Assessment of Franchise
Rather than relying on anything that the franchisor has presented or told you, it is vital that you make your own assessment of the franchisor, the business and the legal agreement. This assessment should be done after conducting as much research as possible. Please also see the related Research section of this website.
Franchisor and Business
The first thing to assess is whether the business is right for you and your personal circumstances, and whether the business is one that you would enjoy working in and that
you think would be successful in your area. Please see the Research section for some tips on what to consider when
assessing the particular franchisor and business.
You should investigate the financial aspects carefully, and check whether the actual profits for franchisees match what you are told is possible. Obviously you should focus on the profit, that is, the money left for you after deduction of costs, and not the
turnover or revenue which is what many franchisors advertise or focus on.
You should form your own view or take professional advice on the commercial, accounting, financial, tax and business aspects of entering the franchise.
It is also worth considering how rigorous the franchisor's selection process was. If the selection process was not rigorous you may find that other franchisees are not all of a high standard and this could affect all of you and the brand name. The selection process should be a two-way process where you assess whether the franchise is right for you, but at the same time the franchisor assesses whether you are a suitable franchisee, based on your experience, personality, funding and other factors.
Franchise Agreement
The franchise agreement is important and is often the only legally binding document setting out your obligations and rights that you have. You should be given a sample agreement by your franchisor to review in advance. You should obtain a report on this from a specialist franchise expert such as EXB to review and report on it so that you enter the franchise knowing the risks and your obligations. Some things to consider for the agreement include:
- Comprehensive – does the legal agreement set out everything that has been told to you? Is it clear on all your obligations and payments?
- Fees – Check the initial fee, and ongoing fees. Are the ongoing fees fixed or do they vary as a percentage of revenue? Are there minimum fees, or performance targets? What other costs might you incur?
- Supplies – Do you have to buy your supplies from the franchisor or a named supplier? If so, is there any comfort given on the prices that you will be charged?
- Territory – Do you have an exclusive territory? Is it clearly set out, for example by post codes? What about internet or telephone sales?
- Training, package and support – What initial training will you receive? What initial package will you receive and is it detailed in the agreement? Is the value of the initial package broken down and does it justify the initial fee (which should not contain a vast profit for an ethical franchisor)? Are there obligations on the franchisor for ongoing training and support?
- Term – How long is the initial term? Is the agreement renewable, and are there costs? Are you obliged to continue trading and paying fees for the whole term?
- Restrictions – What restrictions are there on you in relation to how you are allowed to operate and after the term in relation to competing?
- Exit / Termination – Does the agreement cover your death? And your sale of the business? On what grounds can the franchisor terminate the agreement? What consequences are set out for termination or expiry? Could you also be liable for damages or lost profits?