Franchise Purchase Checklist
Before signing a franchise agreement you will need professional advice. Make sure you check:
- the franchisor's financial position;
- whether the franchise is expert in the business or whether its main business is selling franchises;
- the company records of directors' interests etc;
- whether the franchisors are approachable and will continue to be so after you sign the agreement, and whether you will be happy to be in a long term relationship;
- whether established franchisees are happy with their franchise and the activities of the franchisor;
- the strength of the major competition in the market;
- whether the market is already saturated (look at the recent history of the oversupply of service stations for an example of this);
- who has the legal responsibility for problems with the product;
- what the total investment will be, and whether there are hidden costs;
- whether some items (like equipment) and the product itself must be purchased from the franchisor;
- the exact nature of any royalty rate that must be paid to the franchisor, and exactly how it is calculated;
- whether projected profits and costs are validated by independent means;
- the franchise agreement thoroughly, preferably with a legal expert, and the rights of the franchisor to end the agreement;
- whether you are sharing regions with other franchisees, the distance between them, and any guarantee you have against the franchisor if they sell another franchise in your territory;
- whether any market survey used to identify a new territory is compiled by a reputable organisation.