Grow Your System by Creating Bankable Franchise Arrangements

Grow Your System by Creating Bankable Franchise Arrangements

Franchising is currently in a state of flux.  In particular, the recent recession has meant that a number of once successful franchise systems have encountered financial difficulties (at both a franchisor and franchisee level). The difference between the systems that have failed (or are struggling) and those which continue to succeed (even in times of recession) are those which have been structured properly.

The key to structuring a successful franchise system is to get the right advice from the very start. This means creating and using a “team” of expert advisers and others, experienced in successfully franchising businesses, to assist in creating a structure and model for success. By getting the right commercial advice, businesses are able to create a sound and viable foundation and platform to allow for substantial growth.

“IT’S ALL ABOUT GETTING THE RIGHT COMMERCIAL ADVICE TO CREATE GROWTH IN A SYSTEM”

Lawyers (both those experienced in franchising and those who are not) have a tendency to create documents which might technically be very sound (which is important) but, which in terms of being “commercially” sound, are deficient and therefore “un-bankable”.

If non-commercial documentation causes a franchise system to be un-bankable then the opportunity for that system to grow is greatly reduced. The ability to grow a system in franchising is very dependent on the ability to fund expansion. Funding expansion is likewise dependent on sound commercial documentation being prepared in a manner which treats all of the parties fairly and which does not unnecessarily expose the funder.

It is hard enough to create a technically and legally sound document. It is even harder to create a document which recognises the need to balance the strict legal rights and protections desired by the franchisor, with the need to create a fair commercial arrangement which a funder can “bank” comfortably and with confidence.

There are a number of key elements required to create a model for success, all of which focus on providing commercially sound advice to franchisors (existing and potential). In terms of key elements to successful franchising, Davenports Harbour considers that the advice given must:

• Be solution orientated and practical;
• Create a “Win-Win” situation for the parties;
• Be commercially sound and well thought through;
• Take into account the particular exposures of any funder;
• Balance the interests of the franchisor and the franchisee;
• Promote the ability for there to be disclosure between the franchisor and the funder regarding any default by the franchisee or problems in the system;
• Provide fair mechanisms for dealing with breaches of the franchise agreement;
• Provide the franchisee with an opportunity to build a business which they can ultimately sell for a profit; and
• Provide solutions which assist with the disconnection most franchisors have with their franchisees.