Franchising is a great way for a small business to enjoy the benefits of size and scale. Miles Agmen-Smith and Alistair van Schalkwyk of Asco Legal believe purchasing a franchise can be ideal for those seeking to own their own retail business without starting from scratch, but these franchising experts have shared some important points for potential franchisees to consider before making the jump.
When you take on a franchise Agmen-Smith says you are entering a relationship for a set period on the conditions in the agreement, which are also well set. As a prospective franchisee, you should therefore think carefully about the long-term impact of your decisions, and get them right the first time.
1) Firstly, you need to know that the proposed business model of the franchise is a good and successful one. Some ways you can do that are:- Engage franchise specialist lawyers to clearly understand what the proposals are: what you’re buying; what you’re paying; what you’re getting; and how long you’ve got it for.
Experienced advisors will also want to check things such as disclosure documents and to know about manuals.- Get a franchise experienced accountant to check out the financials.
2) Talk to other franchisees and see what they think of the franchise. This can save you significant financial heartache – for example on advice, an Auckland client wanted to move house and take up an new, overseas sourced, pop-up franchise in a provincial town. As part of their prepurchase checking Asco Legal advised the client to speak with existing franchisees.
A franchisee told the client about the lack of essential support, and major deficiencies with the business model and system. The client wisely chose a reputable local system, and is far happier with the outcome as a result, says van Schalkwyk.
3) Check to see if the franchisor is a member of the Franchise Association of New Zealand. While New Zealand has more franchise systems per capita than any other country worldwide, franchising is not regulated by any specific legislation beyond standard commercial law. The FANZ imposes a code of practice and code of ethics on its members which should give prospective franchisees some assurance.
An experienced lawyer will know the ins and outs of what you’re about to take on, and will be able to help you navigate the world of contracts and obligations; your responsibilities as an employer; leases and landlords; any restraints of trade which may apply following the end of your relationship with the franchisor and other critical factors which will affect the long-term viability of your franchise business.
They will also look into protecting your personal assets from business risk. “Just do your homework with people who actually know, and check you’re building on solid foundations,” Agmen-Smith says.
“Before you move a muscle, see experienced advisors who are fully familiar with the franchise industry. Do that first, then go out and select a franchise.”
Partner Asco Legal DDI: +64 9 3088075
Alistair van Schalkwyk
Partner Asco Legal DDI: +64 3088071