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.
There Are Several Important Factors That a Prospective Franchisee Must Consider
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:
REVIEW THE DISCLOSURE DOCUMENT
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.
DO HOMEWORK ON THE FRANCHISOR
Doing your homework on the Franchisor, including its/their history, business experience and reputation.
SPEAK WITH EXISTING FRANCHISEES
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.
DEMOGRAPHIC ANALYSIS OF THE SITE
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.
ASSESS THE STRENGTH OF THE BRAND
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.
ASSESS THE COMPETITION
An assessment of the competition in the industry and in the proposed franchise territory and surrounds.
ESTABLISH THE DETAILS OF THE TERRITORY
Details of the territory (if applicable), its size, demographics, potential for growth and any exclusivity granted.
HOW DOES THE BUSINESS OPERATE ON A DAY-TO-DAY BASIS
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
What To Do In Training
Looking for experienced and trusted franchise lawyers on the Sunshine Coast?
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.