Gentlemen's agreement fitted kitchen franchise ?
Discussion
Horse_Apple said:
zippy3x said:
What if this (former IT) guy is no good at selling?
That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
Yup. Never ever offer or agree to exclusivity.That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
If someone grants it it is because their product is crap.
If you grant it you will make the guy lazy and complacent as he has no competition.
Best to have two people in one highstreet selling your product. They will sell four times as much as one guy an an exclusive.
I think this arrangement is perfectly acceptable in principle. I just think you need to sit down and make a list of "what ifs" and agree on solutions to those problems.
In this case - if he fails to sell a certain value of units per quarter, you are free, at your discretion, to revoke his right of exclusivity.
zippy3x said:
Horse_Apple said:
zippy3x said:
What if this (former IT) guy is no good at selling?
That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
Yup. Never ever offer or agree to exclusivity.That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
If someone grants it it is because their product is crap.
If you grant it you will make the guy lazy and complacent as he has no competition.
Best to have two people in one highstreet selling your product. They will sell four times as much as one guy an an exclusive.
I think this arrangement is perfectly acceptable in principle. I just think you need to sit down and make a list of "what ifs" and agree on solutions to those problems.
In this case - if he fails to sell a certain value of units per quarter, you are free, at your discretion, to revoke his right of exclusivity.
The first is that any kitchen shop is hardly likely to be able to service and area bigger than 30 miles radius, and even that would be exceptional, and England is big enough that there are far more areas of that size than I could ever hope to supply without a factory many, many times bigger than my current unit.
The second is that why would he want to carry on if he wasn't selling very much, bear in mind that just as I am not supplying anyone else in his agreed area, so he is not free to buy from anyone else either. Why on earth would he want to carry on in business in those circumstances?
Edited by singlecoil on Tuesday 8th April 17:45
Horse_Apple said:
singlecoil said:
I make bespoke kitchens, and operate from a trading estate unit in Aylesbury. I have a showroom there as well, but am finding it difficult to attract customers, (this was not unexpected, but I had to have a manufacturing base and therefore a trading estate unit).
I have always wanted to have a showroom (or two or three) in High Street locations. This is the sort of place from where the better class of kitchen is sold. Perhaps somewhere in an affluent market town, right where it could be seen easily, in amongst the estate agents and antique shops.
Anyway, I can’t afford anything like that, and would prefer to concentrate on the manufacturing anyway. So, I have been discussing the possibility of setting up an arrangement with a chap I know who is interested in opening up such a shop and selling my kitchens from it.
This is how it would work, probably, and I don‘t see why we would need to set up a complicated and expensive legal framework.
He would find and take out a lease on a suitable shop. He would carry out whatever refurbishment was required, and he would give the business a name of his own choosing. He would buy from me, at my standard trade prices, the necessary displays. I would install these, and would also provide him with a thorough training in how to design and sell kitchens, and how to find and supervise kitchen fitters. My kitchens have several useful USPs
He would then open the shop and (hopefully) make sales. I’ve looked into this carefully, and it is entirely reasonable to aim to achieve a turnover of £500,000, equivalent to a £20K kitchen every two weeks. He would buy the kitchen from me, and arrange to have it installed by sub-contractors (my stuff is quite easy to fit, especially as it would have been designed and made for that particular kitchen). Then he would sell another one, and so on, a process that would continue for the foreseeable future.
The only payment I would receive would be the payment for the kitchen that I supplied, so no licence fees etc
So, the benefits of this arrangement to him-
He would be taught all about the kitchen design etc (he’s an IT guy at the moment, or rather, he used to be) . He will have a supply of decent bespoke kitchen product at prices which would enable a healthy profit ( I figure £100K clear on a £500K turnover, more would be possible depending on turnover and area affluence). I would not supply anybody else in his area. He would not have to pay any annual fees etc. If he decided he didn’t want to deal with me any more then he would be free to go with whoever he chose, with no hard feelings
And the benefits of this arrangement to me-
I have an outlet for my product, without having all the costs of renting a shop, I don’t have to pay for advertising, I don’t have to deal with customers. I can concentrate on my core business of manufacturing.
