FRANCHISE DAY Franchise Law

FRANCHISE DAY
            Franchise Law

                 Franchise Experts

            Franchise Finance

WELCOME
     Karen Adamson, CIDO

HOW CIDO CAN HELP YOUR BUSINESS
•Starting a Business
     •Pre start Programmes
     •Business Start Programmes

•Developing a Business
    •Workshops and Events
    •Business Development Programmes
    •Business Clinics

•Locating a Business
     •Traditional Office and Industrial and Retail Workspace
     •Turnkey Office Suites
     •Virtual Incubation
     •Hot Desk Incubation
     •Meeting Rooms and Conferencing Facilities

AGENDA
9.30am - 10.00am    Registration
10.00am - 10.15am   Welcome                         Karen Adamson
10.15am - 11.15am   Franchising The Basics          Roy Seaman
11.15am - 11.30am   Coffee break
11.30am - 12.00pm   Franchising Law                 Leeanne Whaley
12.00pm - 12.30pm   Financing your Franchise        Jim Young
12.30pm - 1.30pm    Lunch
1.30pm - 2.30pm     Franchising Opportunities       Roy Seaman
2.30pm - 3.00pm     Funky Monkeys                   Henry Moore
3.00pm - 3.15pm     Coffee break
3.15pm - 4.30pm     Meet the Experts & Networking

FRANCHISING THE BASICS
            By Professor Roy Seaman, CFE

Founder & Managing Director of Franchise Development
                     Services

            Franchise Development Services Ltd Copyright 1981 -20111

IS FRANCHISING RIGHT FOR YOU?

Are you thinking to go into business, but are you unsure
if you can go it alone?

What if you had…

IS FRANCHISING RIGHT FOR YOU?

 A proven business model

 An exclusive area in which to operate

 Full training

 Business launch and ongoing support

 Other successful people to network with?

IS FRANCHISING RIGHT FOR YOU?

 By investing in a Business Format Franchise you will
  be provided with all of this and much more.

 This presentation will provide you with an
  introduction to Franchising and explain how to
  identify opportunities that could be right for you.

WHAT IS FRANCHISING?
 Franchising is a method of sales and marketing goods
  and services via a business formula licensed to others
  to follow.

 To qualify to offer their business as a “Genuine
  Business Format Franchise” a company must have
  certain key elements in place.

BRAND
 The Franchisor will have developed and protected
  their brand in the market place.

 A Franchise Owner will have the right to trade using
  the Franchisor’s brand.

SYSTEM
 The Franchisor will have spent time and money in
  researching and developing their operating systems.

 These systems will be tried, tested and proven and
  will easily be transferable to Franchise Owners.

 As a Franchise Owner you will be required to follow
  the Franchisor’s systems and methods and operate
  within their guidelines.

SUPPORT
 To provide Franchise Owners the best possible
  chance of success

 Franchisors provide both initial and ongoing support
  and training

 Support provided includes…

SUPPORT
   Training
   Sales
   Marketing
   Business launch
   Centralised buying
 Operations & training manuals

AGREEMENT

In all Franchise operations there will be a Legal
Agreement, known as the Franchise Agreement, which
will:

   Contractually bind both parties
   Accurately reflect the agreed terms
   Define the rules to be observed
   Protect Intellectual Property Rights

BENEFITS OF FRANCHISING
   A proven business model
   You will be part of a network
   Comprehensive training & support
   National marketing and brand recognition
   Buying power

THE REALITIES OF FRANCHISING
   Initial and ongoing fees
   Guidelines to follow
   Performance targets
   There’s no avoiding hard work!
   Total dedication to achieving sales revenue

TIMESCALES AND INVESTMENT
When researching the Franchise market to identify the
sector and brand that is right for you, there are certain
areas that you will need to assess.

They are…

AREAS TO ASSESS

   Your initial capital available for investment
   Family buy in
   The market
   The Franchisor
   Timescales

YOUR CAPITAL AVAILABLE

The points to consider in relation to price are:
 Initial investment
 Total investment
 Liquid requirement
 Working capital
 Ongoing fees

FAMILY BUY IN
There are questions that you will need to ask yourself

   Can we work within the framework?
   How much time can we invest?
   How much cash is available?
   What are your skills and interests?
   Do you have family support?

