Acquiring a franchise ?
Selling and Buying a Franchise
There are many advisors who are strongly in favour of franchises and there are many advisors who are strongly against them. As with most business ventures, there are both pros and cons. As such, it is important when you are considering purchasing a franchise that you fully appreciate the pros and cons and understand your own reasons for wanting to proceed with the franchise.
Many people enter into franchise agreements with a well known brand in an effort to find self-employment. For whatever reasons they are tired of working for wages and would like to own their own business. The franchised business may seem like a good way to lean upon franchisor’s experience in whatever sector it is that the business operates.
Certainly, franchise agreements can give considerable comfort to a business operator. Usually the system implemented has been tried and tested and many of the mistakes that a business owner may make by himself or herself, have already been eliminated by the franchisor’s system. Often group support is provided by the franchisor to any problems that arise, and the brand name associated with the franchise can bring with it considerable goodwill. However, care needs to be taken to ensure that the fees you pay to remain a member of the franchise group warrant your involvement. You need to carefully consider whether you are getting good value for your money. You need to look to see what the ongoing support is like from the franchisor as well as simply looking what you obtain when you commence.
The government has legislated to ensure the franchisor produces detailed disclosure documentation for any prospective franchisee. Further, there is a Franchising code of Conduct. This document should be read by any prospective franchisee as it gives very important information on how a particular franchise can work and what needs to be provided to you. The more knowledge you obtain, the better.
It is also very important to speak to your accountant prior to entering into a franchise agreement. Not only will your accountant have to perform a due diligence on any previous owner of the franchises business, but if you are starting from scratch with a franchisor, you will need to have all their disclosure figures looked at carefully and generally you would need to consider all of your business expenses including rent, wages etc.
The reason small business owners like to be in business, is to have their independence and control. Having a franchise can slightly erode the independence and control, but it can also as a contract give you some security. Over and above this issue is the need to make good income from your business. There is no point having a business where you work hard, if you are not making a good return. The bottom line with all of this, is that you must do your homework and obtain professional advice to maximise the chances that the business you are acquiring or establishing will be able to operate at a profit level that is sufficient for your needs.
You should also be aware that if you do impulsively sign franchise documentation without having thought it through, there are cooling off periods. If you change your mind, seek urgent legal advice.
Usually when acquiring a franchise business, you also take over the lease from the previous owner, or you are starting a fresh lease with a new landlord. Again, it is important to ensure that you understand your obligations. Seek legal advice before anything is signed. Make sure the expenses of the lease are considered by your accountant.
Franchising can be an exciting opportunity, but like every business venture, care needs to be taken to thoroughly check the background and the detail before making a large financial commitment. Due diligence is essential.