One obvious question is, how much money will I want for the product? Well, I wondered about this myself, and the answer was, if I ask too much money then I will be on the same position as any other company that asks too much money- no sales. So, in effect, the prices will be self regulating.
Anyway, sorry about the long read, how does the above sound to you guys? Can this be done on a gentlemen’s agreement?
Hi,I have always wanted to have a showroom (or two or three) in High Street locations. This is the sort of place from where the better class of kitchen is sold. Perhaps somewhere in an affluent market town, right where it could be seen easily, in amongst the estate agents and antique shops.
Anyway, I can’t afford anything like that, and would prefer to concentrate on the manufacturing anyway. So, I have been discussing the possibility of setting up an arrangement with a chap I know who is interested in opening up such a shop and selling my kitchens from it.
This is how it would work, probably, and I don‘t see why we would need to set up a complicated and expensive legal framework.
He would find and take out a lease on a suitable shop. He would carry out whatever refurbishment was required, and he would give the business a name of his own choosing. He would buy from me, at my standard trade prices, the necessary displays. I would install these, and would also provide him with a thorough training in how to design and sell kitchens, and how to find and supervise kitchen fitters. My kitchens have several useful USPs
He would then open the shop and (hopefully) make sales. I’ve looked into this carefully, and it is entirely reasonable to aim to achieve a turnover of £500,000, equivalent to a £20K kitchen every two weeks. He would buy the kitchen from me, and arrange to have it installed by sub-contractors (my stuff is quite easy to fit, especially as it would have been designed and made for that particular kitchen). Then he would sell another one, and so on, a process that would continue for the foreseeable future.
The only payment I would receive would be the payment for the kitchen that I supplied, so no licence fees etc
So, the benefits of this arrangement to him-
He would be taught all about the kitchen design etc (he’s an IT guy at the moment, or rather, he used to be) . He will have a supply of decent bespoke kitchen product at prices which would enable a healthy profit ( I figure £100K clear on a £500K turnover, more would be possible depending on turnover and area affluence). I would not supply anybody else in his area. He would not have to pay any annual fees etc. If he decided he didn’t want to deal with me any more then he would be free to go with whoever he chose, with no hard feelings
And the benefits of this arrangement to me-
I have an outlet for my product, without having all the costs of renting a shop, I don’t have to pay for advertising, I don’t have to deal with customers. I can concentrate on my core business of manufacturing.
One obvious question is, how much money will I want for the product? Well, I wondered about this myself, and the answer was, if I ask too much money then I will be on the same position as any other company that asks too much money- no sales. So, in effect, the prices will be self regulating.
Anyway, sorry about the long read, how does the above sound to you guys? Can this be done on a gentlemen’s agreement?
First thoughts, sorry if blunt:
Fine idea if this guy is your son.
Basically, it sounds like you are going to have to wetnurse some bloke who knows nothing about the product and is starting with no existing client base or shop front.
I'd run a mile. You'll end up doing all the work.
Get a deal with someone who already has the shopspace (in a similar industry) and needs a new revenue stream to increase his already existing profit margins.
Never, go into business with someone who is not already in profit and has complementary products or experience.
First thought would be to find a top notch furniture store and stick one of your kitchens in a corner and brief the sales staff to corner prosepctive clients, take down details and pass them to you to make the close.
You are the best person to sell your product.
As far as the selling is concerned, there really isn't too much of a problem there, as long as the person is reasonably intelligent and presentable then most of the actual selling is done before he even opens his mouth. It's all about the store location (vitally important), the displays, the ambience (very mportant) and the ability of the salesman to listen and understand the clients' requirements.
