What are the steps for a prospective Franchisee when considering buying a franchise?
There are well over a thousand franchise systems in Australia. So many to choose from. But what will suit you? The benefits of carrying out some in-depth research into the types of franchise businesses that are available and what is right for you, cannot be underestimated. Our law firm can assist you with your legal needs to help you understand your initial and ongoing commitment and obligations.
A prospective Franchisee needs to consider several important factors such as:-
- whether they possess the necessary skills to operate a particular type of business;
- the sort of work to be carried out;
- the hours required to be put in;
- the capital requirements to get the business up and running;
- what the future is for the industry in which you are looking to operate the franchise business.
Going into business will always involve risks. Acquiring a franchise business does not alleviate that risk, however having the benefit of a proven system with an established reputation and brand and the support of a good Franchisor will help to minimise that risk. Whilst poring over paperwork does not appeal to many people, a potential franchisee is doing themselves and their family a disservice if they do not carry out a thorough due diligence process on their proposed choice of franchise business. By that I mean gathering together all the relevant information regarding the franchise business and analysing it carefully so you know what you are getting yourself into.
The due diligence process should include:
- carefully reviewing the disclosure document and the draft franchise agreement relating to the franchised business. You are entering into a binding contract for a fixed term, which many Franchisees do not appear to understand;
- doing your homework on the Franchisor, including its/their history, business experience and reputation;
- speaking with existing Franchisees (whose details and contact numbers are in the disclosure document) to ascertain their level of satisfaction with the Franchisor, the system, training provided, Franchisor support, etc. This cannot be underestimated as a great source of up-to-date information about the health of the system generally;
- if there is a retail or other site applicable, a history and demographic analysis of the site, traffic, future for the site i.e. redevelopment, etc and an assessment of any leasing requirements;
- an assessment of the strength of the brand (is it relatively new or does it have brand recognition already?) and confirming that the Franchisor has its intellectual property properly protected (by way of trade mark) to ensure the maintenance of the value and reputation of the brand;
- an assessment of the competition in the industry and in the proposed franchise territory and surrounds;
- details of the territory (if applicable), its size, demographics, potential for growth and any exclusivity granted;
- how the franchise business operates on a day-to-day basis and what it is going to take to make the business work – does this suit the lifestyle you envisage for yourself and your family?
The key is to consider all the information available, get good accounting and business advice, obtain legal advice from a lawyer experienced in franchising and make an informed decision based on the information you have gathered and assessed rather than a decision based on emotion – easier said than done.
Once you have taken the leap and made your decision to acquire the franchise business, be prepared to devote yourself to the training and also ensure you:-
- listen to your Franchisor. They know their business and the system – utilise their system and expertise – don’t think you can do it better your way;
- have enough capital in reserve as times are likely to be tough in the first several months or more;
- prepare and implement a detailed business plan;
- ask your Franchisor for help if you need it – you are not alone;
- ensure you stay on top of your reporting requirements so you know exactly where you are at in your business. This will enable your Franchisor to assist in pinpointing any problem areas and provide further training and help as required;
- take advantage of all that the franchise system has to offer, liaise with other Franchisees, join any franchise advisory group and regularly attend the franchise meetings.
Visit the Franchise Council of Australia website at www.franchise.org.au for some valuable resources. You should also consider the free, online education program for prospective franchisees run by the Asia Pacific Centre for Franchising Excellence funded by the ACCC. Franchising and Small business courses are also on offer.
- Review of Franchise Disclosure Documents.
- Review of the Franchise Agreement and associated documents such as Licences to Occupy, Leases, Deeds of Prior Representation etc.
- Advice on the due diligence required to be carried out to assist in making the right franchise acquisition for you.
- Advice on disputes with the Franchisor.
- Mediation to assist in resolving disputes.
- Advice and assistance with possible litigation against a Franchisor.