Many people interested in entering into a franchise system receive more than 100 pages of legal documentation, and this page count doesn’t even include documents such as the operations manual or financial reports. It’s easy to say that franchising is not only a large financial investment for many people, but it also involves days of analysis and number-crunching to determine whether the franchise is right for you. The Franchising Code of Conduct, fortunately, or not, provides potential franchisees with a minimum amount of days to review all of the franchise documents, let’s call it: the ‘Golden 14-Day Rule’.
What is the Point of the ‘Golden 14-Day Rule’?
Ultimately the ‘Golden 14-Day Rule’ is for your protection. Australian franchise laws understand the complexity of various franchise systems and business models and want to provide you with time to think and understand your position after all the sales talk. Sifting through a few hundred pages of documents is not an easy feat.
What Do I Need to Do During the Golden 14 Days?
You need to not only read the documentation, including the franchise agreement and disclosure document, but it is recommended that you seek professional advice. To be precise, advice from a lawyer, an accountant and a business adviser. These three professionals are not picked randomly, but rather because they can provide you with the best insight into whether you should purchase the franchise.
Clause 10 of the Franchising Code of Conduct requires that the professionals sign statements confirming that you’ve received advice. If you don’t seek the assistance of a professional, you will need to provide a statement stating that you’ve been recommended to receive advice, but have decided not to seek it.
What Happens After the Golden 14 Days?
The 14 days are the minimum amount of days you need provided, so technically you can prolong this period if you are still considering your options or seeking advice. Don’t be afraid to ask the franchisor questions or seek clarification on aspects that are not clear in the written documentation. It is best to understand what you are signing exactly before you are locked in for the franchise agreements’ entire duration. Typically, franchise agreements are for at least three years.
After at least 14 days have passed and you have decided to go ahead with purchasing the franchise, most franchisors will request that your pay a deposit so they can prepare your documents. You will then need to sign the documents and send them back to the franchisor. Once the franchisor has signed, you will be officially a franchisee, and the terms of the agreement will be in force. At this point, the franchisor will usually ask for the remainder of the initial franchise fee to be paid, and other obligations will commence, for example, the requirement to fit out a premises, the require to pay weekly fees, etc.
If you’re a potential franchisee who is contemplating the purchase of a franchise, use your golden 14 days wisely. Ask our franchise lawyers your questions and get advice!