Becoming a Franchisee

Taking on a franchise can be a great way to start a business with an established brand, meaning you have a head-start over most start-ups, but it comes with its own risks and obligations. So it’s important to think carefully, take advice, and negotiate about things like these -

The Franchise Brand and Business Model

Reputation: Is the brand well-known, respected, and growing?
Success rate: How successful are existing franchisees?
Support system: What kind of training, marketing, and operational support does the franchisor offer? This is something that can be negotiated into the franchise agreement.
Market saturation: Are there too many franchises already in the area?

Financial Considerations

Initial investment: Franchise fee, setup costs, equipment, premises, etc. These can often be negotiated.
Ongoing fees: Royalties, marketing contributions, renewal fees. These can also be negotiated.
Profit potential: When can you expect to break even and start earning a profit?
Hidden costs: Inventory requirements, technology systems, insurance, etc. It is important to make sure that the franchise agreement spells these out very clearly, so that disputes are avoided.
Resale value: Can you sell the franchise later, and are there restrictions? Again, this can be negotiated.

The Franchise Agreement

This is a binding, long-term and potentially expensive contract. It is vital to get it reviewed by someone with experience, and who knows what points can be negotiated.
Term and renewal: How long is the franchise for, and what happens at the end of the term?
Territory: Are you granted exclusivity in a geographic area?
Termination clauses: Under what circumstances can the franchisor terminate your agreement? Tough times do come along, so ideally there would be some flexibility built in here.

Operations

Day-to-day involvement: Are you expected to be hands-on, or can you hire managers?

Supplier restrictions: Do you have to use approved suppliers, and are their prices competitive?

Hours and lifestyle: Will the required hours suit your lifestyle and commitments?

Due Diligence

Talk to existing franchisees: Are they satisfied? What challenges do they face?
Is the franchisor financially stable?
Litigation history: Have there been disputes or lawsuits with franchisees?

Exit Strategy

Resale rights: Can you sell the franchise? What are the terms?
Transfer fees and approval: Are there fees or conditions to transferring ownership?

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