Buying a franchise? Don’t just rely on the franchisor’s claims, advises the Australian Competition and Consumer Commission.
Buying a franchise is a big decision and you need to do some homework before you sign on the dotted line. Here are the ACCC’s top five tips:
1. Verify promises
Has the franchisor made their franchise sound like it’s the best opportunity in the world? Don’t just take their word for it.
Be wary of claims that sound too good to be true, particularly promises that you will earn a certain level of income. Try to substantiate those claims – if you’ll be operating a physical store, spend some time sitting outside that store (or another franchisee’s store) counting how many customers walk in.
If the franchisor makes verbal claims, ask them to confirm those claims in writing.
2. Read the paperwork
Under the Franchising Code of Conduct, which applies to all franchisors, a franchisor must give you a copy of the code, a disclosure document and a copy of your franchise agreement in its final form at least 14 days before you sign the agreement or hand over non-refundable money.
Take your time and read the disclosure document, which sets out the payments you’ll be required to make, whether you’ll have an exclusive territory and what will happen at the end of your agreement. Also read your franchise agreement carefully to find out your rights and obligations when dealing with the franchisor.
3. Seek advice
If you don’t fully understand your franchise agreement, don’t sign it. Take the agreement to a lawyer and get advice. If the franchisor gives you financial information, discuss the figures with an accountant or business adviser.
4. Talk to other franchisees
The disclosure document must include the contact details of current franchisees and some past franchisees. Speak to as many as possible to gain an insight into the system. Ask current franchisees if they are earning as much as they expected. Ask former franchisees why they left the system.
5. Get some training
Doing a franchising course will help you make an informed decision. There is a free online education program funded by the ACCC and run by Griffith University.