Tips For Franchisees

Franchise.co.nz:

1. Obtain Legal Advice
Before you sign any documents, obtain legal advice from a lawyer who specialises in franchising. They will be able to advise whether the terms of the franchise agreement are reasonable and can alert you to the issues you need to consider before making the final decision to enter into that particular franchise.

2. Engage an Accountant
Do not rely on the financial projections given by the franchisor. Obtain independent accounting advice from an accountant who understands and specialises in franchising. Your accountant will be able to carry out an independent financial analysis of the business against which you will be able to measure the accuracy of the franchisor’s financial projections.

3. Take Notes
Keep an accurate written record of all of your discussions with the franchisor and any other persons involved in the sale of the franchise to you. Take particular note of any representations made to you. If you are intending to rely on those representations or they are likely to have a material influence on your decision whether or not to purchase the franchise, advise the franchisor. Record the date, time and circumstances in which that advice is given by you to the franchisor.

4. Explain Expectations
Advise the franchisor of your objectives in entering into the franchise. Advise them what your financial expectations are, the lifestyle you want to lead and what you want to achieve by joining their franchise system.

5. Verify Statements
Any statements which the franchisor makes to you should be checked as much as possible from independent sources. Do not accept any statements made by the franchisor at face value. Test them and check them with independent sources if possible.

6. Representations in Writing
If the franchisor makes any representations to you, have them recorded in writing and signed by the franchisor. Written representations are much easier to prove than oral representations.

7. Consult with Other Franchisees
Obtain a list of all the franchisees from the franchisor. Make contact with as many of the franchisees as possible. Be wary if the franchisor tries to discourage you from contacting particular franchisees. Ask the franchisees what problems they have faced in establishing their businesses and how well the franchisor has assisted them. Ask the franchisee if the franchisor’s projections or predictions about financial performance were correct. Question the franchisees about the relationship with the franchisor. You must be assured the franchisor will be reliable and supportive throughout your time as a franchisee and will respond to your needs.

8. Make Checks
Try to make as many enquiries as you can about the franchisor and the franchise system. Obtain independent credit checks and contact as many different people as you can who may have had dealings with the franchisor.

Check also to see if the franchisor is a member of the Franchise Association. If the franchisor belongs to the Association, they will be bound by the Franchising Code of Practice. This requires a franchisor to provide disclosure documents which contain valuable background information about the franchisor and the franchised system.

9. Check for Disclaimers
Always presume the franchisor will try to disclaim any liability in respect of information given to you. If you are not presented with a separate disclaimer document, check the franchise agreement to ascertain whether there is a disclaimer provision in it. Ask the franchisor whether they are relying on the disclaimer clauses and if so ask them to provide you with copies so that you can obtain independent advice in respect of them.

10. Timely Action
If you do have a complaint about any representations made by the franchisor, make them as soon as possible. The longer you let misrepresentations go unattended, the harder it will be for you to establish your reliance upon those representations and therefore the harder it may be for you to claim compensation.

11. Copies of Agreements
Keep copies of all drafts of the agreements presented to you by the franchisor together with copies of the final agreements.

12. Understanding
Make sure you read and understand all documents given to you by the franchisor. If necessary, ensure you receive explanations from the franchisor in respect of anything you do not understand fully.

You should make sure that the franchise documents accurately define the scope of the franchised system and clearly identify your obligations to the franchisor and the franchisor’s obligations to you.

If you have relied on any representations and the franchisor has acknowledged that you have relied on those representations, ensure they are recorded and that they have not been negated by virtue of any exclusion clauses contained in the franchise agreement or disclaimer documents.

Also read Tips For Franchisors.