations, contact with existing franchisees is crucial in terms of assessing profitability and their opinion of the franchisor.”

So, it is clear that franchisors need to take the time to review the reputation of their franchise business and how they manage it. I would recommend building this in to your marketing plan on a monthly basis; your advertising copy, online profiles, press release, video blogs, and internal communications. Every member of staff should be aware that everything they do can impact on your reputation and ultimately, the future of the business.

Here are a few tips:

1. Take time to collect and review customer and franchisee feedback – quickly acting on poor feedback turns a bad experience into a good experience.
2. Keep an up-to-date bank of testimonials
3. Update your online and print marketing materials on a regular basis with your latest testimonials
4. Take time to train staff and franchisees in your ‘perfect pitch’ – you have 90 seconds to explain what you do, how it can benefit who you are talking to and prove how it has benefited others
5. Make your franchisees your ambassadors; take them with you to networking meetings, exhibitions, and discovery days.

A consistent message is king; communicate this in everything that you do and a prospective franchisee will feel confident in building a relationship with you!

Sally Anne Butters MCIPR, is Head of Media at Coconut Creatives.

Karl Lewins - Franchise Support and Business Development Manager, Spoton.net

Contrary to the Jewish Proverb; I ask not for a lighter burden, but for broader shoulders – investing in a franchise opportunity offers you a lightened burden!

In my last post I spoke about the benefits of joining a franchise over starting your own business, one of the benefits I touched on is the support you will (should) receive from head office, a head office that consists of a team of skilled, industry experts unique to their field.

But what type of support should you expect? What areas of the business will they support you in? Will they go that extra mile to support you even in the most unlikely events?

Since I’ve been working in franchise industry I have been fortunate enough to have come across many people looking into buying  a franchise and they have all sorts of backgrounds. Everyone comes in with their very own skill sets and qualities that are unique to them, these traits mainly come through with their personality but have also been acquired throughout their education, experiences and training in the work place.

It is these skills and qualities in the franchisees that franchisors should look to exploit and harness to ensure that they are as successful as they can be, for themselves and the company. Support on a local level from the franchisor should come in all sorts of forms and sizes, it can vary from marketing an area to help achieve higher sales, to helping with the day to day tasks of running a business, such as accountancy, support calls, technical expertise through to ensuring that customer satisfaction is met at all times.

It is important that franchisees do not feel isolated out in the field and know they have the support and back up of the head office. General support whilst actively running your franchise is crucial and it is all well and good having these support channels in place but unfortunately there are sometimes circumstances that no one can foresee and it is these times that going beyond the call of your normal day to day support is essential.

For home based franchisees or individually operated franchises there will always be the worry that you are unable to run the business for reasons beyond your control.  Thankfully, these occasions are very few and far between, but when circumstances such as ill health, bereavement, family crisis arise, it is important the franchisor has the ability to step in and keep the business operational to ensure that the franchisee does not have extra worries and stresses to handle, so they can make a swift and positive return.

As I said before, support from a franchisor will come in all forms and sizes, it will also depend on the scale and set up of the franchise business, but it is having this extra support that offers franchisees encouragement and a drive to succeed, because not only should you have the support of head office, but the franchisor should have built up a network of franchisees where you can easily communicate and share best practices, you will have a pool of information and experience where you can draw further information from.

Karl Lewins is the Business Development Manager at Spoton.net. For further information, see our page on the Spoton.net Web based franchise.

Non-bfa member Franchisors invited to Heritage Motor Centre to find out more about the bfa

Hosted at the Heritage Motor Centre in Warwickshire, The British Franchise Association (bfa) is inviting non-members to attend an Open Day Luncheon. Thursday, 23rd June will be a fantastic opportunity to find out more about the bfa and all the benefits of becoming a member.

Becoming a bfa member allows you to display the prestigious bfa members badge which gives confidence to potential franchisee prospects, as well as access to bfa approved franchise service providers, exclusive bfa members forums and more.

The open day will run from 11am – 2pm and includes lunch. You will also have the opportunity to browse the Heritage Motor Centre’s impressive car collection at the end of the open day.

If you are a franchisor who is a non-bfa member and wish to attend, please contact the bfa for an invitation at:-

British Franchise Association, Centurion Court, 85f Milton Park, Abingdon, OX14 4RY
Tel: 01235 820470  Email: mailroom@thebfa.org

Sheilah Mackie - Senior Solicitor, Blake Lapthorne

Liquidation marks the “corporate death” of a company.  After paying the costs and expenses of the liquidation, the liquidator will distribute the net proceeds realised from the company’s assets to creditors subject to a statutory order of priority.

