New franchises – are you taking on a trick or a treat?

01/10/2015

How can prospective franchisees try to ensure that they avoid a franchise trick and instead find themselves a franchise treat?



Franchise Treat

Every prospective franchisee has aspirations of investing in a tried and tested, good profit making business with possibilities to grow with the support and assistance of a franchisor who has successfully “been there and done that”.

Franchise Trick

There are a huge variety of franchises on offer and the industry is one that keeps on growing. As a result, unsurprisingly, prospective franchisees can find themselves being lured into buying franchises that are unsuited to them or which have poorly thought through systems that are barely piloted.

Top Tips

Here are our top tips for avoiding a trick when looking into franchises:

  1. Think about what you are good at and where your skills lie – Many franchisors will advertise their business as something you do not require prior experience in. That may well be the case. However, if for example the franchise involves an element of direct selling and this is not something you would be comfortable doing it’s best to be honest with yourself. Look instead for something that uses skills you are confident that with training you could master, would enjoy and be good at.
  2. Ask difficult questions and do not take no for an answer. Before deciding to part with your money ask the questions that may seem awkward i.e. whether the franchise has had any failures or whether any franchisees are struggling. A good franchisor will be able to be honest and provide a plausible explanation rather than glossing over it or saying it is confidential.
  3. Ask for actual figures and dig deep – most franchisors will provide you with prospective cash flows and profits. Do not just accept these and consider that you will achieve these. Ask what the figures are based on i.e. do they come from one franchisee and if so, who? Or are they an average across the network? See if you can obtain figures for the lower performing franchisees. Find out whether there is any difference in performance in different areas (north/south/rural/urban) and apply this to your area. Look closely at the figures and work with an accountant to come up with questions.
  4. Speak to other existing franchisees – ensure you are given a list of all the existing franchisees with contact details, not just the ones the franchisor would like you to speak to. Pick a variety of franchisees to talk to about their experiences i.e. a new start up, a mid-term and one who has renewed or has been a franchisee for years. Ask what hours they are putting in, what results have been like, what skills are required, how business has been going, how much support the franchisor provides and about their successes and failures.
  5. Read the agreement and take specialist advice – it is so important to read the franchise agreement and understand it. Franchises are a big investment in terms of finances but also from a contractual point of view. It is very important that you understand the agreement, the legal implications of signing the agreement and what your obligations and risks are. It is so important to take specialist advice on the agreement – what is not included in the agreement can often be as important as what is included.

If you are considering taking on a new franchise please speak to one of our experienced solicitors in our Franchise Law Department.
Contact us on 01708 229 444 or click here to visit our Franchise Law contact page.

This article is only intended to provide a general summary and does not constitute legal advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at October 2015. 

01/10/2015

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