Consulting with a lawyer is a very important step for anyone about to buy a franchise. It is always beneficial to see a lawyer early in the process because we can direct you to issues you should be looking at.

However before you visit a lawyer there are a few things that you can do to ensure that you get the most out of a consultation.

Seek advice from an accountant

One of the first steps a prospective franchisee should take is to consult with an accountant. Ensuring that you are in the right financial position and have the borrowing capacity to enter into a franchise is essential before you invest further time and money into the process.

It is also important for your accountant to examine and verify the figures in the disclosure document given to you by the franchisor. They will be able to help assess the franchisor’s track record in running the franchise and whether the franchise will be a profitable investment.

Decide on a structure

Deciding whose name will be on the franchise agreement should not be a last minute decision. It is very important to get your franchise business structure right in the beginning. There are a lot of differences between carrying on a business as an individual, company or trust, so consult with a business planning adviser.

Educate yourself

You do not need a business degree to own a franchise, but you do need to understand the basics of business management to know how to balance your books and to have the skills to run your own business efficiently.

There are online courses that prospective franchisees can take, for example the ACCC’s Small Business Education Program.

Griffith University also offers a free online Pre-Entry Franchise Education Program which will benefit every franchisee.

Apply for finance

Consulting with a bank or broker to make a finance application should be one of the first steps that a prospective franchisee takes because there will be at least a few weeks between making an application and receiving approval (if it’s given). You should be mindful of this when it comes to your timeframe.

You should always consult with your accountant before applying for finance because they will help you understand your investment, returns and the appropriate loan arrangement to suit your circumstances.

Read your franchise documents

The franchise agreement and disclosure document contain all the terms and conditions that will govern the business relationship you are entering into. We cannot stress enough the importance of you reading through these documents yourself before consulting a lawyer. A client who has attempted to read the documents and visits with a list of questions to ask, however silly they may seem, is always preferable to a client not knowing anything about the contents of the documents.

When it comes to signing the franchise agreement, you will need to sign a statement acknowledging that you have in fact read all the franchise and disclosure documents. Reading these documents in the beginning is always better than rushing through them at the last minute.

Write down statements

If a franchisor or their agent makes a statement about the franchise and this information is not included in the franchise documents, then tell your lawyer.

When a lawyer goes through the franchise documents with a prospective franchisee, they try to identify the basis for each statement or representation. If there is no foundation for the statement , it must be disclosed before documents are signed. A franchisee who has already read through their documents before visiting their lawyer will have an idea if something important has not been addressed and this will help resolve any issues a lot more efficiently.

We recommend that prospective franchisees write down any representations made by the franchisor. These can then be checked off against the franchise agreement and disclosure document.

Do your due diligence

The disclosure document is the starting point for a prospective franchisee to begin their research and enquiries into the viability of the franchise system. You should research as much as you can about the franchise system.

The disclosure document will list the details of the system’s franchisees over the past three years. Speaking to these franchisees is important because they can give you a different perspective to that of the franchisor. A franchise buyer can then get a feel for whether other franchisees are happy with the system, and whether there is any substance to statements made by the franchisor.

Put down the pen!

Always visit a lawyer before signing your franchise agreement or lease.

We are sometimes approached by prospective franchisees who are about to sign their lease for the franchise premises, but have not yet organised finance or final terms of their franchise agreement. If you sign the lease, but cannot get finance or the franchise agreement negotiations fall through you could be left with a very costly problem.