Buying a Franchise? What to Consider.

From the Office of the Small Business Commissioner.

There are many reasons why you might be interested in buying a franchise rather than starting your own business from scratch. A well-known brand and an established system of operation may have a lot of appeal.

However, like any major business decision, there’s a lot to consider to avoid potential pitfalls.

Just because a franchise has systems in place, doesn’t mean that you won’t benefit from independent advice. Many franchise systems provide some business advice as part of their services. However, you might want to determine for yourself whether they are offering what you need and acting in your best interests.

Many franchise operations require you to buy products from specific suppliers. Consider how competitive they are and what you can do if you find a cheaper supplier. What are your options if the prices go up?

Often a marketing contribution is part of the franchise agreement. Consider how marketing funds are spent and whether that will help your business. Will you need to undertake your own local marketing in addition to the shared marketing costs?

You should carefully consider all the requirements in your franchise agreement and whether it seems like a good deal for you. Be clear about what is required in your contract, and if it doesn’t meet your business needs, be prepared to negotiate.

The NSW Government has a state-wide subsidised business advisory service, Business Connect. Call 1300 134 359 to arrange a no-cost consultation with an adviser in your area.

Do your own research and get advice from a lawyer and accountant before signing the franchise agreement.

The Australian Competition and Consumer Commission regulates the Franchising Code of Conduct, a mandatory code which applies to franchisors and franchisees.

The ACCC also has a free online franchising course available for those thinking about buying a franchise. The course is aimed at those doing early research or who are about to sign a franchise agreement.

The Asia-Pacific Centre for Franchising Excellence at Griffith University offers a free franchise education program to help potential franchisees assess franchise business opportunities before buying into one.

Lease contracts and franchisees

If your franchise requires a business premises, especially if it is a retail operation, you’re going to be involved in a lease transaction. Your lease may be with the franchisor as either the landlord or head tenant, or with an independent landlord. You need to know who will negotiate the lease terms.

The lease contract and the franchise agreement are two separate documents.

The NSW Small Business Commission has expert advisers available to help with your lease issues.