Buying a Franchise? 5 Tips to Success

For many people looking to exit the ‘rat-race’ starting a business from scratch can seem daunting, even impossible. Enter in the franchise business opportunity!

Franchises offer business owners the opportunity to own their own small business, with an established brand, practices, products and services – and, most importantly, customers who identify with the brand and are ready to buy.

Let’s take a look at the top 5 tips to success when looking into buying a franchise.

Review the business opportunities available

There are a massive range of business opportunities available in the franchise space, varying in time required, start-up capital, geographic location and more. Franchise business opportunities range from home-care & maintenance franchise, fast food outlets, accountancy firms, dog parlours – the list is almost endless

A great place to start your search is looking through the members of the franchise council of Australia, review small business trade shows and start making a shortlist of alternatives.

The key considerations should be what time you can commit, what working capital is required as well as the initial outlay, the brand you want to be connected with, not to mention the potential skills you will need to develop yourself and for your team as you build your franchise.

Speak to an established franchise lawyer

Lawyers are vital to your franchise future as they can provide you with insights into the contracts, what your ongoing commitments are, your rights, responsibilities and also outline the rights of your franchisor.

Key services provided by a franchise lawyer include the preparation of documents, compliance, due diligence, and ensuring that when buying a franchise, you are not left with a business that makes no money and charges you excessive fees.

In addition, a franchise lawyer can ensure you and your personal assets are not locked into contracts that are unreasonable. Examples of this in recent times was that of RFG, who are facing extensive ACCC action of unfair contract terms & unethical business practices.

Is it better to buy an established brand?

There are benefits of both buying into a new franchise brand vs. an established one. For example, Platinum Electricians has a proven success model that they claim will fast track you on your way to the growth and profit you desire. – but a franchise comes at a high purchase price, with ongoing payments.

Meanwhile, the benefit of a new franchise is that the costs are lower, you are starting with a clean slate, and you have more flexibility to be an active part in building the business as a whole – potentially becoming a multi-store or franchise owner should you wish to.

Review the Financial Disclosure Document (FDD)

This is one of the most important documents that any person considering buying into a franchise must review in great detail with a finance professional.

The Financial Disclosure Document or FDD will provide you with the real details of the business in a day-to-day running capacity. The type of training offered, the ongoing costs – that may not seem obvious as well as if there are any financial or legal issues with executives or directors – all of which is essential information before buying into a franchise.

Understand any restraint of trade agreements

A restraint of trade agreement is important to understand in the franchise agreement, not only should you wish to on-sell the franchise at any stage, but also while you are operating the franchise itself.

This agreement essentially stops you competing with the franchise itself during the terms of your franchise agreement.

This can be in the way of stocking products from non-approved suppliers, selling products outside of the scope of the agreed ranging, or setting up businesses that compete for the same market share as the franchise – which may impact other companies you own or are involved in.

Buying a franchise offers profit opportunity for many small business owners who feel the protection of a well-known and established brand with systems and processes is the way they can create a business that thrives.

A franchise business model does have its drawbacks and most certainly should be reviewed with a financial planner, accountant, lawyer and or business manager before you start your journey into the financial world to ensure that a franchise contract is the best small business for you.

 

Author: Hayley Clark

Content Specialist

Hayley Clark is a content writer born and bred in New Zealand. She has been writing, editing, and working in the industry for over five years, for a myriad of companies, including Virgin Money, Thrifty, Destination New South Wales and Michael Page.