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Wed 10 May 2017 09:48 AM

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Investing in yourself through a franchise

Cynthia Trench, Principal at Trench & Associates offers advice on what to consider when setting up business

Investing in yourself through a franchise

There can be no doubt that franchising has definitely grown in Dubai,  with many international and national brands seeing that their success can be replicated and become a source of business success to eager entrepreneurs. The advantage of a franchise to many is that the level of risk is somewhat reduced. With the brand and the processes already proven, it offers a smooth opportunity that is not as uncertain as breaking new ground.

This business model suits entrepreneurial individuals who want to invest in their personality, work hard for themselves and maybe use skills culminated in a previous job. It also allows freedom to work for yourself and see your personal investment and hard work and energy yield success. This freedom is made all the more palatable by the fact that you have invested in a proven system that has the training, support and encouragement needed to make a smooth business path ahead.

So how does the franchise scene look in Dubai? Dubai has a pro-business environment, whose investor-friendly policies are attractive if you consider its infrastructure, corporate taxes, transfer of profits to home countries, entity ownership and availability of large pool of human resources. Businesses located in the multiple free zones enjoy tax exemption and the government is pro-actively putting their support behind the franchise sector.

Although things are known for quickly changing, the franchise market mostly consists of American and French brands, although Asian brands are fast entering the market. These days there are many chances to get involved in smaller franchises. Typical areas are fast foods, dine-in restaurants, auto leasing, apparel, soft drink bottling, beauty products, hotels, toys, photography, jewellery, vending machines, dry cleaning, furniture, hardware stores, office supplies, natural health products, publications, quick printing, garden care and florists, sporting goods, retail/convenience stores, maid and personal services.

It makes good sense to take a few common-sense precautions when taking any franchise and seeking out some good legal advice is invaluable in helping you in the long-run. This can involve drafting commercial documents such as the franchise agreements, shareholder’s agreement and all IP registration documents. It’s also prudent to get some wise counsel on the advantages and disadvantages of choosing that franchise and the importance of trademarking the name and logo.

Anti-infringement advice is also key. Intellectual property rights cannot be emphasised enough, as this is what makes the franchise valuable and what you are essentially paying for. Other areas to obtain advice upon are considering joint venture versus franchising considerations and carefully considering the scope of royalties of payment. Here is a checklist of major points to consider when considering a franchise:

Products: Research the market and then it may be sensible to restrict the agreement to one or two products initially to see how things go. You can always add more products at a later date.

Territory: This needs to be clearly defined, especially if the franchisor is awarding another territory to another franchisee – any crossover could result in litigation.

Exclusivity: It’s better to be the only person in that territory who is entitled to sell your products. This is subject to negotiation between the Parties, and the franchisor may agree to exclusive basis on condition that they reserve some existing customers to deal with direct or there is a minimum purchase value or quantity imposed in order for the franchisee to keep exclusivity.

Duration: Define the initial term. You want to make it long enough to establish yourself.

Orders, prices and payment: The agreement should set out the arrangements for ordering products as well as prices and payment terms. There will normally be a schedule setting out the prices and this could include some trade discounts depending on volume, and so on. Payment terms should be agreed from the outset and the currency of payment should be pre-agreed.

Upfront Fee/Royalty Fee: With franchise agreements there is normally an upfront fee (sometimes negotiable) and an ongoing royalty fee (% of revenues). This should be negotiated if possible.

Sales targets/Targets in general: Be aware that the franchisor might set agreed sales targets that you will have to reach.

General obligations: It is sensible to identify what marketing material and technical data will be provided for and if any training is to be included. Costs and responsibilities must be agreed.

Termination: Make sure you are aware of any termination clauses and try and limit the ground for termination to as little as possible.

Cynthia Trench is principal of legal firm Trench & Associates. She has extensive experience in providing advice to both franchisors and franchisees.