Buying a franchise

Quick guide to buying a franchise

• Find franchises for sale

  If you're looking to buy a franchise, there are various ways to find franchises for sale, such as:
   

  • newspapers and commercial websites
  • business brokers and real estate agents
  • trade journals and industry magazines.

• Investigate the business

  There are many franchises to choose from, each with its own pros and cons. Before buying a franchise you should investigate all legal, financial and business implications.
   

  • What are the business details?
    • Do you have all the relevant information on the business?
    • What is the track record of the franchisor?
    • Does the franchise have a strategic plan and what are the plans?
    • What is the success rate of other franchisees in the same business?
    • Will you have an exclusive territory?

   

  • What is included in the sale?
    • Does the sale include the use of business name, products, reputation/goodwill, site location, advertising budget or back-up assistance?
    • What are your intellectual property rights and obligations?
    • What are the terms of sale of goods? Can you buy them from outside the franchise network?
    • Are there other expenses you may be required to make later, such as for refits?

   

  • What are your rights and obligations?
    • What are your occupational health and safety obligations?
    • What are your obligations upon termination of the franchise?
    • Are there guidelines/costs when you sell the franchise?
    • Are the operating procedures, employee responsibilities, and standards explained in the franchise operating manual? Can the franchisor change the requirements in the operating manual at any time?
    • If you have a retail lease, is it in your name or the franchisor's name? Does the term of the franchise agreement differ from the term of the retail lease?

   

  • What fees must you pay?
    • An initial franchise purchase fee?
    • Franchise renewal fees?
    • Franchise service fees/royalties?
    • Advertising fees?
    • Transfer fees?
    • Training fees?
    • Payments to a third party?
    • How are dispute resolution costs shared?

   

  • Do you have adequate borrowing capacity, including working capital, to successfully establish this type of business?

   
  These are some, but not all, of the things you should consider before buying a franchise. You should seek legal and accounting advice, ideally from a lawyer and accountant with franchise experience, before making any final commitment.
   
  The Australian Competition and Consumer Commission has also prepared a franchisee manual to help you assess franchise business opportunities.
   

• Understand the Franchise Code of Conduct

  All franchise businesses, including franchisors and franchisees, are required by law to comply with the mandatory industry code, the Franchising Code of Conduct (the Franchising Code).
   
  The Franchising Code:
   

  • regulates the actions of franchisors and franchisees
  • aims to make sure that prospective franchisees are properly informed about a franchise agreement before entering it
  • provides a cost-effective dispute resolution scheme for franchisees and franchisors.

   
  While the Franchising Code determines minimum standards of disclosure and conduct, it's not intended to replace independent legal, business or other advice.
   
  Seek advice from a professional business adviser, accountant or solicitor before entering a franchise agreement.
   

• Entering your franchise agreement

  A franchise agreement is a legally binding document outlining the rights and responsibilities of the franchisor and franchisee.
   
  Before signing the franchise agreement, it's important you obtain as much information about the franchise as possible. To help you with this, the Franchising Code of Conduct (Franchising Code) requires that franchisors give you, the prospective franchisee:
   

  • a copy of the Franchising Code
  • a disclosure document
  • a copy of the franchise agreement in its final form
  • an information sheet outlining the risks and rewards of franchising.

   
  These documents must be provided to you at least 14 days before you start, renew or extend a franchise agreement or pay a non-refundable deposit.
   
  As a prospective franchisee, it's important to understand what is being offered and your rights and obligations under the Franchising Code. You should also be aware that a franchise agreement only gives you the right to operate that business for the life of the franchise agreement. There is no guarantee that the agreement will be renewed, unless specifically negotiated under the agreement.
   
  Use the cooling-off period to check your final facts and figures to determine if you still want to proceed.