There is a list of to-dos that need to be considered with a franchise solicitor before entering a franchise agreement with a franchisor. First, you should research the particular franchise system to familiarise yourself with their brand. Speak with past and current franchisees about their experiences in the franchise. Are they making money? Is the franchisor supportive? What is, or was, their relationship like with the franchisor? These are important questions that need to be asked before entering a franchise agreement.
Checklist before signing
- Speak with a franchise solicitor – Have them go through the franchise agreement clause by clause so you have a clear understanding of exactly what you are getting yourself into. Not only do you want to understand the company and its reputation in the market but also how the franchise system operates i.e. how successful are other franchised outlets in your region?
- A franchise solicitor will explain the important clauses and sub-clauses, the legal considerations and give you his or her overall risk assessment of the venture and advise on the most appropriate cause of action.
- In terms of profitability, this is really an accountant’s or a financial adviser’s area of expertise, as they will be able to assess the financial reports of the business and provide you with profit projections.
- Do market research – Depending on the location of the proposed site, you can do some initial research by observing the numbers of potential customers in that area. Practically speaking, a franchise solicitor cannot really assist you with this type of investigation, so you may have to do the legwork yourself.
- For mobile businesses, you’ll need to take into account things like travel time and, of course, the numbers in terms of clientele and competition in the area you might be covering.
- Speak with current and ex-franchisees – Your franchise solicitor will advise you to gather as much information as possible. An example is to ask questions from both the franchisees who are currently working and those that have previously operated franchise outlets under the franchisor. It is important to remember that every franchise will consist of successful and unsuccessful branches, and that the location and business acumen of the franchisee are usually the driving factors behind the more prosperous outlets.
- Business structures – Speak with your franchise solicitor about operating under the various business structures. You should have an understanding of the advantages and disadvantages in order to get the most out of your franchise business. Keep in mind the costs of setting up the different structures and the many tax implications of each structure. Seek legal advice from your franchise solicitor as to which would be the most suitable structure and why.
- ABN – An Australian Business Number is only required if the business will make more than $75,000. There are many benefits of having an ABN and the franchise solicitor will advise you of these; one being that you can claim GST credits and avoid paying withholding tax. Register for an ABN at: www.ato.gov.au.
- Licences and Qualifications – Ask your franchise solicitor to check whether any qualifications/licences are needed to lawfully operate the business. It might be worth contacting the relevant state Office of Fair Trading.
- Business Name Registration – When you operate a business under the name of the franchise, this name must be registered as a business name through the Australian Securities and Investments Commission website: www.asic.gov.au.
If you are looking entering a franchise agreement, contact a franchise solicitor to make sure you have ticked all the pre-purchase requirements. Our solicitors here at LegalVision have extensive experience in the review and drafting of franchise agreements and related documents, and will negotiate on your behalf. For more information, contact LegalVision on 1300 544 755.