Vesuvius 996 said:
sjc said:
.........we don't have contracts with any of them and yet some have been with us for 20 years even though they are free to buy from whoever they choose................
If I had a quid for every time a client of mine has come to bitterly regret this, I'd be a wealthy man.When you've worked your whole life to build your business, and you come to retire, and you want to sell up, or when you need to raise finance using your business as collateral, what do you think will happen?
The Banks/a Purchaser will arrive at your door expecting to "kick the tyres" of your business in a process called Due Diligence. They'll want to assess your business and how valuable it is, and one of the major things they'll want to see is whether you have decent contracts in place which guarantee revenue and business.
In your case, no doubt you're feeling pretty chuffed that you've saved money on lawyers' fees and time in not drafting and negotiating them. But your Bank or Vendor will (rightly) view this as a siutation where your business has no revenue stream to rely on (by your own admission your customers and suppliers can walk away on a minute's notice) and where there are no guarantees at all that there will be business tomorrow.
This makes your business WORTH A LOT LESS MONEY.
Sorry mate, but you need to sort this out quick.
Selling a business without decent contracts in place is like trying to sell a car with no service history or log book. It's throwing money down the drain.
Edited by Vesuvius 996 on Tuesday 8th April 09:43
I've never had an overdraft, needed to raise collateral,and the latest factory was paid for in 3 years.If you can pass judgement on my business as arrogantly as you have on the basis of what you've read in 3 posts by me, then congrats,you must be very pleased with yourself.As I said,in fact you know nothing about my trade or company, so lay off the lectures eh? We were asked for opinions on the OP's company prospects, not mine.
sjc said:
Vesuvius 996 said:
sjc said:
.........we don't have contracts with any of them and yet some have been with us for 20 years even though they are free to buy from whoever they choose................
If I had a quid for every time a client of mine has come to bitterly regret this, I'd be a wealthy man.When you've worked your whole life to build your business, and you come to retire, and you want to sell up, or when you need to raise finance using your business as collateral, what do you think will happen?
The Banks/a Purchaser will arrive at your door expecting to "kick the tyres" of your business in a process called Due Diligence. They'll want to assess your business and how valuable it is, and one of the major things they'll want to see is whether you have decent contracts in place which guarantee revenue and business.
In your case, no doubt you're feeling pretty chuffed that you've saved money on lawyers' fees and time in not drafting and negotiating them. But your Bank or Vendor will (rightly) view this as a siutation where your business has no revenue stream to rely on (by your own admission your customers and suppliers can walk away on a minute's notice) and where there are no guarantees at all that there will be business tomorrow.
This makes your business WORTH A LOT LESS MONEY.
Sorry mate, but you need to sort this out quick.
Selling a business without decent contracts in place is like trying to sell a car with no service history or log book. It's throwing money down the drain.
Edited by Vesuvius 996 on Tuesday 8th April 09:43
I've never had an overdraft, needed to raise collateral,and the latest factory was paid for in 3 years.If you can pass judgement on my business as arrogantly as you have on the basis of what you've read in 3 posts by me, then congrats,you must be very pleased with yourself.As I said,in fact you know nothing about my trade or company, so lay off the lectures eh? We were asked for opinions on the OP's company prospects, not mine.
My personal advice to the OP from my own experience is that with a modicum of legal knowledge I have been able to write all of my own contracts. Contrary to what another poster has said - I have never had one ripped up by a big company, in fact quite the opposite - I have actually received calls from their 'legal department' telling em they want do settle quickly...
Contracts are the cornerstone of business. If you don't believe me look at why business is so crap in a place like the Ivory Coast, and no-one can invest there. To follow up a breach of contract takes legal action takes 2 years and a lot of money. Here, whether you are big or small, you have access to make sure that you can make deals with the expectation you won't be screwed over.
If you can do this verbally that is brilliant. I do that too, but I will always supply either a standard terms and conditions and get the customer to agree to it, or just put in writing what we have discussed for both of our records.