A franchisee would not usually be owed monies by a franchisor, although where a national account business is operated a franchisee may be due credits from the franchisor.  However, unless monies have been kept in a separate designated deposit account in the franchisee’s name, it is unlikely that the liquidator can pay them over.  The franchisee would be left to lodge a claim for the monies as an unsecured creditor.

It is more likely that the franchisor, before the liquidation, withdrew support and failed to carry out marketing activities or supply stocks. Normally, a franchisee might claim damages for breach of the franchise agreement. However, on the liquidation of the franchisor the franchisee would be left seeking such a claim as an unsecured creditor.  In many cases, there are insufficient funds available to pay unsecured creditors anything at all.

An interested party may seek to buy some or all of the assets of the franchisor.  This could include the franchise network – the trade marks, property, stock and franchise agreements. This is more likely if the franchisor has entered into administration since the primary purpose of administration is to rescue the business.   In these circumstances, franchisees would be advised to collectively try to persuade the liquidator or administrator to only to sell to a purchaser of their liking.

There is usually no contractual right for a franchisee to unilaterally terminate their franchise agreement on a franchisor’s liquidation.  Indeed, any franchisee attempting this could be in breach of contract and the liquidator might seek to enforce a claim for damages.  In many cases the liquidator will disclaim the agreement since the company will have ceased trading and be unable to fulfil its obligations.  A liquidator may let franchisees buy themselves out of their agreements and take over properties if this will realise assets for the benefit of the company’s creditors. If a franchisee can afford to take these steps, it presents a good opportunity to continue their business (debranded) free from the constraints of the franchisor. If not, it is possible that their business will in turn fail.

Sheilah is a Senior Solicitor for Blake Lapthorn’s Commercial IP/ IT team and heads up the firm’s non-contentious franchising practice. She advises on the full range of issues faced by those in the sector including setting up and managing franchise networks, complying with relevant regulatory requirements, dealing with underperforming franchisees and extracting franchisees from networks and much more. For more specific help on any franchise legal issue, Sheilah can be contacted at Blake Lapthorn.

Geoffrey Sturgess - Partner, Blake Lapthorn Solicitors

Franchising is largely a non-regulated activity in the UK and new franchisees are not protected by consumer law.  As a result, UK franchisors armed with ‘standard’ franchise contracts including single agreement and no reliance clauses have hitherto enjoyed an almost ‘untouchable’ status.

Unsettling for franchisors is the glimmer of hope offered to franchisees in Mr Justice Penry-Davey’s recent decision in the High Court in MGB Printing and Design Ltd v Kall Kwik UK Ltd [2010] EWHC 624.

Although it may be appealed the decision is significant to the industry.

The case concerns Mr Bibby, sole shareholder and franchise principal in MGB, who was advised by Kall Kwik’s head of franchise sales on the likely costs of purchasing an existing franchise and refurbishing the premises to meet Kall Kwik’s contractual standards.  Kall Kwik effected an introduction to the existing franchisee and advised Mr Bibby that the refurbishment costs were likely to be £15,000.  This sum was included in Kall Kwik’s cash-flow document provided to Mr Bibby, who relied on the estimate in his calculation of the purchase price for the franchise of £160,000.

Kall Kwik had no recent knowledge of the premises having not inspected them during the term of the existing franchise agreement.

Mr Bibby then set up MGB, which entered into a franchise agreement and subsequently a marketing launch agreement with Kall Kwik.  Both parties entered into a sale and purchase agreement with the existing franchisee.  It later became apparent to MGB that the cost of refurbishing the premises to Kall Kwik’s contractual standards far exceeded the estimation given, being actually in the region of £30,000 to £45,000.  Furthermore, Kall Kwik failed to provide marketing materials and training under the terms of the marketing launch agreement.

Michelle Stevens Hoare (instructed by Owen White), acting for MGB, sought damages for the loss suffered by paying too high a purchase price to the existing franchisee and the negligent advice given and breach of contract in relation to the franchise and marketing agreements.

Graham Cunningham (instructed by Hamilton Pratt), acting for Kall Kwik, denied that a duty of care was owed to MGB as the advice given and the cash-flow document were provided to Mr Bibby prior to the incorporation of MGB so could not have given to MGB.  Naturally, Kall Kwik also denied negligence and breach of contract.

Kall Kwik’s arguments included reliance on a boilerplate ‘entire agreement’ clause – “don’t rely on anything we tell you before you sign the franchise unless it’s actually written into the franchise agreement itself” which is found in most UK franchise agreements.

