Buying a franchise

There are many advantages and disadvantages of franchising, which is a popular method of starting a business. As there terms of a franchise agreement are often presented as non-negotiable, can be strict and that these agreements are often long term, it is vital to get good advice and ask the right questions. This is aside from the fact that the average cost of buying and starting a franchise in the UK is close to £50,000.00 so represents a sizable investment.

How we can help

  • Fixed fee Franchise Agreement reviews
  • Acting for you in any dispute arising with the franchisor
  • Advising you on sale of the franchise

What you need to know and check before you enter into a franchise agreement

  • At the earliest opportunity meet with as many other franchisee and ask as many questions as you can about how the franchise is performing, hidden problems and issues. Find out if they were able to negotiate any aspects of the franchise agreement at the time it was entered into or since as the franchise agreement is likely to be offered on a non-negotiable basis.
  • Ask existing franchisees whether the franchisor has a supportive, business partner oriented approach or whether instead the franchisor is harsh, non-understanding and looks to capitalize on any short term cashflow issue to terminate the franchise if they can
  • What if any is the necessary experience, hours and personal commitment needed to run the franchise business
  • Thoroughly do your due diligence on the franchisor, in terms of track record and how other franchisees in the system are performing
  • What are the total and individual costs of buying into the franchise, how much it will cost on an ongoing basis, any penalties for failing to meet targets
  • Which products and services you are obliged to buy from the franchisor and whether these are above market rate
  • What the franchise agreement stipulates regarding renewal, termination and penalties for breach.
  • What proportion of franchisees have terminated, sold or has their franchise terminated during the past 3 years
  • The position on any property lease relating to premises you will occupy as franchisee
  • Detailed financial breakdown for other franchisees  and the franchisor. Is this a growing brand and is the product or service one which has good prosp0ects in the short, medium and long term ? Ask for ongoing costs, sales figures, profit and loss reports
  • For the product or service who are the competitors, what are the barriers to entry etc. Do as much research as you can on the market for the product or service.
  • Restriction on sale (assignment) of the franchise.
  • Exploring at an early stage the ability to raise finance for the particular franchise which will also give you an indicator of the strength and standing of the franchisor from an expert financial institution.
  • Ask for a copy of the Operations Manual at the earliest opportunity, read it and re-read it.
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