That way it is almost painless, and has saved me in a number of practical scenarios.
For example, over their years the 'verbal deal' could change a bit, or just pushed that bit too far. A 'pay me at the end of the month' might become at the end of the next, or even 3 months.
Similarly, you don't get paid for your 3 months like usual, but you keep supplying the goods as they keep asking for them. After a while you leave a message for the boss asking for payment. He doesn't get back, then the phone just rings and rings. You go round there and the place is closed - its in administration.
Thats bad, as you have supplied them with about £50k of goods over the last 3 months. The administrators won't release the goods as yours as you cant prove that they are yours as it is not obvious whether payments you have received have been for goods already produced, or a part payment for the goods they have in the warehouse.
You then show them your short contract which was signed years ago confirming that:
"All goods remain the property of XYZ Ltd, until paid for in full and payment is confirmed to have cleared."
At least you can get your goods back...
In the longer term as Vesuvius has pointed out it is very difficult to value a business based on say current turnover. When you come to sell you can say - "I have sold to X for 10 years" but that is no guarantee that will continue of that the basis of the business has been through your personality, and with you gone, this business won't be there. Any kind of paperwork is better than none here. You of course still have to get business on your merits - but that is no reason why you cannot have formal paperwork.
One way to view this is write down a list of pros and cons of having a contract in place or not. The 'cons' are it will cost a few hundred quid. The 'pros' are almost too numerous to count. As such, I always try and turn 'subjective' decisions into 'objective' ones. In this case it's a no-brainer. And to be fair to the OP I think he said he'll get a contract drawn up.
zippy3x said:
Horse_Apple said:
zippy3x said:
What if this (former IT) guy is no good at selling?
That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
Yup. Never ever offer or agree to exclusivity.That effectively means his territory will be a dead zone for you, as you've agreed not to supply anyone else.
If someone grants it it is because their product is crap.
If you grant it you will make the guy lazy and complacent as he has no competition.
Best to have two people in one highstreet selling your product. They will sell four times as much as one guy an an exclusive.
I think this arrangement is perfectly acceptable in principle. I just think you need to sit down and make a list of "what ifs" and agree on solutions to those problems.
In this case - if he fails to sell a certain value of units per quarter, you are free, at your discretion, to revoke his right of exclusivity.
Nothing makes someone work harder than knowing that the moment you slack off the chap nextdoor is going to snag your next customer.
It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
Horse_Apple said:
Nothing makes someone work harder than knowing that the moment you slack off the chap nextdoor is going to snag your next customer.
It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
This guy (or anyone else that fancies doing the same) is going to be investing £30K to £40K in leasing a suitable shop, in a good area, and at least £15K of that will be invested in displays sourced from my firm. Damn right he's going to want exclusivity, and I will be happy to provide it.It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
The idea of two showrooms close to each other selling the same product? When did you last see that with AGA, or Porsche or any other aspirationally priced product?
singlecoil said:
Horse_Apple said:
Nothing makes someone work harder than knowing that the moment you slack off the chap nextdoor is going to snag your next customer.
It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
This guy (or anyone else that fancies doing the same) is going to be investing £30K to £40K in leasing a suitable shop, in a good area, and at least £15K of that will be invested in displays sourced from my firm. Damn right he's going to want exclusivity, and I will be happy to provide it.It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
The idea of two showrooms close to each other selling the same product? When did you last see that with AGA, or Porsche or any other aspirationally priced product?
It's why you'll see coffee bars and ice cream vans next to each other, why entire sections of retail highstreets focus on specific products like electricals or furniture.
There are entire small highstreets that seem to purely sell kitchens, bathrooms and furniture.
You can buy Poggenpoll from 3 different outlets by me.
I really do not believe in exclusivity as it smashes competitive drive.
