Are You Interested in Buying a Franchise But Don’t Know Where to Start?
Buying a Franchise is an exciting but confusing journey. What most people don’t know is that the franchising industry is governed by the Australian Competition and Consumer Commission (ACCC). There is a code of conduct by which both franchisors and Franchisees must abide. This is why there is a certain security when buying a Franchise. This code of conduct also quite clearly outlines the buying process which must be adhered to by all franchisors.
It is a four step process, but I have added an extra step to ensure that the Franchisee enters into an agreement that is as profitable as possible.
Let me set out the 5 steps to take when buying a franchise:
Step 1 – make a serious enquiry and receive an information pack
There are many franchise systems that you may already be interested in or you have found that are about to open in your area. You want to be sure that you get the right opportunity for you. It is recommended that you apply to many of these franchises because each has a different model, each has a different profitability level, each has different set up and branding, and each franchisor will be prepared to make a different deal. You want to find the opportunity that suit you, your budget and goals best.
Where do you find these opportunities? Simple! Start your search on the web. Open Google and search for What franchise opportunities are there in (your town/area). Without a doubt you will have pages of opportunities in front of you.
Once you find an opportunity that excites you make a serious enquiry to both the broker and the franchisor and receive an information pack.
Step 2 – Apply to the Franchisor
Pay a fully refundable deposit and sign a confidentiality contract to receive detailed information so that you can commence your due diligence. Due diligence is an extensive process where you will analyse yourself and whether you can be a franchisee; your franchisor and how they operate; and the business case on offer to you for its profitability.
Once you have applied to your franchisor, you should expect to receive:
- The current Disclosure Document;
- A draft Franchise Agreement in the format that your franchise agreement will be in;
- The ACCC Code of Conduct;
- A Franchise Information Statement (if you have not already received this)
- You may also receive either a letter of offer outlining lease details etc. if this is a new opportunity OR a compendium of information from a broker or the franchisor if the business is existing and currently trading.
Step 3 – Due Diligence
You now have 14 days minimum period to conduct your due diligence. You can take far longer than 14 days and I recommend that you do. You need to seek advice in this period from your lawyer and accountant. You need to prepare business plans and budgets. You may even have an experience day in store with the franchisor during this period to be sure that you like working in the system. You need to ask questions of your franchisor and existing and past franchisees in the system.
Step 4 – Negotiate; negotiate; negotiate
This is the extra step that I promised. Before you enter your agreement, take the time to re-negotiate the deal on offer to you. You will have prepared budgets etc. therefore you will know the profitability to expect. See if you can increase this by negotiating things like, landlord fit-out contribution, waiver of franchise fee, a rent or royalty fee period in the beginning of your operation. Once you have signed the agreements it is too late. Be sure that the business case on offer to you meets your needs, if not, negotiate until it does.
Step 5 – Sign the franchise agreement and pay a non-refundable deposit
You now have a further 7-day cooling off period before the agreement becomes binding. Make the most of this time to be absolutely sure that you have made the right decision.
When I was selling my existing franchises it took about 9 months for each one to sell so be prepared for the buying process to be quite time consuming and at times frustrating. You have to be a master communicator because you are coordinating and incorporating many peoples processes; the franchisor, the broker, the existing franchisee, the landlord, your lawyer, accountant and business advisor. I learned along the way that this all takes time.
Don’t be daunted; being a franchisee can be very rewarding it is worth all the time you take in the beginning to be sure your franchise journey is successful.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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