There are many avenues that a potential franchisee needs to cover prior to embarking on their journey within a particular franchise system.
It goes without saying that undertaking comprehensive due diligence is a must for each and every potential franchisee.
However, there are a number of considerations within the realms of such due diligence that must be looked at in more detail.
The top five tips for potential franchisees to aid them in their search for the ‘right fit’ franchise business:
1. AFFORDABILITY AND NUMBER CRUNCHING
You must have a clear understanding of how much investment is required to see if you can afford to invest into the business and whether that investment is warranted given the potential return on your investment.
The answer to this question may not necessarily be obvious by way of adding the immediate start-up costs such as the initial franchise fee, equipment purchase and/or fit-out expenses.
The actual total investment will also incorporate a realistic working capital amount and allow for the inevitable unexpected items.
2. APPROACHING CURRENT AND FORMER FRANCHISEES
Franchisees are the best people to speak with to find out more information about the franchisor and the franchise system.
Find and speak with as many franchisees as you can and ensure you speak with a broad cross section of those who have recently joined, more experienced operators and those who have moved on. Don’t be afraid to ask difficult questions about the franchisor, the business and the numbers.
3. PERFORM ALL RELEVANT SEARCHES
We recommend that comprehensive searches are undertaken in relation to the franchisor, its directors and the franchise system you are considering.
These include company searches, intellectual property searches, insolvency searches and Google searches . You can engage the services of a solicitor to aid you with performing some of the relevant searches.
What you may uncover may be quite an eye-opener. For example, the ACCC has a process whereby franchisors can obtain immunity from exclusive dealing arrangements, such as forcing franchisees to buy exclusively from a particular supplier.
The disclosure document does not actually have a requirement to disclose such arrangements but the ACCC website includes a register of exclusive dealing notifications which can be searched by the name of the franchisor.
4. LIFESTYLE AND INDUSTRY
If you plan to work in the franchise business you are buying , then you must understand how that position will impact on your lifestyle and your family. You must also understand what skills you currently have and may need to either obtain or improve for your franchise business to succeed.
You should also look at what formal qualifications, if any, you or your staff members will need to obtain and how easily obtainable they are.
5. TAKE ALL DOCUMENTS TO BE REVIEWED BY SPECIALISTS
You will benefit in a number of ways from obtaining legal and accounting advice from the experts of the industry.
If you are investing a substantial amount of money and time into a franchise, not only will the advice give you the confidence to proceed, it may actually save you from future problems arising as a result of something inherent in the documents.
A lawyer may be able to uncover an issue you haven’t considered, an accountant may tell you that the franchisor is asking too much for too little in return. Either adviser may be better placed to give you unbiased professional advice and possibly get you a better deal, which is worth well over the cost of that advice.
Jane Garber is a solicitor at Franchise Legal, which has offices in Melbourne, Sydney, Brisbane and Adelaide.