As a business you would fare better having 2 good salesment in an area than 1. They will work harder to get the sale over the other and when customers complain to you, you have a real stick to beat the shop with to ensure they deliver a quality of service comparable to your product.
If you really feel you have no choice but to give some form of exclusivity then the very least yu can do is create estimate figures for sales in the catchment area and tell him that figures above this level will ensure that you do not accept other offers. At least that way he has to graft to get his safety cushion and you are not left swinging i the wind.
Horse_Apple said:
singlecoil said:
Horse_Apple said:
Nothing makes someone work harder than knowing that the moment you slack off the chap nextdoor is going to snag your next customer.
It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
This guy (or anyone else that fancies doing the same) is going to be investing £30K to £40K in leasing a suitable shop, in a good area, and at least £15K of that will be invested in displays sourced from my firm. Damn right he's going to want exclusivity, and I will be happy to provide it.It is far easier to cut off an underperforming outlet if you already have another in the location generating revenue. It's just an easier descision to make. Plus, the chap can never tell you that the reason he is not meeting the grade is down to your product etc.
If the guy won't do it without an exclusivity then he is telling you very clearly to your face that he has no confidence in his ability to be the best. And you don't want anyone but the best involved in your top flight product.
The idea of two showrooms close to each other selling the same product? When did you last see that with AGA, or Porsche or any other aspirationally priced product?
It's why you'll see coffee bars and ice cream vans next to each other, why entire sections of retail highstreets focus on specific products like electricals or furniture.
There are entire small highstreets that seem to purely sell kitchens, bathrooms and furniture.
You can buy Poggenpoll from 3 different outlets by me.
I really do not believe in exclusivity as it smashes competitive drive.
As a business you would fare better having 2 good salesment in an area than 1. They will work harder to get the sale over the other and when customers complain to you, you have a real stick to beat the shop with to ensure they deliver a quality of service comparable to your product.
If you really feel you have no choice but to give some form of exclusivity then the very least yu can do is create estimate figures for sales in the catchment area and tell him that figures above this level will ensure that you do not accept other offers. At least that way he has to graft to get his safety cushion and you are not left swinging i the wind.
Around a town there are only so many accessible retail parks. There are also a number of companies who get a benefit from the size of unit only a retail park can offer. For example, a carpet warehouse or white goods store. They are together because they have to be, they have little other choice. Many times they are there just to take some of the market share away from one of their competitors!
The OP's product is a niche product. What sense would their be having two UK outlets in the same place anyway?
If the market for the product in the area is X, it won't become 2 times X just because there are two outlets. Of course, it might get a *bit* more turnover, maybe X times 1.1 or 1.2 at most, but this would be shared over two outlets.
The outcome of this for the outlets is the space they offer to the OPs product gets them half the £ per square metre it would than if they have exclusivity. So when another manufacturer comes along with similar goods, this could offer them double the £ per metre for their rental cost. It is easy to see who they would choose.
This is of course without the hassle of creating 'price wars' or one matching the 'sale price' of the others, as this would only further reduce their margins and make it less worthwhile.
IMHO, if the dealer is offering to pay £15k for the installations in store then he has done very well already in securing that! His best way forward IMHO would be to focus his time towards the one dealer, and support him with exclusivity in the agreed area. He could put a clause that this would only be the case if turnover is over a certain threshold, however in practicality of the figures were not good, the shop would have to close or use someone else anyway!
JustinP1 said:
The OP's product is a niche product. What sense would their be having two UK outlets in the same place anyway?
But there lies the rub. If this is a niche product where it only makes sense to have one sales unit in the area then that is already a natural exclusivity.By granting a legal exclusivity to him the only thing you are doing is handing him your arse. Giving him control over you.
Without a Sword of Damacles you are never going to get optimum performance, which is all you should be focussed on. He needs to know that the moment he starts slacking off or underperforming you have the ability to accept other offers and remove his contract. Without that you will be working for him.
