What You Should Know Before You Sign

Buying a franchise requires serious personal investigation on the part of the franchisee. Gary Williamson shares how potential franchisees can do this effectively

Is this the right time for you to do some serious thinking and planning and are you in fact at what we call, one of life'''''''s major crossroads?

The truth of the matter is that many baby boomers, now in their early 50s, are more likely to be either victims of redundancy or have taken a golden handshake. Some of them have perhaps been lucky enough to have inherited a lump sum from a deceased family member or favourite auntie, so for the first time in their life they can look at a serious life style change and have the capital to do so.

In advising many, many potential franchisees over the last 26 years, I have found it is also surprising to learn how many people enjoy a windfall of money through a gambling win and all of these people can perhaps for the first time consider their future options with a greater sense of confidence, because they have some serious chunks of liquid funds to buy or start up a business and for the first time in their lives they can become their own boss! This of course is a dream most of us cherish as we battle the traffic to get to work or put up with the ranting and ravings of the boss or maybe we have just wasted another two hours of our lives in some stupid meeting at work.

Once you get motivated to look at your options of going into business for yourself, it doesn't take long for the idea of buying a franchise to pop into the options horizon. Unfortunately, many of the problems we have seen involve unhappy franchisees coming to us after they jumped in with perhaps little or poor advice and unrealistic financial expectations. We look at and critique about five different franchise systems a week on behalf of potential franchisees who decide to engage the services of an expert in franchising. Most of the financial turmoil and emotional upheaval unhappy franchisees have found themselves in could have been avoided by following some very simple initial investigation steps.

So if you are considering buying a business that appears be part of a licence or franchise arrangement, here are some handy thought starters before you get too carried away by the excitement of doing something different. The grass may be greener on the other side but before you leap across the 'excitement' fence we strongly urge you to get some unbiased and specialist advice from people who are specialists in assessing this unique type of business opportunity. Here are some points to keep in mind:

Don't start talking to any franchisor until you have had a long hard look at yourself and had a family heart to heart on what you might be good at and the cash/capital you can afford to risk in buying into a start up new business.
Starting up a business whether it's part of a franchise system or independent, will be a lot of hard work and it's unlikely you will enjoy the fruits of your labour for at least the first year. Your profits may therefore be very small and this will place a strain on your family's existing financial commitments and perhaps drastically affect your current lifestyle standards.
Any franchisor who is stupid enough to give you financial projections on how well you can or will do, will probably be setting themselves up for a legal hassle with you later. In fact, most naive franchisors find themselves being sued for 'misrepresentation' as they tend to present the most optimistic picture to encourage you to buy into their franchise system.
Franchisors can and should only talkabout their historical success and those facts will beat fiction every time. You should seek out those franchisors who lead by proven example and still operate a company territory.
Most people who end up buying a franchise respond to an advertisement and go to see the franchisor or their appointed business broker without understanding what questions to ask. As a result, they often feel very intimidated by the franchisor, who is more than likely an adept salesperson.
Make sure that before you sign anything, including 'confidentiality agreements' or are asked to pay a deposit when filling out their application form, you get direct and meaningful answers to these basic questions: Who is the franchisor i.e. is it a company, trust or partnership? What past track record of management expertise do they have in running this type of business? What financial strength does their franchise entity have? Ask to see their operations manual, just to make sure it actually exists. Ask for a full list and direct contact details of their current and past franchisees. Ask for a list of their suppliers or at Least a good sampling of them. Ask for the names and contact details of their Accountant and Bank Manager. Make sure you get straight answers and not just waffle!
If the franchisor asks you for a deposit when submitting your application form our advice is to refuse to play that game, or if you must, get a letter/receipt from them saying it will be fully refunded if you don't proceed to buy the franchise.
If they offer a profit guarantee it's just 'sales BS' as there are no guarantees in business, or in life for that matter.
When you feel the franchisor has given you all their background information on which you are expected to make a buying decision, that's the time to seek out expert advice. A few dollars of preventative medicine before you buy is a hell of a lot cheaper than losing your hard earned dollars later!
Franchising is a minefield of sutleties and frankly it's often not what the franchisor says that matters, but how they describe their business opportunity and sometimes what they haven't said in their written sales material or franchise contract.
Remember the initial investment in most business opportunities is going to cost you a fair lump of your capital, so please don't be in a great rush to spend it. Franchises range in investment from $25,000 to $1,000,000 and cover an amazing variety of specialty retailing and service industries
If you seek our specialist advice it's amazing how we can eliminate most of the current 1450 business format franchise systems you could consider. When we apply a filter of a careful assessment of your personality, time-frame of decision making, the particular area you would like to run a business in, your finances and your likes and dislikes, that number may well quickly narrow down to only one or two particular franchise systems.

We are great believers in the win-win benefits of a professionally managed and well run franchise system but sadly for the current credibility of franchising in Australia, most franchisors have still not learnt their hardest lesson, which is that they have as much to lose as a franchisee if they allow people to operate under their franchise system, who frankly were not suited to running a small business in the first place.

However, you must understand there is currently no big brother out there to protect you, no specific franchise legislation or government watchdog and it is a hard fact of life that a fool and his/her money are soon parted! Take advice early and go into your business investigation with your eyes wide open.

By Gary Williamson of Which Franchise? Magazine

If you would like more quality articles about franchising then check out Which Franchise? Magazine

Other news articles from the same month

April 2006

March 2006

February 2006

January 2006