Franchises: development and entering into a market

Franchises: development and entering into a market

Under certain conditions on the wave of popularity this one business management model or another rise. At present, Ukrainian entrepreneurs fully justifiably pay a lot of attention to a business model, such as franchising. As qualitatively developed and effectively entered into a market franchise allows to increase profitability of a business in a few times because of appearance of new sources of income, benefits obtaining regional markets recognition and increase of goods turnover, helps to make brand recognized among customers.

Franchising is good for different areas and different scopes of business. However, a newbie franchisor awaits many risks. Most frequently, a desire to speed up results is undermined by ignoring legal, financial, and marketing project research. Mistakes occur at the stage of documents development and negotiations with potential partners, selection of a franchisee, and during fast network expansion. After all, a franchisor may get not a great success, but a rapid loss of invested funds and disappointment.

For a successful launch of a franchising project professionals of the Attorneys at Law “Bachynskyy and Partners” offer their assistance. Our team is ready to undertake all legal aspects, as well as involve reliable contractors – our partners – in solving issues of financial settlements and marketing packaging. Apart from franchise development from scratch, we are ready to render separate services in such an area, particularly, engaging in drafting a commercial concession contract, assisting in trademark registration or evaluating an established (previously developed) franchise. Our support is a factor of a significant increase of chances of a franchising project success!

Legal package

We offer to start a cooperation with legal consulting, where you may express your preferences and expectations for a project, but we can specify possible opportunities and potential pitfalls according to a chosen business niche and an approximate budget. After reaching agreements we start with solving the issue of trademark registration (in case it haven`t been registered yet).

Trademark registration

In a complex of brand identity elements trademark takes a central place. For franchise, TM gains significant importance, as it benefits increase of product attractiveness for potential franchisee partners.

With the support of professionals of the Attorneys at Law “Bachynskyy and Partners” trademark registration passes through the following stages:

  1. Selection of a unique name – for example, by holding a naming contest in a freelance marketplace.
  2. Collecting and submitting documents to the State Enterprise “Ukrainian Intellectual Property Institute” (Ukrpatent)

 

 

Franchises: development and entering into a market

Under certain conditions on the wave of popularity this one business management model or another rise. At present, Ukrainian entrepreneurs fully justifiably pay a lot of attention to a business model, such as franchising. As qualitatively developed and effectively entered into a market franchise allows to increase profitability of a business in a few times because of appearance of new sources of income, benefits obtaining regional markets recognition and increase of goods turnover, helps to make brand recognized among customers.

Note! A franchise is a set of rights to use an established business model and brand, knowledge and business conduct practices, transferred by agreed fees from a titleholder (franchisor) to a user (franchisee).

Franchising is good for different areas and different scopes of business. However, a newbie franchisor awaits many risks. Most frequently, a desire to speed up results is undermined by ignoring legal, financial, and marketing project research. Mistakes occur at the stage of documents development and negotiations with potential partners, selection of a franchisee, and during fast network expansion. After all, a franchisor may get not a great success, but a rapid loss of invested funds and disappointment.

For a successful launch of a franchising project professionals of the Attorneys at Law “Bachynskyy and Partners” offer their assistance. Our team is ready to undertake all legal aspects, as well as involve reliable contractors – our partners – in solving issues of financial settlements and marketing packaging. Apart from franchise development from scratch, we are ready to render separate services in such an area, particularly, engaging in drafting a commercial concession contract, assisting in trademark registration or evaluating an established (previously developed) franchise. Our support is a factor of a significant increase of chances of a franchising project success!

Legal package

We offer to start a cooperation with legal consulting, where you may express your preferences and expectations for a project, but we can specify possible opportunities and potential pitfalls according to a chosen business niche and an approximate budget. After reaching agreements we start with solving the issue of trademark registration (in case it haven`t been registered yet).

Trademark registration

In a complex of brand identity elements trademark takes a central place. For franchise, TM gains significant importance, as it benefits increase of product attractiveness for potential franchisee partners.

The notion “trademark” refers to any designation or any combination of designations capable to distinguish the goods/services produced/provided by one entity from the goods/services produced/provided by other entities. Such designations can be:

  • Graphic (pictorial), for example, logos;
  • Verbal, examples – designations and mottos;
  • Colors;
  • Digital;

Important! Only designed to the smallest detail and unique trademark has a “right to live”, in other cases registration will not be conducted or there will remain risks of its disputing by competitors.

With the support of professionals of the Attorneys at Law “Bachynskyy and Partners” trademark registration passes through the following stages:

  1. Selection of a unique name – for example, by holding a naming contest in a freelance marketplace.
  2. Collecting and submitting documents to the State Enterprise “Ukrainian Intellectual Property Institute” (Ukrpatent)
  3. State registration of a TM – under the condition of taking a decision in favour of an applicant, data is entered into the register, the certificate is issued, and communication is published in The Official Bulletin of Ukraine “Industrial Property”.

Generally, the term of the registration procedure is 18-20 months. Terms may be shortened upon request by using a procedure of a “quick” registration (however, expenses will be bigger).

Elaboration of a commercial concession contract

Using legal language, franchising is defined as a commercial concession. Relations arising from concluding a commercial concession contract are regulated by the provisions of Chapter 76 of the Civil Code of Ukraine. Particularly, Article 1116 of the Civil Code of Ukraine states that the subject matter of a commercial concession contract is the right to use trademarks, commercial experience, and business reputation. Apart from the concession contract, in certain cases, a commercial sub-concession contract may be concluded (granting a certain set of rights to a sub-user).