When he fails to sell enough to cover his costs he is going to come to you and blame you for selling it to him too expensively and you are not going to be able to counter with the only response which is that this is not your understanding from the calls you are getting from other wannabe sellers. If you have an exclusivity you will feel the need to compensate for his failure but bank rolling him out of your own profit margin.
You want him tied to that shop 24/7 selling your product and not feeling that he can cruise at anytime when something more important crops up. He works for you but the moment you give him exclusivity then you work for him and you are going to lose out on revenue and sales.
Horse_Apple said:
You want him tied to that shop 24/7 selling your product and not feeling that he can cruise at anytime when something more important crops up. He works for you but the moment you give him exclusivity then you work for him and you are going to lose out on revenue and sales.
I’m mildly baffled as to why you are carrying on in this vein, despite Justin’s excellent explanation. Perhaps you just haven’t grasped the entirety of the situation. I’d better recap-A person who is familiar with my product, and wishes to invest in a retail business, is looking for suitable premises. When he finds them, and if he decides to go ahead, he will be spending £30-£40K to set them up as a bespoke kitchen outlet. He will spend in the region of £15K with me for the actual kitchen units. He will also have to buy various appliances and work surfaces from their respective suppliers, pay for refurbishment of the premises and front some rent. His only income from this shop is going to be by selling my kitchens. Now, you are suggesting that I should not give him exclusive rights to the area? Because he might be cruising? Having invested that much? Basically, that’s ridiculous.
singlecoil said:
Horse_Apple said:
You want him tied to that shop 24/7 selling your product and not feeling that he can cruise at anytime when something more important crops up. He works for you but the moment you give him exclusivity then you work for him and you are going to lose out on revenue and sales.
I’m mildly baffled as to why you are carrying on in this vein, despite Justin’s excellent explanation. Perhaps you just haven’t grasped the entirety of the situation. I’d better recap-A person who is familiar with my product, and wishes to invest in a retail business, is looking for suitable premises. When he finds them, and if he decides to go ahead, he will be spending £30-£40K to set them up as a bespoke kitchen outlet. He will spend in the region of £15K with me for the actual kitchen units. He will also have to buy various appliances and work surfaces from their respective suppliers, pay for refurbishment of the premises and front some rent. His only income from this shop is going to be by selling my kitchens. Now, you are suggesting that I should not give him exclusive rights to the area? Because he might be cruising? Having invested that much? Basically, that’s ridiculous.
You have stated that there is already a perfectly natural exclusivity for selling bespoke kitchens in a given area. I will take your word for that and it certainly would make sense, given the nature of the product.
Plus, my guess is that you have limited capacity for producing the kitchens in the first place. If he is doing his job properly then he would be filling your orderbook and thus preventing you from being able to deal with anyone else.
His own success and the natural capacity for sales within an area will guarantee him complete exclusivity.
However, you have not stated that in return he will give you exclusivity within his shop, or any other shops that he may expand to in the future? You also haven't said that you will have a say in where he locates his business or any other factors at all.
So, in essence, you will be granting what seems to be exclusivity to one chap with nothing in return.
So, what happens in the following situations:
A major retail player spies an opportunity and takes a unit in the area, and approaches you as a local specialist to supply them. They have a huge advertising budget and a big team of sales staff,
they also offer to sell your product nationwide, but via the outlet in your local area.
Obviously, the opportunity to sell many, many more kitchens and increase your profit massively is not to be sniffed at, but hold on, some one man band down the road, ticking over in a small outlet has you by the balls.
What would actually happen is that he will sign the deal, as the reseller, and then start turning the screws on you as the supplier as he holds all the cards.
What also happens if he choses the wrong location and you know it but he won't listen?
What happens if his fitters make a bodge of the job, or upset the buyers? It's your reputation that's on the line as you will still be in the area long after he has shut up shop and left.
What if he decides to sell other kitchen brands from his unit?