ASSESS THE MARKET
When assessing the market you will need to consider:

 Who is the competition?
 Is the product / service special or
  unique?
 Is the price competitive locally
 How will the Franchise compare with     local
competition?

ASSESS THE FRANCHISOR
 When investing in a Franchise you are not just
  buying into the product or service provided, you
  are also buying into the people behind the brand.

 When assessing Franchisors research the company
  to ensure that you are comfortable with their
  background and experiences and that their
  aspirations match yours.

 Gut feelings?

ASSESS THE FRANCHISOR

Points to consider include:

   Trading performance of corporate outlets
   Trading performance of Franchise Owners
   Recruitment targets
   Support services provided
   Success rate of Franchise Owners

ASSESS THE FRANCHISOR
 When meeting with Franchisors always do so at
  their head office and have your questions ready.

 Be well prepared for the meeting and
  demonstrate that you have done your research.

 As part of your assessment of the Franchisor
  always speak with existing Franchise Owners.

ASSESS THE FRANCHISOR
 Always seek professional independent advice.

 To ensure that it is fair to you, have Franchise
  Agreements reviewed by specialist lawyers and seek
  financial advice in relation to Business Plans.

RESOURCES
To help you with your research there are a number of
Bodies available to you including:

   The British Franchise Association
   Banks
   Franchise Development Services
   Your Accountants

CONCLUSION
 Franchising is a method for you to be in business for
  yourself but not by yourself.

 Franchising is not for everyone – Are you willing to
  follow the Franchisor’s advice and guidance?

 With the vast amount of businesses that Franchise
  and the support of an experienced Franchisor, the
  chances of success, when compared to a new start up,
  are significantly increased.

CONCLUSION

Facts according to The UK Franchise Directory:

   There are over 1,500 Franchisors
   There are 75,000 Franchise Owners
   £20 Billion turnover
   750,000 people employed in Franchises
   90% success rate

FRANCHISE DEVELOPMENT SERVICES

 FDS provide the following services:

    Free advice and guidance on Franchising
    Free Franchise Match Making Service
    Franchise publications and websites
    International Franchising
    Franchise Development Programmes

FRANCHISE DEVELOPMENT SERVICES

       For more information contact
               Head Office:
             Franchise House
             56 Surrey Street
                 Norwich
                  Norfolk
                 NR1 3FD
        Telephone: 01603 620 301
       Email: enquiries@fdsltd.com

FRANCHISING LAW
               Leeanne Whaley

Associate | Commercial | John P Hagan Solicitors

INTRODUCTION

 Legal issues relating to Franchising
 Franchise Agreement
 What happens if it all goes wrong...
 Questions

LEGAL ISSUES RELATING TO FRANCHISING
 What is franchising?

    Use of name

    Franchisor exercises continuing control

    Franchisor provides assistance

    Franchisee makes periodic payments

LEGAL ISSUES RELATING TO FRANCHISING
  Legal entity

     Sole trader
        Simple
        Personal Liability

     Limited Company
         Limited liability
         Compliance with legislation

LEGAL ISSUES RELATING TO FRANCHISING
 Property Issues

    Obtain own premises

    Select premises approved/owned by Franchisor

    Control

    Check restrictions on user

    Business Tenancy Rights

LEGAL ISSUES RELATING TO FRANCHISING
 Deposit

 Confidentiality

LEGAL ISSUES RELATING TO FRANCHISING
 Who prepares?
 Who pays?

 Main clauses
    Term
    Fees
    Obligations – Franchisor/Franchisee
    Termination

FRANCHISE AGREEMENT
 Operations Manual

 Property Matters

IF IT ALL GOES WRONG...
 Usually a small number of circumstances will occur:

    Franchisee not performing

    Franchisee not paying

    Franchisee wishes to terminate early

    Franchisor/franchisee not complying with
     obligations in agreement

 Franchise Agreement will govern

IF IT ALL GOES WRONG...
 Breach of contract claim in the High Court

 Remedies

 To be avoided!

Contact
Leeanne Whaley

John P Hagan Solicitors
Montrose House, 17-21 Church Street
Portadown BT62 3LN

T: (028) 3833 3333
F: (028) 3835 0011
M: 07730 680686
E: leeanne@jphagan.com

QUESTIONS?

