Franchising has been in the news a lot lately and not always for the right reasons.
Is a franchised business a good investment, and is it right for you?
A franchise means you are not required to build up a business from scratch and the franchisor will take care of a lot of marketing and training.
However, there are often many costs in acquiring a franchised business, such as:
- an initial upfront franchise fee payable to the franchisor
- ongoing royalty fees, which are usually a percentage of gross revenue
- training fees
- marketing and advertising fees
- fit-out costs for any premises, plus rent and outgoings
- costs of acquiring stock, plant and equipment, and inventory (such as uniforms, training manuals, marketing materials etc.)
Franchise agreements typically include many restrictions on your right to operate the business. For example:
- you must comply with their operations manual and directions (such as pricing and services offered)
- your right to operate the business will be for a limited period of time and restricted to a certain geographical area
- you may be required to purchase supplies and equipment, and lease premises, from a related party of the franchisor
- your ability to sell the business may be restricted
- you must cease using the business name, telephone numbers and email addresses of the business at the end of the term
- you may be subject to non-compete restrictions at the end of the term
Fortunately for franchisees the franchising industry is heavily regulated under the Franchising Code of Conduct. Franchisors are required to provide a disclosure document to you, among other things, and a franchise agreement must contain certain clauses.
We can provide you with practical legal advice and guide you through the process.