Where to go for help before you buy a franchise

Before even jumping into the business side of franchising, which is obviously the crux of the matter, there are a couple of other very important experts who should be consulted first.

You’ve got to speak to the boss – your better-half, your soul-mate and life partner.

Even if they’re not going to be part of the everyday running of the franchise side of things, their life is undoubtedly going to be affected by whatever decision is made in terms of purchasing a franchise. Many of the most successful franchisees in the market are husband and wife teams, but if you’re one of those couples that enjoy your independence and couldn’t stomach 24 hour contact, still get their buy-in. It is a fact of life that agreements do not last forever. In some cases, a franchise agreement might outlast a personal relationship, including a marriage. The last thing you want is for one to contribute to the other breaking down. So, make sure you have your partner’s support.

The second expert to consult is probably just as important as the first, if not more. Many who have been in business a while, or even for a short-while, may say that your first port of call for help when thinking of starting out in small business ought to be a shrink. And, frankly, they are not far wrong. A psychiatric doctor is probably not necessary, but seeing a GP is definitely a very good idea.

You need to make sure you are fit for the hard work and pressure of starting your own business.

Are you really in as good shape as you think? When was the last time you checked? Find out if you will be able to cope with the stress of running a business. Find out if you will be able to cope without four weeks of guaranteed paid annual leave and sick days.

You have to be ready to understand that the buck will stop with you. No-one else will carry the can for you. You may have employees and maybe even managers to help you, which is great, but even if you do, you might find it is still very difficult to stay away from the front line of the business.

There are many stresses – emotional, physical, without even mentioning financial – that your body will be put under in a new working environment; especially when you’re running the show.

With the all clear you’re now in a position to consult with the best from the business side of things.

Expert advice
If you are in a position to be thinking about purchasing a franchise then you’ve most likely spoken with a bank or some form of finance agent. You need to do as much research in this area as you can before you make a formal pitch for finance. Lenders may well be able to give you some very useful advice, but you need to inspire their confidence in order to get the best help they can offer you in getting your finance approved and putting it to profitable use.

Through the form of a Dunn and Bradstreet company credit report or similar processes of their own, your financial institution will be able to give you a good indication whether or not, financially, the franchise you are looking at is a good investment. This report will complement the disclosure document that the franchisor is obliged to provide you with if you are serious about buying into the brand.

Then, on to your accountant and your lawyer, and just to be clear, you need to speak to professionals that specialise in the franchise sector. Just because you passed Accounting 101 with a distinction at university doesn’t mean you are expert in interpreting the financial forecasts and assumptions in the franchisor’s business plan. There are also other huge considerations including start-up costs, initial expenses to set up your place of business and the upfront and ongoing working capital and other expenses. Speak about all of these considerations with a professional experienced in the franchise sector.

The FCA fields too many phone calls from franchisees who think they might be getting a raw deal on some aspect of their agreement but simply aren’t sure what exactly is in their agreement.

We call this a lack of due diligence. You need to know what the agreement stipulates in terms of the obligations of BOTH parties, franchisor and franchisee. And you need to get professional advice to make sure you accurately understand these obligations. If you don’t, you are flying blind.

It’s a contract
The franchise agreement isn’t a suggestion of how to go about running your franchise, it’s a contract, an enforceable contract. Having a full understanding of everything within its many clauses and sections is essential to getting the best grounding for success in franchising.

Take the disclosure documents and proposed franchise agreements to a good lawyer after you have read them and before you have signed. And make sure it is a good franchising lawyer; not just somebody who has always looked after the family’s affairs.

You’ll find these professionals listed on the FCA website under the member listing. By this stage you will hopefully be well equipped enough to make an educated business decision regarding buying a franchise as an investment. But there is something else you need to do: consult people who are in business in the system you are planning to invest in, and others outside the system in question.

The franchisor will help with the former; the FCA can help with the latter.

It is also highly recommended that you book yourself into one of the FCA’s Eyes Wide Open seminars that are held periodically in your local capital city. These seminars are attended by a franchisor, a franchisee and representatives from state government business development centres and the ACCC.

Making a point to attend one of the franchising expos is also a very positive step. These events are held in Sydney, Perth, Melbourne and Brisbane at least once a year. The expos are a great place to gain more information about the franchising sector and potential franchises or competitors to your chosen franchise.

The ACCC also provides free franchisee pre-entry online education. This is a very good way to learn and test yourself on essential industry knowledge. This facility is provided in concert with Griffith University, one of the most respected teaching and research institutions involved with the franchising sector.

And of course read as much as you can on the web generally. You are already in the right place by reading this article in this magazine, so well done. Keep at it; it will be well worth your while.

Once you’ve done your due diligence, good luck, enjoy your new business and welcome to the franchise community.

This article was written by Steve Wright – executive director of Franchise Council of Australia.

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