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From this day forward

July 16th, 2015

We are delighted to announce the publication of a new e-book, commissioned by Graeme Quar & Co to coincide with our 21st anniversary and published as we reach the half-way point within our milestone year.  

ftdf

From This Day Forward focusses on businesses based along the Solent corridor, and seeks to answer questions such as:

  • How much of an appetite have independent companies really got to grow their business?
  • What difficult issues are companies forced to face and address in order to fully realise their potential?
  • What key things do successful companies do to set them apart from their competitors?

The 55-page e-book book, published in association with Decision Magazine, is an insight into the business practices of some of the most successful firms in the southern region, and we hope you will find it an interesting read.

Many of these businesses are, like Graeme Quar & Co, gazelle firms — companies characterised by rapid growth in revenue of at least 20 per cent over four consecutive years — so have a unique insight into how to succeed in business.

We hope you will find the book an interesting read.

Click here to download the e-book free of charge.

What do these Businesses have in common?

  • Bluebird Café
  • Toni & Guy Hairdressers
  • Riverford Organic Foods

Yes they are established and recognised brands in the UK, but they are also businesses that have been really successfully franchised. Franchising is not just for those entrepreneurs wanting to create a chain of fast food outlets. Franchising can and is being applied to all kinds of businesses.

If you have a unique product or service and/or operate in a rapidly growing market and looking to grow your business, Franchising is a good way to recruit ‘likeminded’ people with ambition who are prepared to invest their time, money and energy as well as share in the success.

Alternatively if you want to start your own business but are worried by the high failure of start-up, then the lower risks offered by buying into an established brand and system with head office support and training may well be attractive to you. About 91% of Franchised businesses report making a profit within 12 months of start-up.

As ever doing your homework properly is imperative! A good place to start for information is the British Franchise Association. Their website is packed full of useful information. They also run inexpensive seminars at which you can find out more about being a Franchisor or Franchisee. Having access to experts can be invaluable and helps you avoid expensive mistakes and provide a good insight in what to look for in a franchising opportunity if you are thinking of investing in one.

The BFA also run a number of exhibitions throughout the year with the next being the British & International Franchise exhibition at Olympia London on 15th and 16th March.

One of the best recent examples of a successful franchise I have seen is Bluebird Café based in Petersfield. They have been in business for 7 years providing domiciliary care in the community to the elderly. They have expanded their business to 150 offices in the UK with a distinct service and leading the market. No doubt with people living longer and the high cost of residential care for the elderly there is still considerable growth potential. From such modest beginnings in Petersfield with their first franchise being set up in Fareham, they have now created a multi-million pound business nationally in such a short period of time. This is a massive achievement of which any major company would be proud. It is difficult to see how this success could have been achieved so quickly without using the franchising model.

Kate Bradbury

photo by Gabor Kovacs

We were talking in our weekly team meeting about the fact that our corporation tax payment will be due in January and that, like so many other businesses, we pay corporation tax. “Unlike Starbucks”, someone said.

Graeme then said that at the weekend he had bought a coffee in a Starbucks outlet in a motorway service station. He had been talking to the person behind the counter, who turned out to be the owner of the franchise. This franchisee complained to Graeme that his franchise is a separate business which pays corporation tax like the rest of us. However, he is experiencing a significant downturn in business as consumers boycott Starbucks.

The reasons for consumers avoiding Starbucks are nothing to do with the owners of the individual businesses that make up the chain of Starbucks franchises.  The reasons are everything to do with the main Starbucks business itself, the company that owns the brand and controls the franchise network, receiving substantial franchise payments from the many small businesses that make up the network.  It is well-known that Starbucks has been in the news for paying minimal corporation tax on profits earned in the UK, through arrangements under which it pays licence fees to a non-UK company for the right to use the Starbucks name.  It is fair to note that Starbucks has recently announced that it will voluntarily pay “a significant amount of tax during 2013 and 2014, regardless of whether the company is profitable”.

