Buying a Franchise

Buying a Franchise from a Franchise Association Member
The Franchise Association is a professional body which is committed to helping franchisors in the USA. All members, whether they are franchisors or franchise advisers go through a screening process before they are accepted as members. This includes ensuring that their systems and manuals and other paperwork are in accordance with the provisions of the Franchising Code of Practise that the association holds.

Being a member of Franchise Association gives the following benefits:

  • Access to professional advisers
  • Full advice on how to choose a franchise
  • Full support on all matters to do with franchises
  • Commitment on the part of franchises to act ethically and keep up with the best practises that they have agreed to under the Franchise Code.
  • Value is added to your prospective franchise business.
  • It would be easier to sell your business, when that time comes around, if you have an endorsement from Franchise Association.
  • You have access to events held by Franchise Association including seminars, trade shows etc.
  • If you run into problems where there is argument between you and your franchisor (or vice versa) then there is a process provided by the Franchise Association to help resolve the dispute.
  • You have certain guarantees that the company recommended by Franchise Association would have abided by the basic requirements of the Franchise Code of Practise.

What to Check Before Buying
Before buying a franchise you need to sit down and talk with your accountant as well as a franchise lawyer and get answers for all questions that you may have in your head. You should ask for full disclosure documents and the franchise agreement that the franchisor would hold. This is because you would need to go through them with your advisers.

There are 5 main areas that you need to look at when checking at franchise before buying.

These are:

  1. Check the franchisor.
  2. Check the product or services involved.
  3. Check the financial costs involved.
  4. Check the financial agreement you have to sign.
  5. Check yourself as the Franchisee or owner or buyer of the franchise.

10 Big Mistakes When Buying a Franchise
Make sure you avoid these common mistakes.

  1. Not understanding fully the franchise agreements and its implication.
  2. Not understanding fully and forgetting to clarify your questions about information in the disclosure documents.
  3. Not verifying in writing the representations made orally by the franchisor at any time.
  4. Not obtaining full legal and accounting advice before proceeding.
  5. Not talking to current Franchisees to understand the full deal as it were.
  6. Not putting together your finances before signing the agreement.
  7. Not investigating in depth the circumstances behind any Franchises in the group that have failed.
  8. Not taking the time to fully analyse the products and services as well as the market for them.
  9. Not taking the time to ask all the questions that you need to ask the franchisor.
  10. Not checking out fully the company involved in the franchise as well as its owners and management.

More Tips When Buying
When you are buying a franchise, here are a few tips that may help you to make a decision.

  1. Make sure you obtain the best legal advice that you can before signing any documents or before making any decisions that could tie you up legally.

  2. Make sure you see your accountant and ask him or her to go through all the financial aspects of the franchisors business as well as the financial projections for the outlet that you are looking to buy.

  3. Make sure you obtain every explanation for every question that you could possibly have. Do not be put off by brief answers. Ask for details as well as confirmations.

  4. If you are told anything at all by the franchisor that affects your thoughts about the franchise, make sure they are confirmed in writing to you. Do not rely on oral statements.

  5. Do some investigations. Investigate every area of the franchise as well as the franchise system and have independent credit checks performed and independent advice sought.

  6. See current Franchisees and obtain their opinions.

  7. Go with your gut feeling. If you do not feel right do not proceed.