Many Letting Agents in Scotland are looking to develop and expand their business and may be considering franchising out their business. Susan Law from our commercial property team looks at some of the key issues.
In these difficult times why would you want to let someone else run the business you have spent many years building? You are relatively successful financially and have a good reputation in your sector so why cut it loose? The other way to look at this, however, could be – how can I expand my business successfully?
Franchising businesses is not a new concept, although this type of business growth has increased in the UK in recent years.
It allows someone to licence the use of their brand and operate their business in another area following the same operation model. Take, for example, if you run a successful letting business in Edinburgh. A cost efficient way to expand into the Glasgow market could be to open a branch there, but you would have to consider;
- the start-up costs for a new branch
- staffing requirements
- learning the nuances of the Glasgow letting market
- managing branches at opposite ends of the M8
By allowing a franchisee to operate your business in Glasgow you end up in a win-win situation if it is set up and operated correctly. You already have a proven business model so funding is slightly more forthcoming for this type of expansion and you avoid the headache of having to be in 2 (or 3 or 4) places at once.
To make a success of franchising there are three main considerations to get right:
- Choosing the correct franchisee;
- Putting in place a detailed operation manual and procedures;
- Getting the franchise contracts right.
Choosing a franchisee
When considering the suitability of a franchisee you need to think – could they be my business partner? They are the face of your brand in another location and you need to believe they have the skills and personality to look after the precious brand you have spent many years, graft and cash getting to where it is today and a level where someone else wants to use it.
What you need to tell them
A successful letting business is about knowledge of the letting sector and procedures to ensure the administration of letting is correctly managed. You need to impart all your knowledge to your franchisee and eventually many franchisees. The best way to do this is to put it in black and white. You need to put together a manual and have templates of all the forms and documents you use. The better the quality the manual is, then the better the chance that your franchises will operate successfully.
The importance of the franchise agreement
At the outset of the discussions with a potential franchisee there is always goodwill if it is the right candidate. Even though most franchise arrangements are very successful and without dispute, a great deal of this is because the rights and obligations of each party are set out in a legal contract. The transparency of having this set in stone means each party knows what to expect and what is expected from them. The franchise contract deals with all aspects of the arrangement from payments and costs (franchise fee, management fee and deposit) to territory, targets, training, term and termination. It gives certainty to both parties and provides a framework for resolving disputes if the unthinkable happens.
With a letting business in particular, the crux of the service being sold is a lease contract. Ensuring that this and the other legal documents used by the business are well drafted is also key. This can also include the terms of business to be used with landlords and tenants and the standard notices and communications used. If there are to be templates rolled out to each franchise then a solicitor should review these.
Ground work and preparation is the key to a good franchise and, of course, a successful business to start with!
If you would like to discuss franchising or franchise agreements, please get in touch with Susan Law. If you would like to discuss your terms of business or leasing documentation please contact a member of our housing team.
