Goldstein Legal’s Ten Top Tips for Buying a FranchiseJanuary 22, 2018
It’s the beginning of a new year. Could this be the time to act on those resolutions and embark on a new business venture? Buying a franchise business may well be the answer. It is an exhilarating and often, profitable experience. Yet as with any business venture, it is not without risk.
That is why we have put together our Top Ten Tips for Buying a Franchise, to help you prepare and carry out the necessary research to find the franchise that is best for you.
1. Shop Around
There are currently over 900 franchise concepts operating in the UK: that is a lot of choice! As a starting point, research the business sectors that interest you to find out how many franchise concepts fall within this sector. Which are well-established? Which are offering the best deals?
Attending one of the franchise exhibitions, where 100s of franchisors will be competing for your attention, is a great way to further your research. Arm yourself with facts and figures and always resist the temptation to pick the first thing that comes along.
2. Is your franchisor bfa accredited?
The British Franchise Association (bfa) promotes “ethical franchising” through its Code of Ethics, and franchisors wishing to achieve bfa-accreditation must meet its strict criteria, which cover all aspects of the franchise business.
While bfa membership is not a guarantee of success and should never replace your own research, it does ensure that a franchisor has passed some minimum standards. And although it is not obligatory, it is worth enquiring whether your chosen franchisor has bfa-accreditation, and if not, why not?
3. Check, and then recheck the facts
Most franchisors put a lot of time and effort into their prospectus, making sure it gives a fair and accurate picture of what a franchisee can expect from the business.
But sadly, not all franchisors are this conscientious and sometimes, rather than presenting the truth, their brochures simply display what they want you to believe.
Roz Goldstein, founder of Goldstein Legal, explains: “When you take on a franchise, the business contract is between you and the franchisor. There are no ‘consumer-friendly’ laws to protect you (as there are when you buy a TV, for example) and to a large extent, the principle of “buyer beware” applies.
“Neither is there any certainty that you will have a strong legal case against a franchisor who embellishes the truth before you sign up. Therefore, it is vital to do your research before you commit.”
We therefore always advise that you do as much independent research as possible.
Another tip: be sure to file copies of the materials that you received when choosing a franchise in a safe place. Should anything go wrong these documents will be very useful to the lawyer working on your case!
4. Examine the figures from all angles
Obtain a forecast of earnings or a pro-forma Profit & Loss from your franchisor for the first few years of the franchise. Study it carefully and don’t be afraid to query anything that doesn’t look correct.
It is important to understand what the figures are based on: if they come from an active franchise, this should be reassuring. But be skeptical if your franchisor is unable to justify the numbers.
If you write your own Business Plan (advisable), be sure to cover all operating expenses. Be realistic about the length of time it will take to build up a customer base and regular income.
Lastly, research your market: is there demand for the franchisor’s products/services in your particular territory? Is there an established market for them and how many competitors will your business have?
5. Investigate: talk to fellow franchisees
If a franchisor is confident and transparent they will want to give you access to as many existing franchisees as possible. A responsible franchisor will understand that feedback from franchisees is invaluable to you and good PR for them.
On the other hand, if your franchisor tries to restrict your access to certain franchisees or dissuades you from speaking to any, this should flag a red light.
If you find, from speaking to different franchisees, that their profits are disappointing or their relationships with the franchisor are strained, it is not too late to reconsider.
6. Investigate: review the franchisor’s online presence
The online arena is often a customer’s first touchpoint with a product / service and bad news travels fast. How does your franchisor shape up?
An online search can be informative, especially if you are canny about it. Don’t just google the name of the franchise, try the names of the directors too. For example, if your franchise director introduces himself as “Tom Bloggs” or “William Bloggs”, try “Thomas Bloggs” and “Will Bloggs” too.
If you discover negative reviews or complaints, it won’t be too late to reconsider.
7. Talk to your bank
Does your bank have a Business Advisor who offers support and advice to start-ups? It’s worth investigating. They may even offer this service free of charge.
8. Questions? Ask as many as you need to feel satisfied
You are making an important investment, financially and emotionally, so be sure to obtain all the information you need from the franchisor before proceeding.
The bfa has a great list of questions that you should ask your franchisor before signing on the dotted line.
9. There’s always scope to negotiate
There are more franchises available than there are potential franchisees wanting to buy them. Therefore, for many franchisors, their single biggest challenge is finding and recruiting franchisees. What’s more, franchisors are often competing against a myriad of similar concepts with special “deals” to offer potential franchisees.
10. Take legal advice
Make no mistake, a franchise agreement is a legal commitment which comes with significant obligations and liabilities, which can sometimes extend well beyond the length of the franchise.
A franchise agreement also sets out the financial terms required to establish your business. Once signed, you will be bound by it and the circumstances which allow for an exit are extremely limited.
Roz Goldstein adds: “Even if your franchisor tells you that the agreement is “non-negotiable”, it is important to ensure that you get what you are paying for and that you fully understand what you are committing to.
“For a fixed fee, we can provide a straight-forward summary of your agreement, highlighting the key terms, and any problem areas that you should be aware of. We will also run through any queries you might have about your agreement. You can then refer the franchisor to this report if there are matters that need further discussion.”
Whatever stage you’re at on your franchise journey, Goldstein Legal’s commercial and legal insight will help you build a legal framework that protects your business and promotes success.
If you’d like a free consultation to find out more about franchising, get in touch.