There are many avenues that a potential franchisee needs to
cover prior to embarking on their journey within a particular franchise
system.
It goes without saying that undertaking comprehensive due diligence is a must for each and every potential franchisee.
However, there are a number of considerations within the realms of such due diligence that must be looked at in more detail.
The top five tips for potential franchisees to aid them in their search for the ‘right fit’ franchise business:
1. AFFORDABILITY AND NUMBER CRUNCHING
You must have a clear understanding of how much investment is required
to see if you can afford to invest into the business and whether that
investment is warranted given the potential return on your investment.
The answer to this question may not necessarily be obvious by way of
adding the immediate start-up costs such as the initial franchise fee,
equipment purchase and/or fit-out expenses.
The actual total investment will also incorporate a realistic working
capital amount and allow for the inevitable unexpected items.
2. APPROACHING CURRENT AND FORMER FRANCHISEES
Franchisees are the best people to speak with to find out more information about the franchisor and the franchise system.
Find and speak with as many franchisees as you can and ensure you speak
with a broad cross section of those who have recently joined, more
experienced operators and those who have moved on. Don’t be afraid to
ask difficult questions about the franchisor, the business and the
numbers.
3. PERFORM ALL RELEVANT SEARCHES
We recommend that comprehensive searches are undertaken in relation to
the franchisor, its directors and the franchise system you are
considering.
These include company searches, intellectual property searches,
insolvency searches and Google searches . You can engage the services
of a solicitor to aid you with performing some of the relevant searches.
What you may uncover may be quite an eye-opener. For example, the ACCC
has a process whereby franchisors can obtain immunity from exclusive
dealing arrangements, such as forcing franchisees to buy exclusively
from a particular supplier.
The disclosure document does not actually have a requirement to
disclose such arrangements but the ACCC website includes a register of
exclusive dealing notifications which can be searched by the name of the
franchisor.
4. LIFESTYLE AND INDUSTRY
If you plan to work in the franchise business you are buying , then you
must understand how that position will impact on your lifestyle and
your family. You must also understand what skills you currently have and
may need to either obtain or improve for your franchise business to
succeed.
You should also look at what formal qualifications, if any, you or your
staff members will need to obtain and how easily obtainable they are.
5. TAKE ALL DOCUMENTS TO BE REVIEWED BY SPECIALISTS
You will benefit in a number of ways from obtaining legal and accounting advice from the experts of the industry.
If you are investing a substantial amount of money and time into a
franchise, not only will the advice give you the confidence to proceed,
it may actually save you from future problems arising as a result of
something inherent in the documents.
A lawyer may be able to uncover an issue you haven’t considered, an
accountant may tell you that the franchisor is asking too much for too
little in return. Either adviser may be better placed to give you
unbiased professional advice and possibly get you a better deal, which
is worth well over the cost of that advice.
Jane Garber is a solicitor at Franchise Legal, which has offices in Melbourne, Sydney, Brisbane and Adelaide.
In my opinion, this article pokes some very good points we have to take into consideration when selecting a franchisor. When people take a look at a franchise, they usually look at the start up costs and the fees and they think that is all the investment required. It is important to take into consideration every single aspect of what an investment is. When people mention the word “investment”, the first thing that comes to mind is money, usually forgetting about other crucial elements this word implies. For example, as the post mentions, two of the most important investments one has to consider when becoming a franchisee are time and skills. “If you plan to work in the franchise business you are buying, then you must understand how that position will impact your lifestyle and your family”. Another advice I found really important is the second one, approaching current and former franchisees. If you want to know information about the parent, who can tell you better than its own kid? Franchisees are definitely the best source when it comes to gathering information about the franchising system and operations. They know the rules from head to toe and are willing to improve as much as possible for their own good.
ReplyDeleteBasically in this article, it is just saying to be smart about jumping into a franchise and do your homework. If you go into any business plan without knowing mostly everything you are going to get hit by the unknowns and could possibly lose a ton of money. These 5 points are very important though. I think the two most important ones are the one about the affordability and the approaching current and former franchisees. These are very important because if you know how much money you need the process of the costs to start up and get the business running will not be a shock to you. The other part about talking to the current and former franchisees is also important because you can see what the franchisor is like and how he treats the franchisees and what not.
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