Mr Justice Penry-Davey held that Kall Kwik had given negligent advice and had breached the duty of care owed to MGB.  Further he held that Kall Kwik had breached the terms of the franchise agreement and marketing launch agreement in failing to provide marketing advice and materials.

Kall Kwik knew of Mr Bibby’s intention to incorporate and run his business through a company throughout the pre-contract negotiations and that his company (MGB) would benefit from the advice given by Kall Kwik to Mr Bibby.  Therefore, the later date of incorporation of MGB did not preclude Kall Kwik having a duty of care to the then non-existent company.  Mr Justice Penry-Davey held that MGB’s damage was reasonably foreseeable and it was “fair, just and reasonable” for the duty to be owed.  Specifically, Kall Kwik breached its duty of care to MGB by providing the £15,000 estimation without making reference to the contractual standards required in its own contract or any physical inspection of the existing franchisee’s premises.

The courts seem to be becoming concerned at the ability of franchisors to avoid almost any liability to new franchisees by using tough and non-negotiable contract terms and we have seen several attempts to redress this balance over the last few years.

The decision makes clear that franchisors should ensure that advice and guidance given to potential franchisees is up-to-date and given with reasonable skill and care whether given verbally or in writing. That should not be of concern to any ethical franchisor.  No doubt however we will soon see additional wording in franchise contracts intended to ensure that exclusion clauses cover potential liability arising for negligence prior to the signing of a contract as well as any liability arising during the term of the agreement.

Dissatisfied existing franchisees could now start looking for evidence of pre-contractual negligence.   Even with such evidence, however, most franchisees are still likely to conclude that the costs and risks of an action against their franchisor are just not worth it.

Contact:
For more information please contact Geoffrey Sturgess, a partner and head of the Franchising team at Blake Lapthorn on 01865 253 284 or at geoffrey.sturgess@bllaw.co.uk.

Joel Caws - Technical Director, Select Your Franchise

According to a recent article on SF Gate, social media is quickly becoming a research tool of choice for potential franchise buyers.

Social media sites such as Facebook and Twitter have seen an incredible rise in popularity over the recent years and Internet users are quickly becoming aware of the fact that they can use these tools to get the valuable opinions of their trusted friends and contacts on products and services they might be planning to purchase.

Franchisors who are not actively participating in these type of social media discussions will most likely lose out here. Conversations are happening about companies, franchise businesses,  services and products with or without the presence of those companies in the social media space.

Smart franchisors can take advantage by monitoring what is being said about their brands and services within the different social media channels and actively responding. In fact some franchisors are already taking a more active role by promoting Facebook or Twitter only deals to create a sense of community around their brand.

The beauty of social media is that conversations are often public and can be seen by anyone in the users networks and anybody searching for your brand.  If you are seen not to engage in conversation then this may ring alarm bells for potential buyers, signalling that you are a closed door outfit and not willing to be open to ideas and criticism. Rather than shy away from this open-ness, smart companies are embracing it and using it as an opportunity to engage which creates an instant ‘feel good’ factor about their company showing that they are willing to talk, are open to discuss pertinent issues and resolve problems.

Are you active within social media? What will users searching about your brand find if they search Twitter or Facebook? Will they find gripes and problems with the company itself notable in its absence? Or will they find a string of openly resolved issues and a company with an open door thats in touch with its community and open to comminunicate.

If you are not currently involved in social media, maybe now is a good time to start. At the very least you should be monitoring what is being said about your franchise brand on the most popular social networks. Conversations could well be going on about your brand right now without you!

John Pratt - Senior Partner, Hamilton Pratt and Legal Advisor to the British Franchise Assocation

The new vertical agreements block exemption has just been published.  It will come into force on the 1 June 2010 and franchisors have a transitional period until 31 May 2011 in respect of agreements already in force on 31 May 2010 to satisfy the conditions of the new block exemption.

The great majority of franchise agreements in the UK are drafted so as to comply with the block exemption and we have no reason to believe that the changes proposed by the European Commission will alter that approach.

The new block exemption is very similar to the current version but, nevertheless, there are significant changes.

First, as with the existing block exemption franchisors with a 30% or more market share do not fall within the block exemption.  Whether or not franchisors do have a market share in excess of 30% does, to a large extent depend on how the relevant market is defined but, in our opinion, adopting a common sense definition of relevant market, very few, if any, franchisors operating in the UK have a market share of more than 30%.  What is new with the new block exemption is that it is not only the franchisor’s market share that has to be taken into account but also a franchisee’s market share.  It is, of course, quite possible that a particularly successful franchisee has a market share of more than 30% in his territory and if this were to happen, then the agreement with that franchisee (but not with those franchisees who have a lower than 30% market share in their territory) would not fall within the block exemption.  This adds a quite unnecessary element of uncertainty although, in practice, the effect may not be significant because the reality is that analysing markets and market share is a complex and expensive business which few franchisees would be willing to undertake.

