Franchising Rights

The Cooling Off Period
One of the important features of a franchise if bought through a member of the Franchise Association of the USA (FANZ) is what is known as a cooling off period. The cooling off period should apply to all sale and purchases of franchise.

The “Cooling Off Period” is a period of 7 days (from the date of entering the agreement or paying over money under an agreement) that allows a franchisee to change his or her mind about the purchase.

It is very easy for franchisees to be carried away with enthusiasm and excitement at the early stages regarding the prospect of running their own franchise. Sometime later they may have second thoughts for all sorts of reasons. To protect franchisees from their own lack of judgment or from their failure to understand fully what is involved, there is a period of one week which allows a franchisee to pull out if they so choose.

Unfortunately many franchisees are bullied into completing the purchase by a franchisor and this cooling off period will protect people who are inexperienced or have not consulted with their advisers before signing the dotted line.

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 will 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.

Your Protection with Membership of the FANZ
If you are a Franchisee you will find more comfort from the franchise you are buying if the franchise is a member of the association.

This is because of the protection the FANZ will give you in 3 main areas.

  1. Full Disclosure. Every member of the association must provide full disclosure by way of a disclosure document. The disclosure document provides simply that - full disclosure. It covers all areas of the business including track records, financials, systems etc so that you have before you all the information you will need to assess when making a decision. The disclosure document must be provided at least 14 days prior to you signing any agreement. This is done so you have the time to take the information to an independent lawyer for advice.

  2. 7 Day Cooling period. You also are provided with a minimum 7 day cooling off period after you have signed up for the purchase of the franchise. This gives you comfort in that you know if you find after buying that there are problems or things arise that you were not clear about then you may cancel the deal. This is great re-assurance so if you feel you had been pressured into a purchase there is a way out within 7 days.

  3. Code of Practise. All members have to abide by the Terms of the Code of Practise and Code of Ethics agreed to by all members.