It is such an exciting time buying a franchise. There is all that opportunity in front of you just waiting for you to ditch your 9 – 5 job and sign all the documents. There is that promise of all that money and the change of lifestyle. It is so easy to get carried away with all the sales jargon. It can even be easy to secure the loan for your new business against your home, or even your parent’s home if you have no assets.
But buyer beware, this is the time that you should be spending money seeking advice from specialists who are not trying to sell you the franchise. After all it is much easier to spend a small amount of money now with an expert who will honestly review your new business opportunity than it is to lose your home. If you cannot afford the advice you cannot afford to buy a Franchise.
Sounds a little harsh doesn’t it – but it is the reality. Imagine the catastrophic situation of losing your home! This is not an uncommon situation which can also have catastrophic flow on effects to marriages and family life. Don’t think it can’t happen to you because it can.
When you are buying a franchise you are usually spending a similar amount to buying a home. Sure, there is the potential to earn more from that business than there is to earn from a home – but is there? Here are four people you should seek advice from before you buy a franchise.
This is the person who will look at the business case on offer to you. They will prepare potential budgets and a business plan for the site on offer. Most importantly they will identify your breakeven – that is how many sales you have to achieve before you begin to make any profit. Turnover is vanity – only profit is sanity. Don’t look at just the turnover figures people are quoting but look to the profit you can make. The advisor will work through the documentation given by the franchisor that outlines the fit-out schedule; the equipment listing and the staffing requirements. They will look at your skills and abilities and identify what new skills you will have to learn. They will help you get your support team around you.
The finance broker is the person who will prepare your lending application. Regardless of whether the franchisor has approved lenders or not you need an unbiased person who can prepare your business case for lenders; a person who will secure the best loan option for you. They will use the documents prepared by your business advisor to write the application. They will consider if you have enough money to maintain your current lifestyle for the first 6 months of operation or until your business is profitable. They will assess your asset base to see if you have enough equity to secure the lending required.
This is the second opinion to the business advisor. Make sure you choose an Accountant who has franchise experience. Your accountant will look over all the reports prepared by the business advisor. They will advise what is the best company set-up for you to provide asset protection and tax minimisation. They may set up an employment agreement for you and recommend a suitable bookkeeper or accounting software to use.
Your Lawyer’s advice is crucial before you sign anything. Again make sure your Lawyer has franchise experience. A Lawyer will analyse the franchise agreement; the disclosure document; the lease and a license to operate (if applicable) and will help to set up the company structure recommended by your accountant.
It is a requirement of the Franchise Code of Conduct regulated by the ACCC that every new franchisee sign a document that states they have received advice from a Business Advisor/Accountant and Lawyer. This requirement is there for a very good reason – to be sure that you fully understand the business you are entering. Trust me, the money you spend on this advice is the best money you can spend and certainly a lot cheaper than losing your home.
Thinking of buying a franchise business? Do you want to make the wisest and safest decision before entering a franchise agreement? Then our Franchise Opportunity Assessment and Advice service might be for you.