FINANCING FOR FRANCHISEES
Jim Young, Area Manager, BBNI – South Central Branches

     © 2011 Ulster Bank Ireland Limited is regulated by the Central Bank of Ireland
                         Information is correct at 21/02/2011

FRANCHISEE VIEWPOINT?
In business for yourself but not by yourself.
Proven business format and track record
Training and on-going support.
Franchisor’s income is tied to the success of your business.
Reduced risk but not risk free

Homework reduces risk

HOW TO CHOOSE YOUR FRANCHISE
Does it fit your pocket
Can you identify with the franchise
It must fit your local area
Does the franchise have a proven track record
Is it profitable
Is there a focus on branding
Quality of initial and ongoing training
Quality of ongoing support

HOW DO YOU GET THE ANSWERS YOU
NEED?
 Meet with existing franchisees

 Draw up your own business plan

 Seek independent advice

FINANCING FOR FRANCHISEES

COSTS OF BECOMING A FRANCHISEE:
Average Set Up cost in Ireland fell to €124,330 (down from
€226,000 in 2006).
Set Up Costs may include:

Franchise Fee                  Stock
A Vehicle                      Working capital
Equipment                      Training
Fit-out                        Launch programme
PC Hardware/software           Funding for start-up losses

Additional costs re premises or lease acquisition

COSTS OF BECOMING A FRANCHISEE:

Average working capital invested in Franchise businesses
      fell to €21,873 (down from €39,300 in 2006)

FINANCING FRANCHISEES

Funding is typically a mix of:
 Personal Cash Equity
 Secured Debt
 Debt, without supporting security – usually requires a
personal guarantee
 Grants or Third Party Equity

FINANCING FRANCHISEES

 Ulster Bank can fund up to two thirds of your funding
requirements
 A range of factors influence how much a business can
borrow – terms and conditions apply
 The level of debt the business can support will be
influenced by the cashflows available to meet capital and
interest repayments

ULSTER BANK FRANCHISEE PACKAGE
 Ulster Bank offers a very competitive package for
franchise and start-up customers
 Free transactional banking for start-ups in their first two
years*
 An online support programme, developed by businesses.
 Loans of up to €30,000 can to provided for new business
development purposes without need for “personal
guarantees to be backed by assets”
EIB Interest subsidy can be availed of, for qualifying
businesses outside this package

PROTECT YOURSELF AND YOUR BUSINESS
Insurance should be considered where any business is
dependent on particular individuals

If you are Key to the business, consider your options for;
Life Cover
Critical Illness Cover

If you buy a franchise and are not able to continue to
operate it, the Franchisor is likely to bring in a manager – at
cost to you the franchise owner

BUYING A MASTER LICENCE
 The cost of acquiring a master licence is effectively a
  "sunk cost“
 Payment of a ML Fee to the Franchisor does not of itself
  result in an income stream

 A Master Licencee generates income from 3 sources:
1. Operating own stores
2. Selling Franchise licences – price usually coves some of the support costs
3. Ongoing share of franchisee revenues

 If the Master doesn’t sell to franchisees, Master will not
  have funds from 2 of these sources

BUYING A MASTER LICENCE
If you do not adhere to the Franchise terms of engagement,
you can lose your ML, and your cash investment.
Payments to Franchisors to acquire a ML should be funded
from promoter equity
Consider negotiating a deferred payment plan with the
Franchisor
Costs of creating franchisee support structure in Ireland
should also be funded from promoter equity.
Debt will require alternative sources of repayment, until
Master is generating income from Franchisees

WHAT DO ULSTER BANK CONSIDER TO
BE A GOOD FRANCHISE?
Well Established Business
Proven Pilot
Clear Demand
Must have – will displace a larger cost, or defer a purchase
Calibre Franchisor
Strong management team
Strong franchise support systems
Proven Profitability for all parties

ASSESSING A FRANCHISEE FUNDING
APPLICATION
A prospective franchisee is someone starting a new business
- reduced risk, but not risk-free.