Secondly, the definition of know how has been changed.  The good news is that the requirement for the know how to be “substantial” has been watered down.  The bad news is that previously, if elements of the know how were not generally known or easily accessible then the know how would be treated as “secret”.  It now seems that each element of the know how has to be “not generally known or accessible”.  The definition of know how is principally relevant for enforcing post termination non compete covenants because according to the block exemption post termination non compete covenants can only be imposed in so far as they are “indispensible to protect known how”.

The third significant change is that in certain very limited situations in relation to sales promotions it may be permissible to set prices.

There are still a significant number of areas that remain unclear. As with the existing block exemption the “guidelines” to the block exemption are an extremely important aid in understanding the thinking of the Commission.  At the date of preparing this advisory, we have a copy of what we believe to be the final version of the guidelines that will be published although the guidelines have not, as yet, been published.

We are hoping to announce in the very near future a webinar in the week beginning 7th June organised jointly with the British Franchise Association and Central Law Training, to discuss the changes in the block exemption, the practical things that you have to do and where areas of uncertainty remain.

John Pratt and a German lawyer Karsten Metzlaft led the Legal Committee of the European Franchise Federation’s approach to the Commission on the new block exemption.

Mark Scott - Director, Franchise Development, NatWest

It is important businesses that are considering becoming a franchisor avoid costly mistakes. New franchisors should take proper advice when changing their business into a replicable business format franchise. It is vital that the potential franchisor makes the most of their resources and does not waste time or money.

NatWest’s Franchise Development Director Mark Scott says, “We advise that all businesses considering becoming a franchise avoid costly mistakes by using only respected BFA advisors. Avoid seeking advice from people or businesses that have simply paid their way to the top of web searches.”

The banks are very supportive of well set up and managed franchise businesses. When the bank reviews the structure of a franchise it looks for strong systems with robust management and advice from a BFA accredited consultant and lawyer.

• Don’t be caught out by results at the top of search engines.
• only use a BFA affiliated adviser.
• It may cost you more in the short term but the long term benefits will outweigh them

To avoid making costly mistakes, businesses becoming a franchisor need to approach the BFA for guidance. Get experienced and knowledgeable advice on how to structure a good franchise.

A referral to a BFA consultant can ensure that the correct structure is in place. They will work with a lawyer and in time introduce the concept to the Banks’ franchise teams. Working with BFA professionals will make becoming a franchisor easier in operations and access to funding for your business and your franchisees.

Carl Reader, Dennis & Turnbull Ltd

Any UK franchisees or franchisors who supply services to EU based customers will be subject to an additional burden due to changes in the EU’s VAT rules.

Effective from 1 January, the rules state that businesses must declare any services provided to VAT registered customers in the EU. This is effectively an extension to the existing EC Sales List that businesses are required to prepare.

Stephen Alambritis of the Federation of Small Businesses said: “We would urge the government to look at this regulation and make sure that we are not gold-plating the European requirements. In a year that is all about recovery, it is important that we don’t stall it by landing more paperwork on small businesses.”

This could particularly affect franchisors who provide supplies to EU based franchise holders, and as such all affected parties should ensure that they have structured their systems appropriately to facilitate the easy retrieval of this information.

Carl Reader is the head of franchising at franchise accountants Dennis & Turnbull, a leading firm of accountants in the franchise industry.

The above information is provided as general advice and no liability is accepted by the author, Dennis & Turnbull or Select Your Franchise in respect of individuals or businesses acting on the above. Independent advice should be sought in all circumstances.

Geoffrey Sturgess - Partner, Blake Lapthorn Solicitors

The landlord of a London pub was recently informed by the police that his licence application would not be granted unless he installed CCTV on the premises. The landlord considered that this was a restriction on his customers’ civil liberties, and the police backed down when the Information Commissioner intervened in the dispute, claiming that this requirement raised “serious privacy concerns”.  Currently the police may only recommend that such conditions be met before a licence is granted. However, new legislation currently being debated by Parliament would give the police the power to impose such licensing conditions, not only for pubs but for shops and off licences as well.

This dispute may be of interest in franchising. Franchisors of pubs may try and include as a condition of their franchise agreement an obligation on franchisees to install CCTV on the business premises. Franchisors currently have no general legal grounds on which to insist that this be done, as CCTV is not a pre-requisite to a licence for alcohol consumption being granted, although it is of course unlikely that franchisees will have the necessary bargaining power to negotiate the terms of their agreement with the franchisor.

