Franchising can be an intelligent decision to start your own business as a first timer. The failure rate for franchises is much less than for non-franchise start-ups. To ensure less chance of being a failure while you buy a franchise, you need to do your homework. Be ready with questions to ask before you buy a franchise which you might not think about in your enthusiasm to start your own business.
The franchise agreement from a major franchisor will generally be on a take it or leave it basis.
That is the franchise agreement will not be negotiable as the franchisor can’t afford to negotiate individual franchise agreements with each franchise. But that does not mean that you should not ask the right questions and satisfy yourself that the situation that arises when there is a dispute or the franchise is incapacitated or dies is provided for.These are 30 questions to ask before you buy a franchise:
30 Questions To Ask Before You Buy a Franchise
1. What law & jurisdictions govern the franchise agreement?
2. What will happen if the franchise dies?
Is there any provision in the franchise agreement for the franchisor to provide personnel to run the business to keep the business running if the franchise dies.
3. Is there any renewal option when the franchise agreement ends?
If there is are you happy to commit to sign a franchise agreement in say, 5 years time, having no opportunity to see the new agreement? What are the terms?
4. Can you sell the business?
Check if the franchisor allows you to sell your franchise if you want to in future.
5. Is there a non-compete clause if the franchise agreement is terminated? If yes then for how long?
6. If the franchise agreement is terminated and the premises is yours, how much will it cost to debrand?
7. Is the training and system manual up to date? When was it last updated?
8. Is there an advertising fee payable? Can it be justified? Is there marketing spend on the brand?
9. Is there a management services fee?
Is there any management fees charged? If yes, how is it calculated? Is it justified?
10. Does the franchise have to inform the franchisor of any improvements he has made to the system?
11. Is the franchisor the owner of the trademark? And if not will he provide a license to the franchise for the use of any trademarks and intellectual property?
12. Who will own the premises? Will the franchisor provide any advice in relation to location and premises? Is this provided for in the franchise agreement?
13. How long has the franchisor been carrying on business? How many company-owned outlets?
14. If the franchisor is supplying goods is there a credit limit? Will a minimum stock of products be imposed? Is a vehicle required? Will it have to be branded?
15. What books and records will the franchise have to supply to franchisor?
16. Will a confidentiality agreement be required?
17. Who will pay for initial and ongoing training?
18. Is there a territory? Is it exclusive? Is it stipulated in the franchise agreement?
19. How long will the franchise agreement last? Is it compliant with competition law requirements?
20. Is training provided for staff? Is it ongoing?
21. Is more than 10% of the initial fee for use of the name and trademark? Can this be justified?
22. What initial stock will be needed? Will the franchisee have to purchase equipment, stationery from the franchisor?
23. What ongoing obligations has the franchisor as per the franchise agreement in relation to problem-solving, management, finance and marketing, provision of staff in an emergency, research and development and maintaining and improving the manual?
24. Will franchise be required to advertise locally?
25. Does the franchisor have the right to communicate with the franchisee’s customers?
26. Has the franchisor the legal right to purchase the franchise from the franchise? On what terms? Is that in the franchise agreement?
27. Is the franchisor entitled to appoint a manager if the franchisee dies or is incapacitated?
28. Who is entitled to terminate the franchise agreement? On what terms? What events will bring this about?
29. What will happen when a dispute arises? Is arbitration provided for in the franchise agreement? Litigation?
30. Does the franchise have to enter into any restrictive covenants in the franchise agreement?
It is advisable to engage a solicitor before signing any franchise agreement but these questions may assist you in deciding to buy a franchise suitable for you or not.