I was recently reminded from a client who was just starting upon their franchise journey what a puzzle buying a franchise could be. She was very confused. She had spoken with the broker and really liked the franchise on offer but then the circus that is buying a franchise began.
It was an existing franchise so she had figures to look at but there was so much more to consider. Does she put in an offer now then start her research or research it first, then put in an offer? Boy oh Boy what a maze.
Lets me set out the 5 steps to take when becoming a franchisee. These 5 steps are also covered in-depth in: How to choose a franchise that is right for you
Step 1 – make a serious enquiry and receive an information pack
There are many franchise systems that you may already be interested in or you have found that are about to open in your area. You want to be sure that you get the right opportunity for you. It is recommended that you apply to many of these franchises because each has a different model, each has a different profitability level, each has different set up and branding, and each franchisor will be prepared to make a different deal. You want to find the best opportunity for you!
Where do you find these opportunities? Simple! Start your search on the web.
Open Google and search for What franchise opportunities are there in (your town/area). Without a doubt you will have pages of opportunities in front of you. There is just not your local broker.
Once you find an opportunity that excites you make a serious enquiry to both the broker and the franchisor and receive an information pack.
Step 2 – Apply to the Franchisor; pay a fully refundable deposit and sign a confidentiality contract to receive detailed information so that you can commence your Due Diligence.
Due diligence is an extensive process where you will analyse yourself; your franchisor and how they operate; and the business case on offer to you for its profitability.
Once you have applied you should expect to receive:
- The current Disclosure Document from the Franchisor
- A draft Franchise Agreement in the format that your franchise agreement will be in
- The ACCC Code of Conduct
- A Franchise Information Statement (if you have not already received this)
- You may also receive either:
a. a letter of offer outlining lease details etc if this is a new opportunity OR
b. a compendium of information from the broker if the opportunity is an existing store or business
Step 3 – Due Diligence
You now have 14 days minimum period to conduct your Due Diligence. You can take far longer than 14 days and I recommend that you do. You need to seek advice in this period from your Lawyer and Accountant. You need to prepare business plans and budgets. You may even have an experience day in store with the Franchisor during this period to be sure that you like working in the system. You need to ask questions of your Franchisor and existing and past franchisees of the system.
Step 4 – Negotiate; negotiate; negotiate
This is your very last chance to refine the agreement you are entering into. You will have prepared budgets, etc. therefore you will know the profitability to expect, negotiate any areas you are unsure of. Once you have signed the agreements it is too late. Be sure that the business case on offer to you meets your needs, if not, negotiate until it does.
Step 5 – Sign the franchise agreement and pay a non-refundable deposit
You now have a further 7-day cooling off period before the agreement becomes binding. Make the most of this time to be absolutely sure that you have made the right decision.
The How to choose a franchise that is right for you eClass will walk you through the 5 steps above and provide you the necessary tools and checklists to guide you in the right direction.
Don’t be daunted; being a franchisee can be very rewarding it is worth all the time you take in the beginning to be sure your franchise journey is successful.
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Elizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise. In her recent book, Upsize your PROFIT – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit.