Franchise Agreement Renewal Policy
The MAD Academy Franchise Agreement (the Agreement) represents the contract that exists between the Franchisor and the Franchisee. This Agreement has a finite duration with a renewal date that is specific to each franchisee. It is the policy of MAD Academy (the Franchisor) that, unless there are mitigating circumstances, six months prior to the renewal date the Franchisee will be sent a new Agreement with a new renewal date. If the Franchisee wishes to continue trading as a MAD Academy franchisee they must sign the new contract and return it to the Franchisor within two months of the issue date of the new contract. If the Franchisee fails to return the signed contact within the two months and fails to communicate their intentions, the Franchisor will assume they do not wish to renew and may therefore proceed to advertise the Franchise Area as being for sale as from the renewal date. If the Franchisee does not wish to continue trading after their contract end date but wishes to seek a buyer for their Franchise Area, they should advise the Franchisor of their intention who will then co-ordinate a joint sales and marketing activity as described in section 4 below.
2. Early Termination of the Franchise Agreement by the Franchisee
There are no provisions in the MAD Academy Franchise Agreement for franchisees to terminate their contract before the renewal date other than by exercising their right to sell their franchise, as detailed below. However, it is the Franchisor’s current policy to give due consideration to requests for early termination from a franchisee in certain circumstances. Such a request must be made at least two full school terms before the requested termination date and the Franchisee will be expected to continue running term time classes until the agreed termination date but in any event the Franchisee must continue to pay their contracted minimum Management Service Fees until the agreed termination date. During this period the Franchisor will be free to market the Franchise Area independently and for the benefit of the Franchisor alone.
3. The Franchise Area Re-sale Policy
The Agreement defines the general terms governing the resale of a Franchise Area.
At any time during the tenure of the contract, the Franchisee retains the right to sell their franchise business on the terms defined in the Agreement. If they choose to do this they must inform the Franchisor of their intentions before starting the sales and marketing process.
3.1 Additional terms and conditions that apply when selling a franchise
- The Franchisee must provide the Franchisor with details of their business performance
- The Franchisor is the owner of the customer list, an up-to-date copy of which must be provided to the Franchisor by the Franchisee
- The Franchisee is contractually bound to continue payment of the Management Service Fee at no less than the minimum level until this responsibility is passed to the buyer on completion of the sale when this responsibility is passed to the buyer
- The Buyer must be approved by the Franchisor
- The Buyer must undergo the standard MAD Academy business and class training program and complete the formal exam. With the agreement of the Franchisor, the Franchisee may provide some of this training. All training provided by the Franchisor must be paid for by the buyer, (see section 4.3).
- The Buyer must obtain and pay for all necessary business licences and insurances
- The duration of the buyer’s contract will be three years regardless of expiry date of the seller’s contract.
4. Marketing your Franchise Area
When a Franchisee advises the Franchisor that they wish to sell their franchise, either during the term of their Agreement or when their current Agreement expires or by default as described in section 1 above, a marketing campaign needs to be put in place. As it is in the interests of both the Franchisee and the Franchisor to complete the sale of a Franchise Area in a timely manner, the Franchisor will help the Franchisee put together the campaign which will involve both parties.
4.1 Actions for the Franchisee
- Write some advertising copy, i.e. short succinct text about the business for sale and the price. The Franchisor will provide help and advice on writing this if required.
- Remember that all advertisements should direct the enquirers to request information from the Franchisee. (See section 6.1 re the Finder’s Fee)
- If desired, the Franchisor will create the advert in the MAD Academy house-style and cover the basic cost of the art-work involved, however, the Franchisee will be charged for any art-work costs incurred if the Franchisee requests additional changes.
- Send a copy of the advert to the Franchisor for posting on the MAD Academy website.
- Place suitable versions of the advertisement in parenting magazines, local papers, etc. and on appropriate websites.
- Tell current class members that you wish to sell your franchise and discuss the opportunity with those you think might be interested in buying
- Use social Networking sites to further advertise that the Franchise Area is for sale.
- Produce up-to-date accounts for the business and previous performance data, as a guide for prospective buyers.
- Devise a training plan for the buyer which is agreed and supported by the Franchisor (see below for details of training options).
- Produce a Sales Agreement that clearly documents exactly what is for sale, including:
- the franchise area as defined in Schedule 2 of the Franchise Agreement
- class equipment, merchandise and promotional material included in the sale
- details of the customer database to be handed over on completion of the sale
- details of the training the buyer will receive
- advice on external cost such as a DBS check (was CRB), insurance and PPL licence
- advice on the marketing costs necessary to introduce the new franchisee
- a handover schedule including what support the franchisee will provide
- a breakdown and summary of all the payments to be made
4.2 Actions for the Franchisor
- Advise the franchisee that the names of prospective buyers whose details are forwarded to the franchisee as a result of any past, current or future advertising will become subject to a Finder’s Fee if they are the eventual buyer. (See section 6.1)
- Post the Franchisee’s sales advertisement on the MAD Academy website
- Post it on other websites to which access is available as a result of on-going recruitment activities. Normally, there will be no charge for this activity.
