How do I assess a franchise business?
The 3 key points to buying a franchise are:
- Evaluate yourself.
- Evaluate the system.
- Seek professional advice.
Seven questions you should ask before selecting a franchise:
Has sufficient testing of the system taken place?
What is the franchisee selection criteria?
Does the franchisor have sufficient capital to allow for growth, profit lead times and other contingencies?
What are the credentials of the franchisor?
What is the background of the franchise system?
What are your financial expectations?
Is the agreement fair, reasonable and legal?
How do I finance my business?
Firstly you must find out if you can afford to buy the franchise. Ask the franchisor if they have any affiliations with lending institutions and if so what are they. There are many financial institutions that provide franchisee funding and advice.
Should I seek legal advice?
It's very important to have appropriate advice when reviewing any new business opportunity. If you wish to engage a solicitor, you need to find one experienced in franchise agreements to work with you to assess the fairness of the proposed franchise contract. In most cases the conditions may be non-negotiable. You need to evaluate whether the terms and conditions of the contract are acceptable from your perspective and to identify areas that may need to be addressed with the franchisor.
If I want out, can I get out? Can I sell the franchise?
Yes. A franchise business can be sold like any other ongoing concern.
Are there any guarantees?
No. Like all businesses a franchised business can also fail. To be successful a franchisee must apply strict adherence to the franchise business system, effort and enthusiasm. Being part of a franchise group makes being in business a lot easier. A franchisor provides the tools, know how, support, business system and brand, it is up to the individuals to make that work to their advantage.
Additional Key Information
A prospective franchisee must seek professional advice from qualified and experienced advisors. There are several legal and regulatory areas that impact on franchising. Generally, franchising is regulated under the same general law provisions that govern all commercial activities The Competition and Consumer Act 2010 is the primary legislation governing franchising.
The Franchising Code of Conduct
Introduced in 1998 to regulate the franchise sector and introduce standard protections for franchisees. Requires franchisors to provide a mandatory disclosure of information about the business. Potential franchisees should read the Code and understand how it applies to them before buying a franchise.
The Disclosure Document
A franchisor must provide a prospective franchisee with a copy of the code of conduct and the disclosure document.
The information disclosed covers issues relevant to the commercial viability of the franchise and relevant history that you need to know about your new business partners.