Buying a franchise- Where do I start?

What is a franchise you may ask? A franchise is when you purchase a business that already has an established name, marketing plan, and operating procedures and systems, which are owned by a franchisor and that you pay for the rights to run that business.

Buying a franchise has many benefits, one most beneficial factor is that you have a business set-up with the security of a wealth of experience and a franchise system ready to go. That is not to say that everything will be easy and straight forward! The most important step before you proceed with purchasing a franchise is, due diligence.  

After making the decision to embark upon the journey of purchasing a franchise business, you should immediately consult a lawyer. There are many rules and guidelines that must be followed in accordance with the Franchise Code of Conduct and the Australian Consumer Law. Most recently, there have been amendments to the Franchise Code of Conduct, which apply from 1st July 2021.  For ease of reference, the amendments can be found here https://bit.ly/3xZoLRp with the explanatory statement noted here https://bit.ly/3gpsEsR.

Once you have consulted your lawyer, the franchisor must provide you with the following documents that you will have 14 days to read and complete your due diligence on the franchise business before the franchise agreement is signed:

1. Information statement regarding franchising;
2. A copy of the Franchising Code of Conduct;
3. A Disclosure Statement - This will provide you with all the information about the business to ensure that you make a well-informed decision.  This information must also include certain aspects that may even deter a keen purchaser; and
4. The Franchise Agreement.

It can’t be emphasized enough how important it is to complete your due diligence and have yourself well informed or have legal representation do the work for you to save yourself unnecessary headaches. We often see purchasers that are so deep into a purchase and so excited about their new venture, that they neglect or forget the important legal terms, which may be detrimental to them in the future.

Once you are satisfied with your due diligence and the legal advice provided by your legal representative, you will be ready to sign the agreement. After signing , you will have a 7 day “cooling off” period. This means that if you change your mind and do not want to go ahead with the purchase, you must advise the franchisor in writing, that you no longer wish to proceed. If you have paid a deposit, you should be aware that the franchisor can retain some or all of the amount. This is dependent on whether this a clause in your franchise agreement regarding the deposit or whether the franchisor had incurred “reasonable expenses” for example, training sessions. This is a great example of how much attention needs to be paid to what is included in your franchise agreement and why it is important to engage a legal representative at the early stages.