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Dear Attorney, I have successfully built a chain of 5 self-serve

Dear Attorney, I have successfully built...
Dear Attorney,

I have successfully built a chain of 5 self-serve frozen yogurt and smoothie stores in California. My stores are doing very well while most stores fail after 6 months. I am very passionate to grow my business nationally by helping other people to repeat the business model I have built.

Some industry experts have advised me that Franching option will NOT be a viable model as there is too much competition and yogurt industry is maturing. So, I will not get enough number of franchised stores (30+ store sin first 12 months) to cover all initial legal cost, staffing costs and ongoing legal costs. This makes sense to me.

So, I am considering the option to either LICENSE my brand OR provide CONSULTING to potential operators to open the store. In addition to charging one time fees for Licensing or Consulting, my ultimate goal is to sell products (yogurt powder, syrups, cups, etc.) to these new store owners, is I have recurring revenue.

Licensing would include providing them all branding materials (logo, graphics, ad copies, etc) for $15K Fees And consulting would additionally include phone and onsite training and support for 40 hours for a total of $20K.

QUESTIONS:
1) From contract management prospective (obligations, liability, binding laws), what would be the major trade-offs between licensing VS consulting model?
2) Do you suggest any other model for my needs?

My goal is to provide real value to new operator, get them successful and earn an initial and reoccurring income for the value created by me.

Thanks
Kumar
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Answered in 7 hours by:
6/6/2013
BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
Verified

BizIPEsq. :

Hello, I will be assisting you


 

BizIPEsq. :

1) There are no trade-offs between the option of licensing and consulting because the two are not mutually exclusive i.e. you can have both going at the same time. Licensing simply means that you give someone the right to use your brand (as an example) or your store design (as another example). Consulting means, that you actively go into the other person's business and consult them. You can (and should consider) doing both.

BizIPEsq. :

As far as obligations and liability, the threshold of liability for each option (and the combined option) would depend on the extent of services you will be providing. In general you should not be making as promises, guarantees or warranties as to the performance of the licensed brand or your ability as a consultant. Take a cue for language used by franchise agreements as to how to use a non-committing language effectively to describe what you will be doing. Obligation wise, that would depend on the length of time you plan to offer your services or make the license available and any on going support you plan to offer if at all.

BizIPEsq. :

2) you are correct to identify the licensed brand + consulting are your options to franchising, although generally I would not agree to the statement that one needs 30 stores to justify the expense of creating a franchise as I have seen chains of 5-10 stores go through the process. I would agree that there is tremendous competition in this category.

BizIPEsq. :

Finally, be mindful not to represent your consulting/licensing agreement as de-facto franchises by requiring a % of rev share of demand that they buy your products exclusively.

BizIPEsq. :

Thank you for allowing me to assist you

Customer:

Thanks much Attorney. A couple of followup points:

Customer:

1. I will go with Licensing (to use my brand) and consulting (to train them on systems, processes, etc.). After they setup the business , they would most liklely buy the Supplies (Yogurt Cups, posters, etc) as it will have our company name, brand, etc. Basically, they will buy these products but I am not enforcing them to buy. Do you see any issue with that? or anything I need to think through?

Customer:

2. I have heard something that Franchise Vs Licensing one difference is that "you can do only one thing" in license and "can do 3 in Franchise" - like, Give brand in licensing and take one time fees, but in Franchise, give brand, training., operational expertise, and take Royalty and sell products (can't do these 2 in license). I assume that is true, Right?

BizIPEsq. :

Generally speaking a franchise is a license issued to someone to operate a business using a common brand name, a common operating support system and involving the payment of initial and/or ongoing fees. If the arrangement you propose would have these three components as part of your offering, then you would in fact be offering a franchise, whether or not you choose to call it a license.

BizIPEsq. :

Not forcing them to buy you product or to force them to adhere to certain design or methods is key but not the end all and be all. The topic of what is and isn't franchising and gray area of licensing vs. franchising is extensive and is largely controlled by specific state law. I don't want to mislead you and say that you can do something when there might be a state where you're actions could constitute franchising. Since you will have a lot at stake when you are ready to begin marketing your services, I would then contact a franchise attorney and have the attorney list the "safe" states that you can freely go into and the states where you may have some issues in. That would be the most prudent course of action.

BizIPEsq. :

Thank you for your continued patronage

BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
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