To note! In general, the level of franchising relations regulation in Ukrainian legislation is not too high, so it makes contracts between parties to be almost the only ground to determine rights and obligations, terms of breaking, responsibilities for violation of the contract, and algorithms of resolution for possible disputes. Of course, the terms and conditions of such a contract must not oppose the laws.

Composing a draft of a franchising contract by experienced lawyers allows avoiding many risks and potential vulnerabilities for a franchisor. In the main body of a contract, the following terms are determined:

  • Conditions of accession to the network;
  • Term of validity and territorial scope of the contract (territory of user`s activity);
  • Defining responsibilities between franchisee and franchisor;
  • Structure and amount of payments paid for the benefit of a franchisor (including lump sum and royalty);
  • Means of TM and commercial secret protection;
  • Order of franchisee`s staff training and providing marketing support;
  • Order of monitoring the brand`s standard compliance by a user.

Also, usually, clauses, regulating the course of actions by parties in case of force majeure, are added.

In case of need, professionals of “Bachynskyy and Partners” may conduct legal expertise and adaptation of an elaborated franchising contract. Also, we are ready to analyse or compose a draft of license or agency contract, supply contract or contract of equipment rental, as well as other contracts for carrying out commercial business based on the franchise.

Master franchise

For a big business, in pursuit of the conquering of new markets, including the ones beyond the borders of his state or region, a business model named “golden franchise” or “master franchise” will work best. Features of the model are transferring unique franchise rights and a wide scope of powers for establishing his own network in a certain region to a franchisee.

To note! The team of professionals of the Attorneys at Law “Bachynskyy and Partners” is competent enough for supporting this very special franchising model. Also, we are ready to assist in carrying out international business projects requiring harmonization of legislative requirements in a few jurisdictions.

Defining features and advantages of the “golden franchise” are the following:

  • Successful promotion of the brand in a new region based on deep knowledge of a certain market by local businessmen;
  • Opportunity for a brand owner to scale a business rapidly with minimal investments;
  • For a franchisor the risks, related to entering new markets, are minimized, as master-franchisee undertakes all issues of strategy testing and network expanding in a certain region; moreover, if the terms of the contract are violated, a franchisor gets a right for this territory back.

Important! However, the main risk of master franchising is selecting a quite reliable, competent and experienced partner. For minimizing such a risk professionals offer a specific legal instrument – Due Diligence.

It refers to a deep investigation of a potential business partner and a potential contract with him. Attention is drawn to a history of businesses of a potential master-franchisee, his relationships with counterparties, participation in judicial proceedings and commercial arbitrages, observance of tax and labour laws. Sometimes in order to obtain a full picture, apart from using open sources, insider information is collected.

Financial model

Apart from the promising conception and potentially beneficial positioning, correct legal backing and choosing a reliable partner, a success of a franchising project depends on thorough prior financial estimates.  At the stage of preparation of a project, it is necessary to conduct not only one consultation or just a single brainstorm with experienced financial analysts. We are ready to provide the involvement of specialists who fit these exact criteria.

The financial element of a franchising project requires at least two main stages of work.

Evaluation of the current business model

A key issue to be addressed is whether to offer franchises on the basis of this business. Since a unique project (know-how, innovative technology or approach, fresh product or service for a market) is required one hand, but a scalable business – on the other hand.

Work on an individual financial model of a franchise

At this stage, the question of developing a business model, attractive for a franchisor, as well as for a franchisee, arises. Financial analyst conducts:

  • Calculations of key financial indicators: annual turnover, profits, payback, rate of return;
  • Recommendations regarding the next payment and royalty;
  • Prediction regarding strong suits and potential risks.

In so doing, the price of a product, cost of renting, salaries for staff, amount of franchise location, average check, and many other indicators are taken into consideration.

Marketing packaging

The attractiveness of a franchise is comprised of two compulsory elements: 1) precise defining of product value, services, or approaches for an end user; 2) advantages for a franchisee. At the very beginning of a project, a marketing specialist conducts an analysis of a target audience of franchise customers and opportunities for separation from competitors.

Marketing support of a franchise includes the following elements:

Presentation

A specialist develops a general PR-strategy and a purchase funnel. To enter into a market, a marketing kit, a commercial offer, press releases and announcements must be prepared. For staff, who will sell a franchise, special training, including how to work with sales scripts, is conducted. Franchises are posted in a franchise prospectus.

Site development

Usually, a landing page format (one-page site) is designed for selling a franchise. In so doing, reputable web designers and copywriters, assisting in the creation of highly conversional content based on specifics of a target audience, are involved. Among the relevant elements for a landing page are an animation and a franchise calculator (express calculation of franchisee income). Social media is linked to a site, as they are effective platforms to promote a project. Later it is possible to use targeted advertisements in social media.

Sale of a franchise and involvement of an investor

The creation of a franchise-book comes before a direct launch of sales. Franchise-book is an operational book of standards for a franchisee. Since this business model requires observance of standards for points of sale opening, human resource management, control etc. – it is one of the keys to reaching success.

After all, obtaining financing for a franchising project remains an important issue to be solved. In the opinion of the Attorneys at Law “Bachynskyy and Partners” professionals, before looking for an investor, it is important to have key project questions answered. You must know for sure where and how to go, as well as what goals do you plan to reach.

Conclusions

Franchising is a business model that is both promising and complex to implement. Newbie franchisors must not hope for random luck. Instead, there are real and proven approaches that facilitate achieving desired results. First of all, one of them is the involvement of legal, finance, and marketing specialists, as well as a thorough work on each detail of a project.

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20/01/2022

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