Read Past Franchising Questions and Answers

Question: I am looking at investing in a Pest Control Franchise. Could you tell if there is an industry 'average' of 'royalty fees' that are charges per month by Franchisors?
South East

Answer: The range of monthly service fees varies widely between different types of businesses, depending on turnover, profitability and margins. The fee will also reflect the level and range of services provided by the franchisor.

You will need to speak to the Franchisor and existing franchisees to gain an understanding of what you will receive in return for this fee. There may also be an additional advertising / marketing fee. Again your research should determine if this is the case.

There is no industry average as such but whilst carrying out your research it may be useful to find out what other franchisors in your chosen sector are charging to enable you to make a comparison.
Cathryn Hayes

Question: I'm looking at buying a franchise and one aspect of the agreement I would like some information on is the term. The franchise has a 5 year term with provision for renewal for another five years. I wanted to find out how normal this is as it gives me various concerns including:

1) The renewal has to be on their then current franchise which could have new - less favourable terms
2) They could use this as a way forcing a change in their business model - even moving away from franchising
3) It must make it more difficult to sell on the franchise?
South East

Answer: 1. In my experience it is usual for a franchisor to impose a renewal condition that you must agree to the terms of their latest form of franchise agreement.

2. You are correct. In addition, the franchisor will usually be able to change the system by altering the operations manual. However, depending upon the terms of the franchise agreement, it would probably be difficult for the franchisor to make fundamental changes to the franchise offering.

3. Franchises are often more difficult to sell than, for instance, a stand alone trading business because of the constraints of the franchise agreement.

The above is general guidance only and should not be relied upon in the absence of proper legal advice on the franchise agreement as a whole.
Stephen Thompson

Question: My husband is looking into a franchise to deliver food in a specific territory. The contract indicates that after 5 years there will be another fee. But we are paying now a fee to get the territory. Is it normal that the franchisor is asking for more after a set amount of time? South West

Answer: Yes, this is common place. The initial Franchise fee is a one off payment to buy into the business and reimburse the Franchisors costs and a typical franchise agreement usually lasts for a minimum of 5 years then if you decide to renew after the end of this period, a fee may be payable to reimburse the Franchisors legal costs. A monthly service fee is also normally charged as a fixed fee or a as a percentage of turnover.
Cathryn Hayes

Question: As a franchisee do I have any protection under the law should my franchise contract prove to be too restrictive or unfairly biased towards the franchisor? Will signing the contract make me legally bound to any and all aspects of the contract should they prove to be damaging to my business?
Wales

Answer: Most standard form franchise agreements are heavily biased towards the franchisor. It is important that anyone proposing to sign one should take independent legal advice on the agreement before they do so. If you sign a franchise agreement you are agreeing to be bound by its terms and the starting point for any dispute will be the terms of the contract.

Once you have agreed to the terms of a franchise agreement, it will be very difficult at a later date to dispute its provisions or their reasonableness.
Stephen Thompson

Question: I'm looking at potentially valuing a master franchise and wondered if you knew of any methodology commonly used to do this?
Scotland

Answer: The valuation would depend on many factors – the industry sector, the accounts, profitability, location and future prospects.

The assets in any business, including a franchised one, can usually be valued quite methodically by specialist accountants. However, there is no exact science in valuing the goodwill that has been created.

Finally, the valuation of the business will be dependent on the market conditions and ultimately, it would be based on how much someone is prepared to pay for the business!

We recommend that you contact a British Franchise Association (bfa) affiliated accountant, who has expertise within the franchise industry.
Cathryn Hayes

Question: Before purchasing my franchise 14 months ago, should my franchisor not have told me about a court case they were involved in with the previous owner of my franchise. I bought the resale not knowing this. If i had of known this i would certainly not have bought the franchise. When I come to sell my franchise am i not legally and morally bound to tell the prospective new owner of this news, therefore almost making my franchise unsellable?
North West

Answer: I would suggest that you first look at your franchise agreement. Most agreements are heavily weighted in favour of the franchisor and it may well enable the franchisor to avoid liability in respect of a failure to make such a disclosure. As far as selling your franchise business is concerned, whether or not you tell the buyer about the litigation will probably depend on the terms of your sale agreement. Your solicitor will be able to advise you on the issue. In any event, if you wish to take this matter further you will undoubtedly require specialist legal advice.
Stephen Thompson

Question - I am considering a cleaning franchise, would I do better to start my own business instead? South East

Answer - There is not a right or wrong answer. It is down to your individual preference and what you want to achieve. I have listed some of the advantages and disadvantages of becoming a franchisee: Advantages to Franchisees:
- You own your individual operation but benefit from a recognised brand name and associated goo