When is the right time, as a potential franchisee, to ask for your franchise documents and what steps should I take when I receive them? This article will explain the necessary steps that ought to be taken when your franchisor hands over the franchise documents.
Let us assume you have already decided on an appropriate franchise business to invest in. You have now contacted the franchisor and enquired about the business. After the initial screening process of getting to know and understand the business model, what is your next logical step?
What documents should I receive?
After you sign the confidentiality agreement, which is a usual requirement before gaining access to the franchise documents, the franchisor will give you the following franchise documents:
- an information sheet about the pros and cons of franchising;
- a copy of the Franchising Code of Conduct;
- a disclosure document; and
- a franchise agreement
On top of this, the franchisor may give you some additional information relating to the financial standing of the business and the marketing strategy/materials. This, however, is optional for a franchisor. Don’t forget that the franchisor is required to provide the documents mentioned above no less than 14 days prior to commencing, renewing or extending the franchise agreement or otherwise pay a deposit (non-refundable).
Legal Advice and Financial Advice
Once the franchisor has provided you with the documents mentioned above, you need to get in touch with the professionals. For most people, this includes a team consisting of a lawyer, accountant and/or financial advisers.
Financial advisers and accountants can assist with loan documents and assess the financial validity of the business that you are looking to purchase. This will include making a detailed assessment of whether the forecasted figures set out in the franchise documents will be attainable when all things have been considered. Factors to consider will include the term of the agreement, the territory granted and whether or not this territory is exclusive, the initial set up fees, and ongoing fees for marketing, maintenance, etc.
Your franchise lawyer will conduct a thorough review of the franchise agreement and disclosure document to:
- ensure that there is initial and ongoing compliance with the Franchising Code of Conduct, particularly in light of recent amendments;
- check the validity of information in the documents; and
- make recommendations about which provisions to amend to ensure adequate protection.
It is important to note that although a good franchise lawyer will be able to identify all the problems in a franchise agreement, which you may want to raise/negotiate with a franchisor, franchisors are not often willing to make many changes. Nonetheless, it is important for you to have the franchising agreement properly reviewed so that you understand your obligations as a franchisee to ensure that you will not inadvertently breach the agreement.
What other information do I need?
As a new franchisee, you can obtain useful information from the following sources:
- franchisees currently working for the business, or those that have left the business;
- government registers, including ACCC, ASIC, IP Australia and ABR;
- court records, where you can review any past or present litigation that the franchisor is, or has been, involved in; and
- competitors of the franchise may also be able to provide you useful industry-based information.
At the end of the day the decisions is yours to make. Once all is said and done and you have sought advice form all avenues, legal, non-legal and financial, it is time to decide whether this opportunity is right for you.
For the chance to run your concerns by one of our franchise lawyers, contact LegalVision on 1300 544 755.