Tag Archives: franchising

Licensing Agreements

If there is any type of agreement that should not be grabbed online and used it’s a licensing agreement.

A while back I came across someone who had used an agreement that was appropriate to another country, and in that agreement he had effectively given away all his rights to exploit his intellectual property because the terms of the licence he had granted said that the other party would have “sole and exclusive” rights to use the IP in question. None of the traditional provisions that would safeguard the licensor that one would expect such a licence to include were present either.

In this post, which I’ll discuss shortly, I’ve explained the variety of different transactions that a licence can cover. Therefore, it is particularly inappropriate to find a licence agreement that was drafted for a different arrangement and purpose and use it to license your IP. Get legal help for any licence agreement.

To explain why the post I’ve just linked you to bears a date 2014, it’s necessary to explain that I recently came across a piece by Neil Patel which ultimately led me to a content marketing site: Animalz. To my surprise, I discovered that content decays. I had always assumed that once you put good content online it stays relevant forever unless by its very nature that content dates. So, I ended up at this free resource from Animalz and entered my details.

Licensing and Franchising Blog

They sent me a report after looking at my Google Analytics and analysing traffic to the Azrights site over the last 12 months. This identified 9 articles that have lost 3171 views combined, which means we are missing out on a lot of traffic. So I added the posts they highlighted to my editorial calendar in order to refresh them.

I already knew that a huge portion of the traffic to the Azrights site came from this article Licensing And Franchising, What Is The Difference And Does It Matter? which I had written in 2014 and which ranked on Google. I’d noticed that my article had been knocked off its top spot by an article that was misleading in its information so I was keen to update the blog and set the record straight on this point of confusion that the other article was perpetuating.

So, I have completely updated that 2014 blog in order to more fully explain the difference between licensing and franchising, and in particular to explain the difference between UK and US franchising laws which mean that licensing business formats is possible in the UK but is subject to hefty fine in the USA.

Working Towards Franchising

At Azrights we recommend working towards franchising by testing licensing first. That’s because most of the preparatory actions you need to take to get your business licensing-ready, are actually beneficial in running a better business. So, you would not be wasting time and focus if you take the actions that we recommend to license your business format.

A good starting point if you’re considering licensing or franchising is to consider your brand and IP strategy.

Once you have you’ve got your business ready, found one or two licensees, and tested the concept, you could go all the way and franchise your business if you still think that is the right step to take.

Visit the 2014 blog which, despite bearing the date it was originally written, has in fact been completely updated and refreshed in July 2020, to get the full details for how to do this.

And whatever type of licensing you’re considering, be it brand, or merchandising or simply to license your know-how, bear in mind that the laws in the UK, Australia, USA and other countries differ. That means any type of licensing agreement that you use must be appropriate to the law of the country in which you’re located. Even though you may find plenty of licensing document templates online, do not just download one and use it.

Are you thinking about how to scale your business? Would you like to consider your brand strategy, then attend our upcoming webinar which is provided as a gift – and nothing is being sold on the webinar. It is totally free content.

Licensing or Franchising To Take Your Business to the Next Level

Licensing and franchising are effective ways to take your business to the next level.

Businesses in the UK that are thinking about whether to franchise their business have the option to use a simpler, cheaper approach to achieve the same ends, namely licensing.

What are the considerations when choosing between the two options?

Both options involve finding people with the right skills to be trainable to operate a business using your successful format. They’ll invest to buy the rights to use your brand name and methodology and their chances of success in business will be improved through having access to a tried and tested system that has been proven to work. That’s the essence of the arrangement.

Franchising

Once you select someone to become your franchisee, you will need to train the new recruit in the way you operate your business. They will get access to your proven systems and processes.

Almost any type of business can be franchised.

A franchise leaves you in control of the brand and training, and you’re then giving permission to the franchisee to use your brand and other intellectual property (which includes your know-how) to operate your successful business model.

The franchisee will put up the initial capital for the business, paying you a licence fee. They agree to strictly comply with your established ways of running the business as stipulated in your operations manuals.

The franchisee will be promoting your brand and will expect to have a successful business simply because they will be following a successful proven path. You are expected to provide support to your franchisees in the form of marketing, access to trusted suppliers, systems, and other resources and skills.

Training becomes a core part of your business activity once you take on franchisees.

Permission to use your intellectual property (IP) lies at the heart of a franchise contract.

A franchise agreement will generally give you a lot of control in how the business is run. The franchisee must follow the format extremely closely and not deviate from your established processes and systems. For example, if a customer visits a branch of McDonald’s they must find the familiar products, look and feel and service that they are used to experiencing. There must be no differences that are likely to jar or lead to disappointment.

It’s generally accepted that the slightest difference in the business format could damage the franchisor’s brand, not just that particular outlet. That’s why the franchise agreement will have strict quality control provisions in it, and strong sanctions against a franchisee who attempts to break out and introduce their own ideas.

Licensing

A franchise includes licensing in that “licensing” is a term that simply means the granting of permission to a third party to use the owner’s know-how and other confidential information, trademarks, logos and designs, and copyright materials. For some businesses, there may be patents involved too.

