Buying a Franchise

You want to have your own business, but perhaps you are afraid to start from the idea stage and working it into one of your own.  There are several reasons individuals look at buying a franchise rather than starting their own business.  If you are interested in purchasing rights to a franchise there are a few things you need to consider.

First, the franchise agreement is crucial and a legally binding document.  This means you should not sign the agreement until you are sure this is the business you want and that you have the funds to run it.  You also need to obtain legal advice regarding the franchise agreement.  In this way you will be covered in case you have questions about what the franchisor is willingly giving you for the fee. 

Allow your solicitor to look over the franchise agreement.  It should be easy enough to obtain the document you will be asked to sign.  Here are the areas typically covered in the franchise agreement that you will need to know about. 

The term of the franchise agreement is always stated clearly in the document.  In this area you will find how long the agreement will last, if you have the option for renewal, and on what terms you can renew the contract.  If the information is unclear you should ask the preparer to revise the contract.

Territory information will be shared as well.  The territory discusses the range your franchise will cover.  No other franchise of the same business can be placed within your territory, though they can be placed on the border.  Make sure you have exclusive rights to the territory specified in the agreement.

There are fees associated with any franchise.  The fees you pay will be spelled out in the franchise agreement.  The startup costs as well as any royalties you have to pay should be outlined in the agreement.  For example, what percentage of sales revenue is paid to the franchisor and what percentage do you get to keep?  There may also be a management fee and other costs, and this should be examined closely to ensure you are able to afford the agreement you are making.  Sometimes contracts are not explicit. 

Support is typically offered on the initial setup of the franchise, but will later end.  The contract needs to tell you how much support you will have, how long that will continue, and what happens if you need additional support.

As with any licence agreement there will be restrictions.  The restrictions determine what you are allowed to do and how you must run the business. 

Lastly, as part of any franchise agreement the exit strategy will be named.  For any reason that you cannot continue running the business you will need to know if you can sell the franchise or what you can do.  Often the franchisor states whether they have to approve any sale to a new person, which can make things a little difficult for you. 

Our below give advice on buying all different types of franchise.

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