Do usual assessment for new business
  - Business Plan
  - Financial Projections
  - Market/Competitive Assessment
  - Personal Assessment
  - Set up costs/borrowing requirements
  - Payback/Security

QUESTIONS TO ASK ABOUT A FRANCHISE
The Franchisor                      Franchisees
How long in business                No of outlets
How long franchising                Outlets outside home market
                                     Selection Criteria
Historic Financials
                                     Franchisee Feedback
Franchisor experience &             Supports for Franchisees
qualifications                       Management of poor
Competence of directors/managers      performers
Bankruptcy/Litigation               Failure rates?

  Future Plans
   Locations
   How many outlets will be opened
   Product development plans

As a bank, we do not warrant,
recommend or endorse any individual franchise.

Before you invest in a Franchise we strongly
recommend you take franchise specific
independent legal and financial advice

KEY FRANCHISING RESOURCES
Ulster Bank Introduction to Franchising Booklet

 www.smallbusinesscan.com website connecting thousands

of small business owners and entrepreneurs
Irish Franchise Association

British Franchise Association

US Embassy, Commercial Section

International Franchise Association

Websites such as Franchise Direct, Whichfranchise &

Franchise Options

I hope you found this intro to franchising useful.
  If you would like to meet one of our frontline
  Business Managers Or Business Development
Managers, they will be more than happy to talk
                      to you.

FRANCHISING OPPORTUNITIES
       By Professor Roy Seaman, CFE
            Managing Director
    Franchise Development Services Ltd

          Franchise Development Services Ltd
                 Copyright 1981 - 2011

WHAT DOES A FRANCHISOR OFFER?

   Franchisors should have an identifiable and
   equally a unique ‘brand’ representing a
   distinguished product or service mix.

ORIGIN OF MODERN FRANCHISING
AND OPPORTUNITIES
All these brands use Franchising:

1851   Singer Sewing Machine – needed service engineers
1903   Coca Cola – needed sales and distribution
1911   Thorntons – needed more retail outlets
1937   McDonald’s – committed people to follow their system

ORIGIN OF MODERN FRANCHISING
AND OPPORTUNITIES

1957   Holiday Inn – saw the need for reliable standards
1957   Swinton Insurance Brokers managers leaving
1958   Pizza Express – cloning proven concept
1976   The Body Shop – needed innovative expansion method

ORIGIN OF MODERN FRANCHISING
AND OPPORTUNITIES
1985 Franchise Development Services – Franchise
     Franchising!
1991 Wiltshire Farm Foods – supplement existing corporate
     business with door to door service
1994 Drain Doctor – following proven US expansion method

ORIGIN OF MODERN FRANCHISING
AND OPPORTUNITIES

2005   O2 – additional to company-owned outlets
2007   Caremark – servicing the growing care market
2008   Cargocall – servicing international shipping
2009   Orange – increasing market penetration
2010   Rohan – improving geographical coverage

WHO FRANCHISES?
JOB/MANAGEMENT/INVESTMENT
FRANCHISES
   Business Services – Auditel/ERA - Management
   Carpet Cleaning Services – Management
   Commercial Cleaning Services – Jani-King - Management
   Distribution – Snack-in-the-Box - Job

WHO FRANCHISES?
JOB/MANAGEMENT/INVESTMENT
FRANCHISES
Property Lettings – Northwood Residential – Management
Food Franchising – Subway – Job/Management
Health & Beauty – Lighter Life - Management

WHO FRANCHISES?
JOB/MANAGEMENT/INVESTMENT
FRANCHISES
 Motorist Services – Chips Away - Job
 Homecare – Molly Maid - Management
 Property Sector – Platinum Property Group –
  Management
 Hotels – Holiday Inn - Investment

PROVEN SYSTEM
All of these companies have something
in common – they have developed, proven
and identified a successful business system encompassing:

KEYS TO SUCCESS
   Products/services needed in the marketplace
   Nationwide demand
   Efficient Admin System
   Good control and monitoring
   Attractive corporate identity
   A truly professional approach
   Protected brand

PROFITABILITY
 Proof in practice that their concept, brand and
  business system can generate without doubt -
  enough profit to support Franchise Owners and
  themselves as a Franchisor

THE FRANCHISOR MUST DELIVER
   Caring Management
   Good credibility with customers
   Attractively distinctive
   Good R&D programme
   Win-win attitude
   Nationwide need for product / service
   Monitoring of key performance indicators

