Franchisee toolkit; a checklist for potential franchisees

July 2009

When embarking on a new franchise business, quite often, franchisees attend their lawyer without any prior, or with limited, preparation. This can lead to a significant increase in solicitor costs, which is often the fear factor which makes people reluctant to seek legal advice when embarking on a new business venture.

It is important to have clear objectives and a perspective prior to seeking legal advice. This will enable you to drive the conversation, rather than your lawyer and/or others directing your choices.

Through our discussions with numerous franchisors and franchisees about their experiences, we have created a franchisee checklist. This checklist identifies the key areas for consideration, some of the right questions to ask in seeking your answers, and the areas to research for you to create your toolkit of questions for your lawyer.

How to create your toolkit of questions

Do your research and speak to franchisees

Research the market in which the franchise trades - look at the long and short term sustainability of the product or service.
Research the proposed franchise site or territory.
Speak to as many existing and previous franchisees as you can about every aspect of the business (including the challenges) and their experiences dealing with the franchisor. Franchisors are often willing to introduce you to others in the system.
If possible, work with an existing franchisee in their business, or at the least visit their place of business.
Don't be shy to make enquiries about the franchise and franchising in general.

Speak to the franchisor

Speak to them about their history, including how long they have been in business, how many current franchisees there are, whether they have plans to expand (and, if so, discuss those plans with them) and what their goals for the business are.
Ask them about the site or territory that you are interested in. Has it previously been used for that business? If so, was that franchise successful?
Ask them whether there are any specific requirements for operating the business, such as a licence.
Verify as much information given to you by the franchisor, and others, as possible. Research the demographics of the area (via the local council, Australian Bureau of Statistics, REIWA) and speak to other business owners in the area.
It is important to make a note of any discussions you have with the franchisor and the outcomes of those discussions.

Do your sums

Speak to an accountant about all of the costs associated with the business; including fees payable to the franchisor, costs associated with the initial capital investment and general operating costs such as cash flow, supply costs, wages and employee entitlements, any leasing costs and incidentals.
Consider your current financial circumstances carefully, and satisfy yourself that the franchised business will meet your financial goals.
Speak to a business advisor and/or bank about your financial circumstances and goals.

Business planning

Consider what structure you want to use to operate the business.
What are you aims and objectives in opening the franchise? Ask yourself honest questions about why you want to do this.
Start piecing together the building blocks to your business plan.

Most importantly

Read all of the documents provided to you by the franchisor thoroughly and make a note of anything that you do not understand or about which you have concerns.

The most important thing to remember is that a franchise is a significant long term personal and financial commitment. It is important that you have explored and researched all possibilities, both negative and positive. This preparation will set the stage for success. It is also important to understand that your lawyers are there to clarify and consider the legal issues that will affect the day to day operation of your business. This includes an analysis of the contract terms that you will need to comply with for the lifetime of the franchise relationship.

We hope you found this useful. Likewise, if you have any experiences you can add to this for us to create a more comprehensive list, please let us know via our blog.

For further information on franchising, please contact Carolyn Meighan, Senior Associate, at cmeighan@talbotolivier.com.au.

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