Link issue#7 may -june2005 - SCLG

34
Legal
WHO ARE YOU GETTING INTO BED WITH ?
- guidelines for picking the right franchise partner
Franchising is booming in the Middle East. It's
difficult to keep up with the list of expansions and new
arrivals; new Starbucks outlets opening at every turn
and the recent arrivals of Blenz Coffee, Miu Miu,
Columbus Cafe, Yo-Sushi! and, finally, Prada. The
concept of franchising is very broad and covers fast
food businesses, restaurants, hotels, soft drinks and
clothing amongst others.
So where do we start? Think of entering into a
franchise arrangement as kind of like getting married
for a set number of years. So if you're gonna end up in
bed together, make sure you know who you'll be waking
up next to in the morning.
Quality and Type of Goods/Services.
Are there any restrictions on the quality or type of goods and
services used in the franchise and where they may be
purchased, including restrictions requiring purchases from
the franchisor or its affiliates?
Territory and Master or Not?
Do you have a clear description of the territory that will be
granted and whether it is a master franchise covering a
larger territory or just a licence to open one or two outlets?
Look At Your Options
There are literally thousands of franchises to choose from.
If your thing is fried chicken, you will find many franchisors
who will offer you the opportunity of owning and operating a
fried chicken franchise! There are many directories you can
use to take a look. Once you know who you are interested in,
then the interesting stuff begins!
Checking Out Your Marriage Partner
It is important for any prospective franchisee to obtain full
information about the franchisor. There are none of the strict
disclosure requirements you have in other countries so if you
want to know something, you better ask! The kind of
information you will want is:
Fees
You will need information about the initial franchise fee
and other initial payments that are required to obtain the
franchise, and also about any continuing payments required
after the franchise opens.
Getting Out
You'll need a clear description of the conditions under
which the franchise may be repurchased or refused renewal
by the franchisor, transferred to a third party by the
franchisee, and terminated or modified by either party.
Number of franchises in operation.
The number of franchisees provides some measure of the
stability and experience of the franchisor. However, it is
possible that a new franchisor provides a great ground floor
opportunity.
Number of franchises no longer in operation
You need to find the number of franchisees who have been
closed or repurchased by the franchisor, or gone out of
business. The more franchisees that have experienced
problems, the greater your risk becomes in purchasing a
franchise.However, there are some good opportunities with
younger franchisors also.