The Pre-Franchise Sleuthing Zone for Prospective Franchisees - What you can research yourself before you get serious!

Published by Rosie Allen on November 14, 2017

There are many Franchise Businesses in New Zealand. It seems we are Franchise obsessed. For a potential franchisee, the attraction is a business you can walk into with your hand being held. The negative is that is not exclusively your business and never will be (you find that out when you come to us for the legal review). As a purchaser, the key is finding a franchise opportunity with a fair and reasonable Franchisor who has a strong track record and positive plans for the future.

Here are some pre-lawyer sleuthing ideas you can do yourself to get a feel for what the Franchise is like before you come to us for the legal review of the Agreement. Afterwards, I guarantee you will feel like a super spy ready to investigate anything!

  • What’s the website like? Is it sassy, sharp and jazzy? Or, are there lots of spelling mistakes? Is it looking tired and like very little energy has been put into it? When you googled it, what else came up in the search? Good things? Bad things?
  • Who are the Directors of the Company selling and/or the Head Franchisor company? Google them. What comes up? Search them on the companies’ office website. This is free. Have they been directors in various companies? How long have they been a director for this company? Have they been struck off the register before?
  • Have you talked to the other Franchisees? What are their dealings like with the Franchisor? Are they happy and it’s all working well? Or, are they disgruntled and have negative things to say? Are there more than one franchisee? Talk to them all. If you are buying from an out-going franchisee, ask why they are selling.
  • What is the seller claiming you will get from buying this Franchise? Does it sound too good to be true? You will likely find when you come to see us that the Franchise Agreement is worded strongly in the Franchisor’s favour and that you will have very little rights and remedies available to you.
  • Can you get a feel for their reputation? Do your friends and family know of them? Are you hearing their ads on the radio? Is the Franchisor doing a lot of marketing in your area that you are aware of?
  • What is the industry? If you google the key words for the service/product that the business provides, what other businesses out there doing the same thing will pop up? How will you establish a point of difference and ensure that the business going to those other companies then comes to you? i.e. what is so great about this product?
  • Check the figures with your Accountant. The accounts and the future projections are a key component once you decide to look into things further (and before you commit!!). Your accountant can do things like: help you review financial statements, advise on all the “hidden” costs in the Agreement as well as royalty fees you will be paying to the Franchisor. Will you be able to pay yourself a salary? Do you have enough money to get this business to the profitable stage? When will be business realistically make a profit? They can also form a company for you and discuss your trading entity if you start getting serious.

Have you talked to the other Franchisees? What are their dealings like with the Franchisor? Are they happy and it’s all working well? Or, are they disgruntled and have negative things to say?

Rosie Allen — WRMK Lawyers

Once you have done the above you will be ready for the legal review. Be aware though that that documents don’t always reflect all the promises the Franchisor has made verbally. Feel free to contact me to talk about your Franchise purchase. It is an exciting adventure but we also want to ensure you have no hidden surprises and go into this with your eyes wide open.

(Stay Tuned for further Franchise information).

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