Although the consumer rebellion may be affecting the main Starbucks company, it seems clear from Graeme’s conversation that the franchisees are sharing the pain, through no fault of their own. Responsibility appears to lie with the franchisor.

This has led us to consider the imbalance to be found in many franchise agreements, which are heavily loaded in favour of the franchisor.  These contain lists of franchisee’s obligations which are invariably much longer than the rather brief lists of  franchisor’s obligations.  I have just looked at a number of franchise agreements, which typically contain an obligation on the franchisee in terms such as:

“not do anything that could or might in the sole opinion of the Franchisor bring the Business into disrepute or damage the reputation of the Business.”

None of the franchise agreements that I have just reviewed contain an obligation on the franchisor “not to bring the Business into disrepute or damage the reputation of the Business.”

Surely it is the strength of the brand that underpins the success of individual franchise businesses, whether these be selling coffee or burgers or high-end Scandinavian hi-fi.  If the brand is tarnished, then the sales performance of the individual franchises will suffer. It is not just the owner of the brand that is affected, but also the numerous franchisees who have invested a great deal of money in the strong performance of the brand.

So why does the owner of the brand not make a promise to its franchisees not to bring the brand into disrepute or do anything to damage its reputation?  Why does it not even promise that in the event of damage to the reputation of the brand it will immediately use best endeavours to minimise the damage?

We have been discussing amongst ourselves whether an obligation on the franchisor not to bring the brand into disrepute can be implied into franchise agreements (and here starts some legal discussion).  The circumstances in which a Court will imply a term into a commercial contract have been developed in a number of cases over very many years.  The most recent major decision was in 2009, in a Privy Council case Attorney General of Belize and others v Belize Telecom Ltd [2009] UKPC 10.

In that case, Lord Hoffmann said that the question of implication arises when a contract does not expressly provide for what is to happen when some event occurs. The usual inference is that nothing is to happen: if the parties had intended something to happen, the contract would have said so. Accordingly, the express provisions of the contract should continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

In some cases, however, Lord Hoffmann continued, a reasonable person would understand the contract to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The contract may not have expressly said so, but this is what it must mean. In such a case, the court will imply a term as to what will happen if the event in question occurs.

Lord Hoffmann concluded that It followed that in every case in which it is said that some provision ought to be implied in a contract, the question for the court is whether such a provision would spell out in express words what the contract, read against the relevant background, would reasonably be understood to mean. The courts have formulated this question in various ways (for example that the implied term must “go without saying”, or that it must be “necessary to give business efficacy to the contract”), but these formulations should not be treated as different or additional tests.

So the main principles are that a court may imply a term into a specific contract to fill a gap in the contract’s drafting. The purpose would be to reflect the parties’ intentions when the contract was entered into.   Applying an objective test, the court will consider what a reasonable person would have understood the parties’ intentions to be, given the background knowledge reasonably available to the parties at the time they entered the contract. The courts will not imply a term into a contract simply because they think it would have been reasonable for the parties to have included such a term in the contract.

You and I may think it necessary, indeed essential, that a franchise agreement should include an obligation on the part of the franchisor not to bring the brand into distribute or do anything to damage the reputation of the brand.   We may think that this goes without saying, and that such an obligation should be implied into franchise agreements.  However, any franchisee or group of franchisees that tries to claim damages in court proceedings will be embarking on major and strongly contested litigation as it tries to persuade a Court of the need to imply such a term into their franchise agreement.  And, who has the bigger financial muscle for such a fight, the owners of the small businesses or the multi-national brand owner?

And with those thoughts, it’s time for a Fair Trade flat white …

We often find ourselves having to help clients pick up the pieces. Sometimes learning to read and understand what you are asked to sign before you sign it proves to be an expensive lesson.

I would like to describe a situation I see fairly often. A client comes in to see me. His business has recently gone under. A supplier of the business is now demanding payment from the client under a guarantee. The client has no recollection of giving a guarantee. Read the rest of this entry »