Franchising is a model that enables you to operate business under an already established brand. The benefit of purchasing a franchise business is that you are permitted to sell the products, or offer the services of the brand, however the franchisor controls the name, brand, marketing and operating system used in the business.
Each franchise must abide by The Franchise Code of Conduct (The Code) and the Australian Consumer Law .
A franchise may be an attractive option to consider if you are keen on leveraging a brand’s name and reputation to build up your business. However, it is important to carefully consider the terms and conditions of the franchise agreement and the on-going obligations you would have as a franchisee. You should always seek advice from a legal professional before signing a franchise agreement.
If you are planning to purchase a franchise, continue reading our guide below:
- Research Thoroughly
Assess the pros and cons of running a franchise. You are obligated to abide by operations and marketing terms laid out by the franchisor, therefore it’s important to carefully review and evaluate the terms and conditions before signing any agreement. In conducting your research, speak to other franchisees as they will be able to provide you with first hand, genuine feedback about the franchise. Connect with existing franchisees and the franchisor as they will be valuable in helping you prepare for the purchase of the franchise and the operation of the franchise.
- Plan your Finances
Buying a franchise can require a substantial amount of set-up fees. Franchisees are also required to pay ongoing fees and/or royalties in consideration for the franchisor’s support and marketing. Calculate the working capital required to run the business smoothly in the initial phase and consider your funding sources prior to purchasing the franchise.
- Request Details
When purchasing a franchise, the franchisor is required to provide you with a disclosure statement detailing information about the franchise and in some instances an operation manual on how to operate the business. Whilst you will be provided with a lot of information, don’t shy away from asking for additional material that will help you make informed commercial decisions. Franchisor’s will always be happy to assist you with any questions you might have including enquiries about finances, operations, marketing systems, support etc. If you find any term of any agreement ambiguous then make it a point to clear it up with the franchisor, however it is always recommended that you seek legal advice prior to signing any agreement.
- Ask for Expert Advice
It’s important to get professional advice from an experienced legal and business advisor when you are planning to invest in a franchise or business. In particular, a lawyer will help you understand the risks, compliance and your obligations. A lawyer will further discuss with you realistic scenarios and express caution if there are any areas of concern. The cost of seeking advice far outweighs the time and money it may cost to rectify issues at a later stage.
Though owning a franchise means that you have limited ownership to the larger brand and business, you should consider negotiating any terms and conditions that appear to be unfavourable to you. To assist you in this process a lawyer can negotiate on your behalf and help you make informed decisions.
- Review Contracts and Agreements
Once you receive the franchise agreement it is recommended that you read though the documents yourself and have it reviewed by a lawyer. Carefully consider going through all the legal, financial and business implications and terms. Check if the disclosure documents have been provided to you in accordance with the Franchising Code of Conduct.
Our commercial law team can assist and guide you with all the aspects in purchasing a franchise business, including reviewing and providing advice, negotiating and creating contracts. Our team will look into every detail throughout the process.
To get further advice call our Melbourne commercial law team on 03 9743 1333, our Perth commercial law team on 08 6183 3753 or email .