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On the flip side, you may also be able to negotiate your way out of a director’s guarantee if you’re a very established investor with a large portfolio of franchises because you have a track record. However, even in these situations negotiations can still be unsuccessful. “Even the bigger, sophisticated multi- unit, multi-brand franchisees get asked for personal guarantees by the franchisor and if you don’t provide the personal guarantee, you’re not going to get the franchise. It’s pretty much as simple as that,” says Iain, who works with numerous multi-unit investors and franchisors. He’s encountered investors who will only sign a director’s guarantee with a cap – highlighting that if you take this approach, you need to be comfortable with walking away and honouring your ‘red line’. However, he’s also witnessed successful negotiations. “There’s been multi-unit franchisees successfully negotiate new development and franchise agreements without a director’s guarantee at all,” he says. In other cases, franchisees have negotiated a reduction in liability as performance targets have been hit and revenue has accumulated. “By the time the director’s guarantee falls away that franchisor has had a three-year trading relationship with a significant franchisee organisation who’s proved themselves,” says Iain. Ultimately, it could be quite difficult to negotiate your director’s guarantee, but it’s not impossible so may be worth discussing before you sign your franchise agreement. Make sure you’re in the know The best way to navigate director’s guarantees is to ensure you stay informed fromday one of your franchising journey. Remember to stay viligent, seek advice, and always double check what you’re signing. Red flags While director’s guarantees aren’t necessarily something to be alarmed by, some franchisor behaviour surrounding them could be cause for concern. In any scenario, it’s essential to seek independent legal advice to ensure your safety and understanding here. One particular red flag for franchisees can be if a franchisor asks for guarantees from you and everyone you’re connected with, despite them not being involved in the business. “If they are asking for guarantees for everybody in and around you, alarm bells should ring,” confirms Fiona. “You need to restrict that down to just the people involved in the franchise ideally.” If you’re unsure, raise your concerns with a lawyer. Due diligence While understanding the contents of the franchise agreement, such as a director’s guarantee, is one thing – it’s vital you double-check the basics. “Is it dated? Is it signed? Does it have any square brackets in it with information that was supposed to be there?” says Iain. If the franchise agreement and the director’s guarantee have not been properly executed they may not be valid. If it is valid, and you can’t cover the debt you’ll be made bankrupt. “If the value of your home isn’t sufficient to cover the liability, then you could be made bankrupt. And if you’re made bankrupt, you’ll not get credit in the future. You can’t act as a director. You might even struggle to get a job,” says Iain. Seek legal advice There are multiple cases where franchisees signed a director’s guarantee without really knowing what the implications were, or at least, couldn’t imagine they’d ever be in a situation where they’d ever come into play. The consequences of dealing with this can be devastating if you’re unprepared, which really highlights the importance of thinking about future you by seeking legal consultation on your franchise agreement. “Given the risks, franchisees should proceed with caution,” agrees Emily. “It’s crucial to thoroughly understand the implications of a director’s guarantee and seek professional advice to navigate these waters effectively.” 31 WHAT-FRANCHISE.COM Ins ights