The essence of licensing is also the granting of permissions by the owner to a third party to use some or all its Intellectual Property.

One of the main differences between franchising and a straight licensing arrangement is in the formalities involved to set up a franchise, and the degree of control you retain as franchisor.

If you want to give another business, (perhaps one that’s operating in other parts of the country), permission to use your business format, and don’t want to go through the formality of franchising, then you can create a licensing arrangement based loosely around franchising.

The licensing agreement might impose many of the same controls as a typical franchising deal would include, but without going through the regulations imposed around franchising.

It’s important to make sure the laws of the country in which you’re making your arrangements do not impose fines for effectively running a franchise under a different name. Certainly, in the USA there are hefty fines if you attempt to pass off what is essentially franchising as licensing.

As in all areas of legal life, it’s not what you call something that matters, but what it amounts to in substance.

Some businesses prefer to use licensing rather than franchising. For example, once you receive more enquiries than you can handle, you may decide to use licencing to give other individuals or businesses the right to deliver your solution using your brand. For example, they might continue using their existing business name, and simply offer your product under your brand name as one of their offerings to their clients. They would be trained in your methodology to deliver the product or service to customers in their part of the country.

Brand licensing is how licensing started. I covered this more in Licensing And Franchising, What is The Difference And Does It Matter?

If you have built up a brand name and want to licence third parties to use the name or to deliver a related product using your brand in their own business, then licensing might be a good option.

Conclusion

Any “licensing” deal that is so close to franchising that it blurs the boundary between the two is in truth franchising under another name.

If there are no problems in doing so in your country, then you might want to work towards franchising by using a “licensing” arrangement first. This might be a way to try out the model with a few trusted sources so that rather than diving straight into franchising, with all the due diligence and formalities it entails, you test it out as part of your business model.

The important thing is to use a good agreement that protects your IP. Your brand, patents, know-how, trademarks, etc. These are precious assets, which should not be shared casually. The terms on which you grant licences or franchises need to be carefully considered, and we at Azrights are well placed to support you.

Licensing And Franchising – Why the Difference Between The Two Matters

People often wonder what the difference between these two terms is, and why it matters, so in my blog Licensing and Franchising – What is The Difference, and Does it Matter? I have explained the distinction between the two. In particular I outlined how you would be exposing your business to hefty fines in some jurisdictions, such as in the USA, if you tried to license your business format instead of franchising

Franchising

Franchising is the only option if you’re looking to scale a business in the way successful franchise operations like McDonald’s, Burger King, and KFC have done. Here is a list of the top 100 global franchises

While many franchises involve the hospitality industry, there are also many examples in that list of business formats in other industries such as Kumon Maths, or Cleaning, or Business consulting which would not involve the need for a franchisee to invest in premises.

If you’re considering franchising your successful format and the franchisee would not need to secure premises to opt for your franchise, you have the option to use licensing of you intellectual property (IP) instead of franchising as a first step, and possibly as an alternative to franchising, if you’re based in jurisdictions like the UK which do not impose fines for using the licence format instead of a franchise.

One benefit of this is that there are fewer formalities involved in setting up a licence.

Licensing

The essence of licensing is the granting of permissions by the owner (licensor) to a third party (the licensee) to use IP.

You can identify your own business arrangements basing them around franchising. Or you could even impose the same controls as a typical franchising deal but do it without the huge costs involved in setting up a franchise operation. Test the waters with some licensees you know and trust, and see what works and what doesn’t before you go to the expense of committing to a franchise.

Coaching businesses are an example of a business that might scale by using licensing. For example, an organisation becomes known and successful for coaching a particular group of people. The owner of the business has more coaching enquiries than they can deal with, so they licence other individuals to coach customers using their methodology and processes.

The reason I am keen on promoting licensing as a first step is that you would be improving your business by taking the steps that licensing involves. These include putting your IP in order, securing your rights properly rather than relying on DIY trade mark registrations, for example. You would transfer your IP to holding company which is well worth doing anyway in order to protect your IP if the trading company becomes involved in a dispute. You would also need to get the right systems in place in your business, such as a suitable CRM, and make sure all your processes are spelt out so that others can operate the various tasks involved in running aspects of the business. Doing this makes sense for any business, not just one that is planning to license or franchise it’s operations.

Once you’ve prepared your business for licensing, and tested the waters with a few licensees, you would be ready for franchising. However, it would cost a fraction of the usual hefty costs involved to set up a franchise, meaning you could probably avoid the need to get a substantial loan to set up your franchise.

Conclusion

There is every benefit in using licensing of your business format before going down the franchising route.

Any “licensing” deal that is so close to franchising that it blurs the boundary between the two is in truth franchising given another name. Do make sure the country in which you are making the arrangements doesn’t regulate franchising though, as it could cause you problems.

In my view “licensing” is a good way to try out the model with a few trusted licensees rather than diving straight into franchising, with all the due diligence and formalities that it entails. You could start by finding a few licensees who are willing to license some or all of your business model.

The important point to note is that licensing your brand, know-how, trademarks etc involves your most precious assets. The terms on which you grant licences to third parties need to be carefully considered.

Do contact us to find out how we can help you to license your business format.