FRANCH-WISE -Discovering the dos and don'ts of buying a franchise

by 5th of August, 2019

Researching and buying a franchise is a complex process but getting it right can be so rewarding and life-changing. On the other hand, getting it wrong can be costly and a failing franchise location is never a good result, no matter how big or small the network is. Finding the right franchise could mean months of making enquiries, meeting with franchisors and back-to-back (not-so-cheap) meetings with legal teams, recruiters and advisors. It’s a process worth undertaking with caution to ensure that your chosen franchise business has the maximum chance of succeeding! If you’re in the process of buying a franchise, ensure that you consider these wise steps:

Your Checklist

The Franchise Agreement

You and your business partners need to read every line in every document. Don’t worry if you don’t understand any particular point - get a highlighter and make notes of all these and anything you don’t agree with and ask your accountant and lawyer. This will ensure that you make the best use of your advisors’ time.

The Disclosure Document

The Disclosure Document (DD) has a list of current and previous franchisees, as well as their contact details. Contact at least 3 current franchisees and couple who have left the network. Asking them questions about training, profitability, franchisor support and anything else you want to know will help you understand how they achieved their success and what, if any, challenges they faced.

Intellectual Property and Trade Marks

Make sure that the franchisor has registered trade marks. These are usually included in the disclosure document. If the trade marks have only been applied for but are not yet registered, it may indicate third parties are using similar trade marks. If this is the case, check with your lawyer, as you need to ensure the franchise you are considering has
exclusive ownership of the trade marks as these are the foundation of growing the brand and the value of your respective investments.

Franchising Code of Conduct

You will also receive a copy of the Franchising Code of Conduct (generally called the ‘Code’). This outlines all of the measures, guidelines and procedures the Australian Competition and Consumer Commission (ACCC) has provided that govern the way in which franchisors and franchisees conduct their business and relate to each other. Read this
document thoroughly, as understanding your obligations and the processes and resources available to you in the hopefully unlikely event of a dispute with the franchisor, is important upfront.

Leases

When buying an existing business, you will need to either negotiate a new lease or ensure that there is an option for a further term or extension. Ideally the term of the lease should line up with the term of the franchise agreement, which in retail or fast food will be around 5 years. Similarly, if the franchise is an existing mobile business with a vehicle lease – check the terms of the vehicle lease for renewal options. Also, contact the landlord and confirm if there are any plans for redevelopment that will impact your business for the duration of the lease. And if you do proceed with a lease in a centre where redevelopment is scheduled, have your lawyer negotiate adequate compensation.

Understanding and Managing Risk

Ultimately this process of research or due diligence as it’s called, is all about reducing the risk of going into business. So at the end of doing everything you can on your own, speak to a lawyer and an accountant/business advisor who specialise in franchising. This is your best insurance against future disputes, business failure and personal loss. This can also assist you with your negotiation of the Franchise Agreement and in the end, give you the peace of mind that you’re making the best informed decision to buy a franchise.

Thinking of buying a franchise?

Need help or assistance with any of your checklist requirements? Speak to the experts in franchising. Speak to DC Strategy! The team that takes care of all your franchising needs - they’re an end-to-end franchising firm, specialising in consulting, legal services, franchise sales and lead generation, as well as digital marketing.

DC Strategy
Franchise Sales and Marketing
www.dcstrategy.com | 1300 993 624 | recruitment@dcstrategy.com