Some franchisors are already requiring CCTV, visible at head office, to be installed as a term of the franchise agreement. Whether they could require this as a change in the Operating Manual must be open to question.

Franchisors and franchisees should remember that the primary purpose of CCTV is to record the actions of individuals. As such, its use is likely to be subject to the provisions of the Data Protection Act 1998 (the DPA). The DPA places obligations on organisations that deal with personal data, but also gives individuals the right to know when an organisation holds personal information about them, and the right to claim compensation if they suffer damage as a result. Franchisees need to be aware that if they use CCTV, even where this is at the request of the franchisor, it is their responsibility to make sure they comply with the DPA.

If you would like further information or advice please contact Blake Lapthorn.Information kindly supplied by Geoffrey Sturgess, Partner, Commercial Team, Blake Lapthorn.

Nick Strong - MD, Select Your Franchise

In the light of my recent articles on What is a franchise and Researching your franchise options, its clear that the most important thing a franchise system can offer its franchisees is its know-how. The franchisor’s intellectual property is therefore a closely-guarded secret only revealed to its franchisees, and you may be asked to sign a confidentiality agreement during your discussions with a franchisor.

When you buy the rights to operate a franchise, you will enter into a contract. The contract will be provided by the franchisor and will outline how your trading relationship will be governed.

The signing will not usually happen until after ‘due-dilligence’ steps have been taken (background checks, financial and otherwise) on both sides and it is agreed that both parties wish to proceed.

After completing the due diligence process, you should know whether you wish to proceed as a franchisee of the system you have been investigating or not.

Before signing the contract, check the following:-

• Is there a deposit to pay?
• What happens to the deposit if you do not finalise the contract?
• When will the training take place?
• When will you have to sign the contract and pay the balance of the franchise fee?
• When will you be in a position to trade?
• How will the franchisor help you lanuch your new business?
• What programme of support will be provided over the first 12 months?

The contract will outline what the franchisor agrees to do for you and what you will have to do for the franchisor.

All franchise contracts will be biased in favour of the franchisor – it is their intellectual property you will be using. It is a way of protecting not only their interesrts by the whole network’s interests too.

Once you have satisfied yourself that you have all the finormation you require to work with the franchisor, talk to your lawyer and lender to make sure you are in a position to sign, train, and start rading on the agreed timesalce with your franchisor.

The British Franchise Association (BFA) has been working on its ‘One Vision’ proposal since the end of 2008.  Currently there are two main accreditation avenues that verify membership compliance to the BFA.  One for Franchisors and the other Affiliates. 

BFA Supplier Category

The BFA is now looking to provide further distinction and clarification to its membership.  One such move is to split the current Affiliate accreditation into two categories; Professional affiliates and Suppliers.

The professional affiliates will consist of businesses operating in the areas of finance, consulting and the legal professions.  The supplier category will pick up all the remaining representatives including advertising and insurance.

This move is being taken so that the BFA can implement more exacting standards for accrediting professionals.   General suppliers are less likely to come under rigourous standards of scrutiny.  The BFA may also use this new supplier caragory in an attempt increase it’s supplier  memberhsip and in so doing increase subscription revenue.

The Franchise Supplier Showcase bringing franchisors and suppliers together

In addition to the BFA’s efforts The Franchise Supplier Showcase Ltd – www.FranchiseSuppliers.co.uk- provides a proven multi media format to bring suppliers and franchisors together.  The Franchise Supplier Showcase is owned and operated by Select Your Franchise and Howarth Franchising.

The goal of the Franchise Supplier Showcase is to introduce franchsors to suppliers that can offer franchsiors and their franchises real improvements in efficiency and productivity via their services.

Current suppliers offering their services to franchisors via the Franchise Supplier Showcase are GOOGLE, The Franchise Show (ExCel London), Xero on line accounting software, Cirrus Tenent Leasing, Glen Insurance, Azura on line franchise management systems, Howarth Franchising, FranWeb on line franchise marketing, Secure Vertual Office on line office admin systems, Knightwood insurance, Venture Finance and SelectYourFranchise.com franchise recruitment advertising.

The Showcase offers key events for suppliers and franchisors to meet, exchange views and do business in a safe and congenial environment via events, e-news, publications and specialist training.

The next Supplier Showcase meet the supplier and franchise buyer event will be at the NEC on 18th November 2009.  For details call John Fisher on 023 8027 3434 or e-mail John@FranchiseSuppliers.co.uk.