What if he decides selling kitchens from his unit is not making enough money and so he branches out into another line and that transpires to be more profitable and so he puts all his effort into that, but he still holds the exclusivity that stops you from applying any pressure. Will he be giving you exclusivity as the only product within his business? I bet you golden ass he won't. Just you try asking and see what the answer is.
An exclusivity will do absolutely nothing but come back and bite you in the bum.
If you really feel you have to do it, then make him sign up to minimum sales volumes with penalties, total exclusivity for the company and the sales unit for only selling your product. Control of choice of location and lace the contract with get out clauses.
I'm not being rude but I just cannot see why on earth you would give any form of exclusivity based on the fact that he is spending a few grand to set up his outlet. He'd be doing that anyway whatever product he was planning on selling, it's his risk and problem, not yours.
All the people i do business with have all become my friends over the years. But not for a single second would i consider taking on new contracts or doing any kind of work without a legal framework. This is just plain foolish to even consider trying to proceed in this manner.
regardless of the trust between the two of you, relationships can sour in some cases and can lead to all kinds of legal problems and could potentially be the death of your business
regardless of the trust between the two of you, relationships can sour in some cases and can lead to all kinds of legal problems and could potentially be the death of your business
RJDM3 said:
All the people i do business with have all become my friends over the years. But not for a single second would i consider taking on new contracts or doing any kind of work without a legal framework. This is just plain foolish to even consider trying to proceed in this manner.
regardless of the trust between the two of you, relationships can sour in some cases and can lead to all kinds of legal problems and could potentially be the death of your business
You must tell us what line you are in, so that we can weigh the relevance of your experience to this particular situationregardless of the trust between the two of you, relationships can sour in some cases and can lead to all kinds of legal problems and could potentially be the death of your business
Horse_Apple said:
His own success and the natural capacity for sales within an area will guarantee him complete exclusivity.
However, you have not stated that in return he will give you exclusivity within his shop, or any other shops that he may expand to in the future? You also haven't said that you will have a say in where he locates his business or any other factors at all.
Sorry, I should have made it clearer that he in turn would be giving me exclusivity, in other words I would only supply my product to him, and he would sell only my product. As soon as one of us decides not to continue with the arrangement then so, of course, the other is free to do the same. The arrangement is built , like all the best arrangements, not on constraints of a contract but on mutual need and benefit.However, you have not stated that in return he will give you exclusivity within his shop, or any other shops that he may expand to in the future? You also haven't said that you will have a say in where he locates his business or any other factors at all.
Horse_Apple said:
What also happens if he choses the wrong location and you know it but he won't listen?
What happens if his fitters make a bodge of the job, or upset the buyers? It's your reputation that's on the line as you will still be in the area long after he has shut up shop and left.
If he chooses the wrong location , and it is obviously th wrong location, then the arrangement will not proceed. Fortunately he is not insane and the amount he is investing will encourage him not to do any silly stuffWhat happens if his fitters make a bodge of the job, or upset the buyers? It's your reputation that's on the line as you will still be in the area long after he has shut up shop and left.
He won't be selling under my name, so if his fitters make a bodge upthen it will be his reputation, not mine, that will be affected. But one might just as well say what if the Bentley mechanics mess up someone's CFS. Bad workmanship is a problem that can affect any business, and has to be dealt with as needed
Horse_Apple said:
What if he decides to sell other kitchen brands from his unit?
What if he decides selling kitchens from his unit is not making enough money and so he branches out into another line and that transpires to be more profitable and so he puts all his effort into that, but he still holds the exclusivity that stops you from applying any pressure. Will he be giving you exclusivity as the only product within his business? I bet you golden ass he won't. Just you try asking and see what the answer is.
An exclusivity will do absolutely nothing but come back and bite you in the bum.
