 Investigating the Franchise: What the Documentation Should Tell You The following will give you an idea of what is included in the documents and what they will inform you about. If anything is missing or if you identify areas of concern, contact the franchisor to discuss and solve the issue. The Business Background This section will give a description of all those people involved in running the business and outline their previous experience of managing a franchise: although a lack of franchise management doesn't necessarily suggest an inability to perform in the future, it should be taken into consideration as it could be risky. It will further detail their personal career history and achievements including those with other businesses. You should also be informed on the amount of time they have been involved in the business and their main responsibilities. Financial History A very important section: it will give you information about the financial background of the franchisor as well as the business itself. It will include everything from the credit rating of the franchisor to the main sources of income for the business. It may be that the franchisor makes most of their money from selling the business than they make from the amount of royalties (profit share, etc). In such case, this should be considered risky and looked into further. Legal History and Current Constraints If the franchise has had interaction with legal conflicts, then you may learn something about the franchisor that could put your interest in them in doubt. It may not just include offences regarding say, trading laws, but also personal violation of conduct with previous franchisees. In which case, it may suggest that the franchisor has tried to break the contract and is therefore not good at maintaining a relationship. If any legal issues are still a going concern, depending on the case, it may be that the business will have future complications which could damage the success of the franchise. If anything is stated, or if there are signs that some truth is being hidden, you should investigate further. Using the Internet, say www.google.com, to search for information about your chosen franchise may, (will probably) reveal some good and bad public comments. Bad information can be good if you know about it when negotiating, and that the information is not too bad. On-going Costs of the Franchise Use an accountant to ensure that all appropriate costs have been included such as employee wages, advertising fees, operating licences, insurance, promotions, etc. Take the time to estimate how much you personally will be earning and whether it is sufficient to cover living expenses or even the expected income you stated. It may be that other franchises may be less profitable but offer you more personal reward. Commitments The franchisor may expect you to remain with the same suppliers and customers that have been used by the business in the past. They could also restrict you to what products you sell and where you will sell them. You may respect that these links have created the success of the business and therefore are happy to continue with the trends. To others, you may feel frustrated by the restrictions as it limits your business management and decisions. Terms and Conditions These will include everything that the franchisor has produced that you have to agree to when buying the franchise. Some of them will be legal terms and conditions and so are not negotiable. The main issues will be the conditions on which the franchisor (and/or you) can terminate the contract and on which you can renew the contract or sell the franchise. Current and Past Franchisees If there are currently a number of franchisees in the business, you can investigate further to find out their level of success although it could be dependant on the area that they operate in. If there are a number of current franchisees in your area (even one), it will produce competition and should be taken into concern. If the franchise has had a number of past franchisees, it could suggest that the business isn't successful. It may be that all has gone well for the current franchisees but the area that you are in has a situation of un-renewed or terminated contracts giving the reason that the area isn't profitable. Details about numbers and success should be given in the document and should further give contact details of any current franchisees and those that have ended the contract (not renewing) within the last 12 months. Finally As when buying or selling a business, the final negotiations of taking on a franchise should be handled by a practiced solicitor: one who has experience of franchising. No monies should be handed over until your solicitor has confirmed that what you wanted, is what you got! Relevant Articles |
