Top Franchise Tips

One of the main advantages of franchising for the small business community is that there is usually less risk associated with buying a franchise in an established franchise system that has achieved substantial brand recognition as opposed to establishing a totally new business. Below are top franchise tips to help you through the process.

Choose the correct business structure -There are a number of different business structures which a franchisee can adopt. A decision as to the business structure to be adopted by the franchisee needs to be made early on. A prospective franchisee should bear in mind that each types of structure attracts different set up costs, compliance costs, tax rates and personal risk.

Conduct due diligence – All prospective franchisees should do their homework before investing in a franchised business. Such research should include obtaining information about franchise system, relationship between franchisor and franchisee.

Examine location – If the franchised business operates from a fixed location, there needs to be additional due diligence performed in respect of the location. Careful consideration needs to be given to the particular area where the franchised business will be based, the demand for the goods and/or services offered by the franchised business within that area and any direct and indirect competition to the franchised business in that area both immediate and in the future.

Speak to other franchisees – Other franchisees can be an invaluable source of information about the franchisor, its business and its system. Prospective franchisees should endeavor to make contact with as many former and current franchisees as possible.

Review key documents – According to the Franchising Code of Conduct (the Code) the franchisor must, at least 14 days before the franchise agreement is signed or before accepting non-refundable money, provide to every prospective franchisee the following,a disclosure document in the form prescribed by the Code, a copy of the Code and the franchise agreement in the form it is to be signed by the franchisee.

Review franchise agreement – The franchise agreement is the most important document as it will govern the legal relationship between the franchisor and the prospective franchisee for the duration of the term of the franchise.There is no substitute for a prospective franchisee reading the franchise agreement itself and seeking legal advice. A franchise agreement is usually a long term agreement that does not allow much scope for a prospective franchisee to later withdraw from it.

Cooling off period – One important matter that is often overlooked is that once a franchise agreement has been signed or money has been paid under the franchise agreement, a prospective franchisee has a seven-day cooling-off period.