Dealt with above, sorry I didn't make the mutual exclusivity clearer.What if he decides selling kitchens from his unit is not making enough money and so he branches out into another line and that transpires to be more profitable and so he puts all his effort into that, but he still holds the exclusivity that stops you from applying any pressure. Will he be giving you exclusivity as the only product within his business? I bet you golden ass he won't. Just you try asking and see what the answer is.
An exclusivity will do absolutely nothing but come back and bite you in the bum.
Edited by singlecoil on Sunday 13th April 16:32
singlecoil,
I actually think what you are proceeding with sounds very much in your favour. Simply, you are getting the profits from expansion, with none of the risk. Indeed, it is actually making you money from day one as he is buying the fittings from you!
I don't think a 50 page document solicitor's document as a contract is needed, however i would say a simple handshake is leaving too much in the open. I would say that there are two main factors you should have in writing though to avoid confusion.
Firstly, brand ownership of what is being sold. Ideally you want to YOUR brand being promoted and sold. What you don't want is him to build his brand, and then find a cheaper supplier to continue his brand, or even sell the brand should it be successful! Basically the framework would be that he would be an 'outlet' for your brand. You should also make this clear in the contract, the brand is yours.
The second main point is the terms of your exclusivity. Although it gives him security, it is also for you. Lets say your brand does well and you are approached from another company for another outlet 50 miles away. You agree. However two years later the first guy sees his sales fall, and he goes out of business. This might be nothing to do at all with the second outlet, and entirely his own making, but he could claim that he was promised exclusivity, he didnt get it and therefore he lost out on X hundred thousand pounds due to the breach. Nasty.
It doesnt need to be long, but getting at least those two points in writing will really protect you later, even if it is on a single A4 sheet of paper you have knocked up yourself.
I actually think what you are proceeding with sounds very much in your favour. Simply, you are getting the profits from expansion, with none of the risk. Indeed, it is actually making you money from day one as he is buying the fittings from you!
I don't think a 50 page document solicitor's document as a contract is needed, however i would say a simple handshake is leaving too much in the open. I would say that there are two main factors you should have in writing though to avoid confusion.
Firstly, brand ownership of what is being sold. Ideally you want to YOUR brand being promoted and sold. What you don't want is him to build his brand, and then find a cheaper supplier to continue his brand, or even sell the brand should it be successful! Basically the framework would be that he would be an 'outlet' for your brand. You should also make this clear in the contract, the brand is yours.
The second main point is the terms of your exclusivity. Although it gives him security, it is also for you. Lets say your brand does well and you are approached from another company for another outlet 50 miles away. You agree. However two years later the first guy sees his sales fall, and he goes out of business. This might be nothing to do at all with the second outlet, and entirely his own making, but he could claim that he was promised exclusivity, he didnt get it and therefore he lost out on X hundred thousand pounds due to the breach. Nasty.
It doesnt need to be long, but getting at least those two points in writing will really protect you later, even if it is on a single A4 sheet of paper you have knocked up yourself.
JustinP1 said:
Firstly, brand ownership of what is being sold. Ideally you want to YOUR brand being promoted and sold. What you don't want is him to build his brand, and then find a cheaper supplier to continue his brand, or even sell the brand should it be successful! Basically the framework would be that he would be an 'outlet' for your brand. You should also make this clear in the contract, the brand is yours.
That's an interesting point, and one I will need to give more thought to. JustinP1 said:
The second main point is the terms of your exclusivity. Although it gives him security, it is also for you. Lets say your brand does well and you are approached from another company for another outlet 50 miles away. You agree. However two years later the first guy sees his sales fall, and he goes out of business. This might be nothing to do at all with the second outlet, and entirely his own making, but he could claim that he was promised exclusivity, he didnt get it and therefore he lost out on X hundred thousand pounds due to the breach. Nasty.
I had always planned for him to have a specific area, whether or not I had anyone in adjoining areas at the time of setting up the agreement.There will certainly be a written agreement which we will both sign.
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