Starting any business is a huge decision, and though the potential for large monetary gain is definitely present, it is important to remember that any decision regarding business affairs must be conducted with prudence and temperance. Despite the lower (arguably) barrier to entry offered by a franchise, the decision-making process in buying into a franchise requires no less of either quality.
Fortunately, there is a wealth of information all over the internet that can help you make this decision. Studying a Master of Business Administration is all well and good, but it’s worth seeing how much information you can get for free before you cart yourself off back to uni. Today we’re going to go through some of the major points you will need to consider before you take a risk on the life of a franchisee.
Is Franchising For You?
The first major consideration before embarking on the journey of a franchise should be whether or not you’re the type of person that would thrive under a franchise. The franchise business model is not for people who enjoy autonomy or having total control and freedom, it involves acquiring the rights to an established brand, their products, business model, and brand identity – then running the business within their approved framework.
Simply put, a franchise awards franchisees all the benefits of being part of an established brand, but there is little to no room for stretching your wings. If you notice that one supplier will get you products cheaper, too bad, you’ve agreed to use the franchisor’s supplier. If you don’t like the way the franchisor deals with company finances and think that a restructuring of expenditure would be beneficial, tough.
Not to mention that most franchise agreements and financial arrangements in the franchise relationship will favour the franchisor. This includes fees at the outset of your arrangement, and any termination of the agreement will likely result in you paying a fee to the franchisor.
Checking What’s Out There
If you come to the decision after some extensive introspection and research that franchising is, after all, suited to your business desires – the next step is deciding what franchise you actually want to be a part of. However, that involves more than just looking up brands you like.
Investigating a franchise to join requires first, learning what it takes to run a franchise, then looking at how certain brands actually run their franchise. Remember, when entering a franchise agreement you’re going to be subject to the policies and procedures of the franchisor. If you enter into a franchise with a brand whose business practices you don’t support or respect, then you’re going to be subjecting yourself to a rather long period of discomfort.
See what brands you like, take a look at their business practices, talk to existing franchisees about their experience, and see what the competition is like and how lucrative (or not) the franchise is. Research and due diligence is vital.
The Disclosure Document
So, let’s imagine that you’ve found a brand that reflects your values. You like their product or service, you like how they do business, and their current franchisees are happy with the conduct of the franchisor. Now it’s time to formally buy the franchise and establish your own branch of the business.
Or…not really. Any business agreement occurs on the back of the contracts that solidify those agreements. The concrete, black-and-white stipulation of the divisions of assets, profits, business goals, conduct, and more, with all involved parties legally signing their adherence to. It is no different for franchises.
When you buy a franchise, you will receive a Franchise Disclosure Agreement, a document that discloses the current state of the franchise, including all current franchisees, fees, payments, territory and more. Unless you have the requisite legal and industry experience to understand the standards and ins and outs of these documents, always have an attorney with franchise disclosure experience look over this document.
The Franchise Agreement
If everything goes well with the Franchise Disclosure Document, and everything appears above board, then it may be time to finalise the purchase of the franchise and draft and sign a franchise agreement. This is the contract that legally puts you in ownership of the franchise and allows you to represent the brand.
Again, unless you have the legal qualification and experience of negotiating and dealing with contracts like this, always have a legal professional who is present when going through this contract. Otherwise, you could be locked into some truly unfair and unlivable agreements.
Buying a franchise can feel like a shortcut to a successful business, however, it is important to remember that under this arrangement you are only a branch on a massive, and often powerful, tree. Make sure that the agreement you sign is fair and represents industry standards.
