Business Law

Is a franchise for me?

B2B Editor14 October 2013

Is a franchise for me?

There are plenty of opportunities to start a franchise venture in Canberra, however, before forging ahead and buying into a franchise you must do your research: investigate potential and future profit forecasts, carry out marketing studies, read the documentation, and find out as much about the franchise as possible. Certainly, you must step with caution.

The franchise agreement that you will be required to sign will be lengthy and complicated. You should read it carefully and seek advice before signing. This agreement will:

* grant you (the franchisee) the right to utilise, sell and/or distribute goods or services under an established brand name belonging to the franchisor; and

* require you to pay the franchisor for the privilege. The financial cost usually entails a hefty percentage of turnover to be paid to the franchisor, together with added costs of advertising and marketing, training, and products, to name a few things.

The Franchisor will also want to do their due diligence on you, for example:

Your business experience – have you operated a business before?

Your succession plan – what if an unexpected event occurs? Can the business continue to function, will the brand and customer database be protected?

Your facilities – is your proposed premises secure and presentable? Is it accessible to consumers ie parking? Is your lease secure and long enough, and does the lease permit the franchise to operate? Will the brand have adequate visibility from that premises?

What is your plan of attack for advertising – are their restrictions on advertising in the location, what is the competition?

Who are your proposed employees – are they capable, presentable and adequately trained? How will the quality control be maintained? How often will they be trained in order to continue operation of the franchise? Will they wear uniforms that promote the product?

Financial and accounting advice should always be sought before entering into a franchise agreement to ensure that you have the money and that the business is viable. Franchises are heavily regulated by the Franchising Code of Conduct – you need to ensure that the franchisor has complied with the Code in supplying you with all necessary disclosure prior to the signing of the agreement. And you should look into any government licensing that you will need, and investigate other related franchises in your area.

If you are a prospective franchisee or franchisor, before you enter into any agreement contact the business services team at elringtons to fully understand your duties, obligations and compliance requirements of operating a franchise.