Things Your Lawyer Wishes You Knew: Buying a Franchise

franchise

There are many reasons why people prefer to buy into a franchise, as opposed to starting an independent business. One of the reasons is that franchisees often feel more secure with a developed and tried model. This may result in franchisees letting their guard down and in turn, making several (serious and costly) mistakes.

In order to avoid some of these mistakes, we have compiled a list of things to consider when buying your first franchise:

1. Slow down!

Whether it is sheer excitement or fear of losing the opportunity, there are many reasons why a person may wish to jump into the purchase of a new franchise; however, it is important to remember this is a business decision, with real legal and financial consequences. Make sure you take the time to assess the advantages and disadvantages of buying and operating the franchise before binding yourself to the purchase.

2. It’s ok to change your mind!

The Franchising Code of Conduct (the Code) gives you seven (7) days from signing a new Franchise Agreement or making a payment under the Agreement (the earlier of) to change your mind. The franchisor can deduct some money from the amount you paid to cover their reasonable expenses; however, the loss of these funds does not compare to the cost of entering into a business venture you are either not willing or able to operate for the full term.

3. Advice, Advice, Advice! (our version of location, location, location) 

Did we mention there are real legal and financial consequences in purchasing and operating a franchise? A typical franchisee may be presented with a Franchise Agreement, Franchise Disclosure Documents, a Lease Agreement, Loan Agreement and more. Each of these documents sets out important information about the franchisee’s rights and obligations. Under the Code you are entitled to obtain legal, financial and/or business advice. Use it! Although it can seem like an additional expense, the professional advice you receive will prove invaluable.

4. Can we get that in writing?

Prior to signing the Franchise Agreement, you may receive some colorful brochures or an enthusiastic sales pitch about purchasing with this particular franchisor. Often, the claims made by or on behalf of the franchisor in the early stages play an important role in your decision to purchase the franchise; however, unless these representations are included as part of the Franchise Agreement, the franchisor will not be bound by them. Therefore, it is a good idea to take notes at any meetings you may have with the franchisor. In the event any claims or assurances are made, write them down and insist they be included in the Franchise Agreement before proceeding further.

5. It’s not you, it’s me…

Whether it’s an early termination as a result of financial difficulties, bankruptcy, sickness, death, retirement etc. or whether you have simply decided not to renew the franchise for a further term, the day will come when it’s time to part ways with the franchisor. Generally, the exit provisions are the last thing in a prospective franchisee’s mind when considering a purchase; however, ending and exiting the franchise can be one of the most costly experiences for a franchisee. Ensure you review these provisions and implement suitable exit strategies.

For further advice on buying into a new franchise business, call our office on (07) 3161 2847 or email us at info@ardorlegal.com.au


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