- Further publicise the re-sale opportunity in Newsletters as appropriate.
- Search the database of people who have responded to recruitment advertising in the past few years for responders who reside in the vicinity of the Franchise Area for sale.
- Send details of potential candidates to the Franchisee and record that they will be subject to a Finder’s Fee. (See section 6.1)
- Continue to forward details of any other suitable candidates who inquire in the future about buying a franchise.
4.3 Training Options
Training is an important component of the sale. A new franchisee needs to be properly trained which means they need two days business and two days class training for which the Franchisor charges £250 per day i.e. £1000 for the four days (which includes the exam). However, the Franchisor will allow the Franchisee with to provide up to two of these four days of training thereby reducing the amount payable to the Franchisor to £500.
5. Selling your Franchise Area
The Franchisee must deal with the enquiries generated by the marketing campaign and select from them one or more candidates who are credible prospective franchisees and have the funds required. To help with this process, the Franchisee may ask the Franchisor to give such prospects a sales presentation which will generally be in person and delivered in the Thames Valley area. The request must be accompanied by the full name, postal address, email address and telephone number of the prospect. The Franchisee may provide the details of more than one prospect to attend such a presentation and the Franchisor will bear the cost of the first such presentation but reserves the right to charge the Franchisee £50 to cover the cost of any additional presentations, should they be required.
It is the responsibility of the Franchisee to establish the suitability of the candidate and to negotiate the price to be paid based on their Sales Agreement document.
5.1 Action Plan for Closing the Sale
- When the buyer has agreed to the terms as detailed in the Sales Agreement document a copy of the document should be sent to the Franchisor requesting the Franchisor to interview the prospective buyer for the position of franchisee.
- The prospective buyer should prepare to attend the interview armed with a business plan, a marketing plan and a proposed weekly class timetable.
- If, as a result of the interview, the Franchisor and the buyer are in agreement that the sale should proceed, the Franchisor will advise the selling Franchisee accordingly.
- The franchisee should then conclude their negotiations with the buyer and confirm to the Franchisor the details of the sale, including the agreed price and payment details.
- The Franchisor will deliver a new three year MAD Academy Franchise Agreement to the buyer that reflects the terms that were defined in the sales document, together with an invoice for the agreed sales price.
- When the buyer returns the signed Agreement together with the money as invoiced, the Franchisor will confirm to the seller that the sale has been successful.
- The Franchisor will then deduct from the purchase price the sales commission, the finders fee (if appropriate) and any outstanding sums due from the Franchisee to the Franchisor. The balance will then be paid directly to the selling Franchisee. (See section 6 below for further details).
- The franchisor will also issue the seller with a Termination Agreement absolving them from their commitment to pay future Management Service Fees.
6. Charging and Payments
Section 23 of the Franchise Agreement deals with the terms and conditions relating to the sale of the franchise business. This indicates that the Franchisor has a significant role to play in the sales process especially with regard to the payments. The relevant parts of section 23 are as follows.
Section 23.3.3 If the Franchisor …………….. consents to the sale the proposed purchaser shall pay the full purchase price to the Franchisor as agent for the Franchisee. The Franchisor shall be entitled to deduct from the purchase price the amount of any sums due from the Franchisee to the Franchisor (e.g. unpaid MSFs) as certified by the Franchisor’s auditors and thereafter shall pay the balance to the Franchisee
Section 23.3.4 The Franchisor shall charge the Franchisee sales commission of five per cent of the bona fide purchase price together with value added tax in relation to the sale of the MAD Academy Business
Section 23.3.5 Where the Franchisor has directly introduced the purchaser to the Franchisee the Franchisee shall pay an additional finders fee to the Franchisor on completion of the sale of five per cent of the bona fide purchase price together with value added tax
Section 23.3.6 The Franchisor shall have the right to deduct the sales commission and finders fee from the purchase price paid to the Franchisor as set out in 23.3.3
6.1 Finders Fee
Section 23.3.5 of the Franchise Agreement states that where the Franchisor has directly introduced the purchaser to the Franchisee, a finders fee of 5% of the purchase price shall be paid by the Franchisee to the Franchisor on completion of the sale. The purchase price is the total monies paid by the buyer to the seller for the business and includes all materials and equipment used in the operation of the business that is handed over to the buyer.
In order to avoid confusion about when this fee is payable, a register of prospects will be kept by the Franchisor that records which prospects are to be subject to the Finder’s Fee and which are not. The Franchisee should provide the Franchisor with details of potential candidates to be registered as “the Franchisee’s prospect” thereby ensuring that they are not liable for the Finder’s Fee should any of these prospects eventually buy the business. The Franchisee should do this before the start of the advertising campaign and continue to do so until a buyer is found. To register prospects in this way, the franchisee must provide the Franchisor with full details of the prospect, to include name, postal address, telephone number and email address.
Meanwhile, the Franchisor will keep a record of all potential candidates whose details are forwarded to the Franchisee as described in section 4.2 above. The Franchisee is not obliged to follow up on these prospects but if they do and one of them eventually buys the business, then the Finders Fee will be payable.