The business of buying a franchise

Posted on 13 August 2012

The dream for many is becoming financially independent from an employer and “being their own boss”. Owning a franchise is one way of stepping out into the world of self-employment. But what information should you have and what are the risks of investing in a franchise?
First things first – what is your current financial situation? How much can you afford to pay for the franchise and how long can you afford to support yourself if the new business takes time to return a profit? Have a financial plan.

Understand the business – depending on the franchise you are looking to buy into, you will be dealing with the franchise owner, an in-house salesperson or a franchise broker. Research the business and ask questions of both the franchisor and other franchisees. Have a full understanding of future plans the business may have which could be detrimental to franchisees such as competition from an internet version of the business. Attend any trade show or industry expo to gather further information about your chosen industry. Have a Business Plan.

Due Diligence – this can be a legal requirement but is may be a voluntary investigation into the company you are looking to buy into. Is the franchise an existing one or is it a new business opportunity opening up in a new area? If you do not understand aspects of the business you are considering, seek full detailed information from the franchisor clarifying the areas of concern. Have a risk assessment and mitigation plan.

Don’t enter into final negotiations or sign a contract without having it reviewed by your lawyer. Should your lawyer highlight issues you need further clarification on, or highlights obligations put upon you by the franchisor which are unreasonable, don’t allow yourself to be railroaded into signing until you and your lawyer are convinced you have gained the additional information or clauses to ensure the contract is equitable. Have a legal plan.

Should you be considering the step out into the world of self-employment (whether via a franchise or otherwise) or have a contract for the purchase of a business or franchise agreement you would like reviewed, contact Dooley and Associates and we will be happy to assist you on your journey into the world of being a small business owner.