In The News

Mon 4 Jun 2018

Franchising: Initial Steps to making the Right Decision for You


Legal Services
Purchasing a franchise can be an exciting but also scary time, especially if this is a person’s first foray into franchising and/or moving from being an employee to a business owner.

Often, a better understanding of what franchising life could be and reduction of any potential problems could have taken place if proper considerations were undertaken before purchasing any franchise.

There are many steps that should be considered before purchasing a franchise, but this article aims to mention just a few of the initial steps and/or considerations.

One of the first steps before purchasing a franchise should be undertaking an investigation of what it is you are actually wanting from becoming a franchisee. You need to be brutally honest with yourself. What are the skills and resources you have and are willing to commit. What are you willing to do. What limitations and/or restrictions may impact you and/or your family.

Friends, family and trusted advisers should be spoken to and asked to give their forthright views, which you should consider in addition to your own personal analysis.

The next step is to use your above results to investigate all your potential franchise options. Get out there and look at what is available, do not just focus on one system. Even if you are only interested in one, you should look to others just to be aware of potential competition, common threads and areas of difference. You should seek to collate as much information as possible from each potential franchisor and compare what you are wanting and needing, with what they are offering.

Once you have whittled down your options, I strongly recommend before you lock yourself into any agreement or pay over any monies, you speak with your accounting and legal advisors. Make sure these people have specific franchising experience. Ask them on this to determine the extent of their expertise and experience.

Generally, you need to invest substantial time, money and other resources initially and throughout the franchise, and if you change your mind may not be able to leave without substantial cost or process. Consequently, I cannot emphasise enough the importance of ensuring you get proper advice before paying any monies or signing any documents.

Once you have your advisors on board then generally the more in-depth investigations will take place. In particular, this is when you are likely to get access to confidential information and the franchisor’s franchise documents, in particular, the Franchise Disclosure Document. Sometimes this may first involve payment of a deposit and then the commencement of strict timeframes before deposits becoming in full or part non-refundable.

Generally, your advisors, will review the information collected and recommend any further information that should be sought. Lawyers in particular are likely to encourage you to clarify any unclear or concerning areas arising from their review of the disclosure document, have the franchisor’s (as well as any vendor’s) finances carefully checked by your financial advisors to ensure the value being bought as well as the franchisor’s management and potential longevity. Additionally, one of the basic steps is to always contact existing and past franchisees to get their views on the franchisor, franchise system and franchise business, these parties contact details being set out in the Disclosure Document.

Again, these are a few steps that if taken may make your life much easier down the track.

Please note this brief update, does not purport to be comprehensive advice relevant to your circumstances. Consequently specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.

 

 


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