WHY SOME FRANCHISORS FAIL
   Lack of capital
   Wrong objectives
   Recruiting too fast
   Lack of support services
   Wrong profile of Franchise Owners

THE FRANCHISE AGREEMENT
   Legal contract – clear & concise
   Control document
   Right of renewal or sale
   Non-negotiable
   Franchisor’s right to terminate
   Defines Management Service Fee

FRANCHISORS SHOULD PROVIDE
   A complete franchise package
   Comprehensive initial training
   Ongoing support
   Excellent initial training
   Comprehensive launch
   Analysis of Key Performance Indicators
   Continual research and development

THE BASIS FOR CHARGING FRANCHISE
OWNERS
   Initial training
   Ongoing training
   Shop fitting / vehicles / essential
    purchases
   Stock / materials
   Comprehensive launch of business
   Everything else to succeed

THE BASIS FOR CHARGING FRANCHISE
OWNERS
   Use of Trade / Service Mark Rights
   Brand value / opportunity cost
   Recovery of Franchise Development costs
   Ongoing support services

SUPPORTING FRANCHISE OWNER’S
DEMANDS
 Continual listening, assessment and action
 Help launch each new Franchise with commitment, drive
  and determination
 Continual support and control
 Providing Franchise Owners with a total framework to
  follow

SUMMARY
 Clearly understand timeframe and investment
  requirements
 Successful Franchising never happens by chance
 Use best possible professional advisers
 Be realistic

THE FUNKY MONKEYS
 FRANCHISE MODEL
 Presented By Henry Moore

FUNKY MONKEYS - NEWTOWNABBEY

THE STORY SO FAR….

2008: Master License - Mark & Alison Simpson
2008: Opened 1st centre - Lurgan
2009: 2nd centre - Downpatrick
2010: Became sole franchisors for NI/ROI
2010: Opened two further Centres
2011: 5th centre - Larne, plan for 8....

THE FUNKY MONKEYS BUSINESS MODEL

Premises ranging from 5-7000 sq ft
Population of 100,000
Three main revenue streams
High GP Margin
25% net profit
Return on Investment - 2 years

£20k initial fee – 7% ongoing sales

FUNKY MONKEYS CORE VALUES
Treat franchisees as both partners & Customers
Pass every benefit onto franchisees
Provide continual support & tools
Be transparent in all areas
Provide forums for communication and ideas

BECOMING A FRANCHISOR
3 key stages
Vision
  To develop Funky Monkeys as the best and most successful
  children's indoor soft play cafe throughout the whole of
  Ireland.

Strategy
 Adequate Planning, realistic & measurable

Commitment
 Be dedicated to the strategy and be prepared to deal with
 setbacks and move on

VISION
The Preparation

Market assessment
Financial assessment
Training needs
Business model
Supplier relationships

STRATEGY – HOW DO WE GET THERE?
Identify territories
Operations manual
License agreements
Training manuals
Finding suitable premises
Finding suitable people
Facilitating the growth of the business
Controlled Growth

COMMITMENT –
TO OURSELVES AND OUR FRANCHISEES
Growth through investment
Change through continual development
Adding value to franchisees & their business
Fulfil original vision

FUNKY MONKEYS AT THE BALMORAL

THE BENEFITS OF BEING A FRANCHISOR
An opportunity to grow your business more rapidly
A platform which allows you the time needed to
continually develop the business
Brand Recognition
A competitive edge

THE CHALLENGES OF BEING A FRANCHISOR
Taking the first step
Finding the right people
Retaining a competitive advantage
Controlling growth
Dealing with set backs

OUR ADVICE
A tried and tested business model
Listen to your customers
Ensure you continue to add value
Control Growth – Right time, right place, right people

Vision - Strategy - Commitment

Contact
Email: management@funkymonkeys.co.uk
Tel: 0844 414 5267

THANK YOU FOR LISTENING...

       QUESTIONS?

EXPERTS
Company Name          Name            Area of Expertise
Franchise Development Roy Seaman      Franchising
Services

JP Hagan Solicitors   Leanne Whaley   Law

Ulster Bank           Jim Young       Finance
                      Paddy O'Hagan
                      Michael
                      Ferguson
Funky Monkeys         Henry Moore     Owning a
                                      Franchise

Ortus                 Claire Dunlop   Franchise Growth