Franchise Licensing

During franchise licensing, the relationship between a franchise owner and a franchisee is established. The franchise license created in this process can take two primary forms. The first one is the one by which the franchisor licenses the franchisee to use the franchise’s name and its trademark.

The second one is more extensive. It licenses the franchisee to use the business format of the franchise. This is a more involved relationship between the franchisee and the franchisor. The franchisor may give the franchisee some financial backing, supply the franchisee with the goods to sell and provide the franchisee with training. These are just some of the characteristics of the license to use the business format. There may be others, including the franchisor’s direct involvement in the process of selecting the locations for the franchise units.

Franchise licensing can take a variety of forms. This is as it should be: Franchisors vary in the kinds of arrangements they are willing to make with their franchisees because their respective businesses come with unique circumstances and needs. Thus, when they undertake franchise licensing, they have to make sure their license documents are worded carefully. The licenses are legally binding; hence, they must be categorical about what they permit.

Franchise licensing establishes responsibilities for franchisors and franchisees alike, including the conditions under which these responsibilities must be met and the details about payment for the rights granted under the license. It is also important for the license to address the steps that the franchisor and franchisee should follow if either or both of them fail to fulfill their responsibilities.

 

The Basics of the Franchise Licensing Process

 

In order to draw up a comprehensive franchise license, a franchisor should consider various factors. These factors have implications for the amount of money he or she will earn from the franchising arrangement, so it is important for them to be thought through carefully. They include clear indications about the limits of the license. For instance, it should be evident whether the franchisee maintains exclusive rights within a particular territory. It should also indicate whether the franchisee has to meet a minimal threshold for sales. The license should also be specific about whose responsibility it is to administer and maintain all intellectual property associated with the franchise.

Preparing the license is bound to cost money if it is done by a professional and if it is done well. Thus, the franchisor needs to decide whether to pay for the franchise licensing process or to somehow recoup the expenses from the franchisee. The license must also include a breakdown of financial obligations and penalties. The licensing fee should be indicated, as should the royalty rates. There should also be provisions for resolving any disputes.

Franchise licensing is essential to winning a franchise and it could be just the right structure you need to start your own business.

Franchise licensing is the legal tool to make sure that the franchising process is handled correctly. One of the big motivations for franchising a small business is that entrepreneurial streak that many of us have to own and run your own business. There is nothing wrong with that inner drive to want to get away from being a servant to “the man” and run the show for yourself.  Franchise licensing is what spells out the rules of the road for using the franchising route to achieve your dream of running your own money making operation.

The one drawback to starting your own small business from the ground up is a drawback that those franchise licensing documents can help to take care of.  The drawback is that there is almost too much freedom and lack of structure when you start your own small business. It helps to have some structure so you know what to do next and how to live up to expectations and you have a road map to what to do next.

The value of going with a franchising solution even with the overhead of franchise licensing is the structure the program that you get from the franchising company. That structure is highly regulated and the franchising company will put that road map in front of you that you pretty much are forced to follow because the franchise licensing arrangement are not just a bunch of pretty ideas. They represent franchise law that neither you nor the franchising company can get frisky with that.

Holding the franchise company to live up to their end of the franchise licensing agreements.

You are a smart one to jump back and think about the good as well as the scary part that franchise licensing will bring to your world when you sign those franchise agreements.  Anyone who launches out without thinking hard and long about franchise licensing and what it means should find the door locked when it is time to sign those agreements and enter into that binding relationship with a franchising company.

At the same time, keep in mind that those franchise licensing rules and regulations go two ways. Sure they hold your nose to the grindstone to create a knock-your-socks-off great franchise for the franchising company.  But those franchise licensing details also hold the franchising company to a standard so they have to pony up as part of the relationship too.

You can dig out the details of exactly who does what, when and how in the franchising relationship in the franchise disclosure documents that you will get early in the cycle of developing your love affair with the franchising company.  Be sure you become an insatiable reader and that you understand everything in those documents as well as in all other literature you get from the franchising company.

By understanding how you have to salute the flag according to franchising agreements and how the franchising company must bring some serious stuff to the table too, you will be able to work as a full partner in the building of your new business.  That means serious success and serious money for you and the company whose sign is on the door and in that way, everybody wins.

Living up to franchise licensing that is in compliance to state and local franchise laws is not optional.

Franchise licensing is a formal way of saying that to be in a franchise relationship, everybody has to play by the rules.  The rules that are the “big brother” over the franchise world are set both by the federal and state governments. Just as nobody wants to get in hot water with the IRS, to fail to live up to franchise law could mean that your franchise licensing will become a fond but distant memory.  If that doesn’t light a fire under you to live by the rules, nothing will.

The priority to be very fussy about maintaining a clean nose with the franchise licensing big dogs must be just as high for the franchising company as it is for the franchisor.  When you set out to franchise your business, the idea is not to just have one or two franchisors out there.  The big names in franchising like Starbucks or McDonalds have hundreds if not thousands of franchisors. Every one of those franchise owners but live up to the terms of franchise licensing both at the federal and state level.

You cannot run around behind that many franchise owners to know that they will not put your franchise licensing at risk.  The heart of how a franchisee manages the problem lies in those franchise agreements that get so much discussion as you enter into a franchise relationship with a new franchisor.

You can put some teeth into those franchise agreements. You can put as much detail as you need in those franchise documents to feel you have covered your bases to spell out to a new franchise owner exactly what is expected of them to protect their franchise licensing and yours as well.  In fact, it is smart to customize those franchise licenses by state so that you cover any quirks in franchise licensing laws that some states may throw into the mix.

Checking up on the other guy.

As a potential franchise owner, the idea of worrying whether the company offering a franchise to you is in compliance with the laws covering franchise licensing may never have worried you. You should let it worry you. The last thing you need is to sink your life savings into buying a franchise only to find that they are in legal hot water for not living up to the regulations covering their franchise licensing.

You can check up on the other guy before you even consider signing a franchise agreement with that business.  You can do some snooping around to find out how long they have been in the franchising game and if they have run afoul of franchise licensing legalities so far.  If you smell trouble during that background check, run!

In addition, be sure that the franchise agreements and other pertinent binding franchise documents are just as tough on the franchisee as they are on you about keeping their nose clean with the franchise licensing authorities. If the language of those documents is written to protect you in case there is a problem with franchise licensing at the mother ship, you will be glad you took the time to protect yourself going in.