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Franchisee Due Diligence

Getting involved in a franchise is exciting, and not without risk. Even the simplest franchise opportunity will require a commitment to pay fees over a period of time, and will put restrictions on what you can do in your business as a franchisee.

As a franchisee you are tying your future to a particular franchise brand and it's important you have a good understanding of what is expected of you as a franchisee before you sign the legal documents.

The franchise sector not only encourages each person considering a franchise to do substantial research before they sign the franchise documents, it is actually required.

At minimum you will be asked to seek advice from a lawyer, accountant and business advisor. In addition to these professionals there are other places to look for information about the franchise opportunity you are researching.

Understanding Your Obligations as a Franchisee

The Australian Competition and Consumer Commission (ACCC) is the regulator for the franchise sector and has useful information available to help you understand your obligations as a franchisee.

The ACCC also provides a range of free tools to assist you.  These include:

• Australian Competition and Consumer Commission Franchisee Manual
• Franchisee Start up Checklist
• Being smart about your new franchise and your retail lease   

Disclosure Document

Each franchisor is required to provide you with a disclosure document before signing any franchise agreement.

This document contains information critical to your research as a prospective franchisee. 

It will tell you about the business experience of the senior management and directors of the franchise, typical costs involved, and other key information.

Read this document thoroughly and be sure to ask any questions that come out of it. 

Perhaps the most useful part of the disclosure document is the list of current and past franchisees, along with their contact details.

There is no one better to talk to about a franchise business than people who have experience with it - the franchisees.

Topics to cover in your Due Diligence

• How much money can you make?
• What are realistic sales and profit expectations?
• How much will it cost to get into the business, and will you have enough money to fund the start up and ongoing expenses?
• Does the franchisor have a solid history?
• Are there any outstanding legal cases against the franchisor that may affect your business?
• Have several franchisees left the system recently and if so, why?
• Most importantly, once the excitement of buying the franchise has gone, will you be satisfied with your decision to join the franchise system?

The time before you buy a franchise is the best time to learn as much as you can about it. 

Use this time to find out what the strengths and weaknesses are of the franchise opportunity, and to see if you are making the right choice by investing in it.

This research will go far to ensure you make the best decision for you, and prevent any future issues.

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