Buying a Franchise? Seek some professional advice before you commit.
So you have made a start on your due diligence and now is the time to seek some advice.
The Franchising Code encourages Franchisees to get advice from an independent legal advisor, business advisor and accountant.
Most commonly prospective franchisees source advice from an accountant and a lawyer.
Legal advice can help in ensuring that you understand your rights and obligations that are set out in the franchise agreement.
It is important to have a really good grasp of the fundamentals of your franchise agreement e.g. fees payable, what are the terms relating to renewal, how does advertising and marketing work, what are the terms relating to you on selling the business, terms relating to the supply of products and services etc.
Your lawyer should read all the documentation and preferably sit down face to face and go through it with you in detail – you can ask questions as you go. This meeting is invaluable for teasing out the detail and trying to make sure you have a realistic understanding of what you are getting into in legal sense.
If there is a related lease or sublease of premises, then you will need your lawyer to advise on those terms as well – both the franchise agreement and the Lease agreement need to work together.
If things go well with the franchise business, it is likely that you may not refer to your franchise agreement much at all, but, if things don’t go well, then this is one of the first documents that will be dug out of the drawer for review to see what your rights and obligations are and that of the Franchisor.
Accounting advice can help you understand the figures of any existing franchise business that you may be purchasing. Your accountant can also help to prepare cash flows and forecasts for the new business – and be realistic about the top line. Generally it is the top line or income/sales etc. where the problems can lie or sometimes, it’s in the expenses – when costs blow out for some reason.
Your accountant can also advise on your business structure and options to ensure tax effectiveness. If finance is required, your accountant can also assist with preparation of the necessary paperwork for submission to the Bank and also on financing options.
Business advice can help put all the pieces of the puzzle together and provide a good overview of the existing proposition and how that can be improved.
So – some final advice before making the leap and committing:-
- Make sure you have done all the necessary groundwork to make an informed decision.
- If you buy a new franchise then there is a seven (7) day cooling off period (check the code for details). If you buy an existing franchise business, there is no cooling off period.
- Don’t be pressured into making hasty decisions – make haste – but slowly and be patient. If it is meant to be…
- Keep records of documents provided, emails and all meetings and conversations with the Franchisor before entering into your franchise agreement in case things go wrong.
- Make sure as far as you can, that the Franchise business proposition meets your expectations in terms of financial performance and lifestyle.