Here is a checklist for when you are looking to buy a franchise:
1. The Product or Business System
Does it really exist?
Is it franchisable? What is its "track
record"?
What is special about it? Is it an enduring product
or a fad?
What has been the experience of other franchisees?
Is it a new business?
Has there been a pilot project? If so, how
successful was it?
Can an inexperienced franchisee learn to operate it?
Has it been tested overseas?
2. The Franchisor
Who is the franchisor? Have they been checked out
through credit references, banks, persons in the trade, company searches?
Does the franchisor fully understand franchising and
the importance of the franchise relationship?
What reputation does the franchisor have in the
market place?
3. The Franchisee
Who is the franchisee? Have similar checks been made as
in 2?
Is the franchisee suited to the
position? What experience do they have? What training is needed? Are they teachable?
4. Finance
How strong is the financial position of each party?
Does each party have sound funding?
What is the combination of initial payments and
royalties?
Is bank funding required? If so, is franchisor
consent required?
5. Profit Projections
Are there any, and are they oral or written?
What are they based on?
Are they realisable?
Have they been achieved in the past?
What happens if they are not met?
6. Exclusivity
Are the:
-
product
-
customer
-
territory
exclusive?
Do the exclusivity provisions offend competition law
provisions?
Can the franchisor alter the territory at a later
stage?
7. Terms of Payment
Are they exclusive or inclusive of taxes and charges?
How are they made up - upfront payments, royalties or a
combination of these?
Are there minimum payments?
Are there any hidden royalties or other payments (such
as management fees, or administration levies)?
Are they fixed or related to turnover?
8. Location
Is this chosen by the franchisor?
Is it a good location?
Do premises have to be leased, or subleased from
franchisor?
How do the provisions of the lease fit with the
franchise agreement?
If the franchisor is head lessee and defaults on the
lease, what happens to the franchisee?
Are the terms of any leases adequately disclosed and
acceptable?
Are there any Resource Management or Building Act
issues?
9. Length of Franchise
What is the term of the franchise agreement?
Is that long enough?
What are the renewal provisions?
Is renewal on same terms as present agreement or on the
basis of "the then current franchise agreement"? Are provisions acceptable?
Is a further fee or other costs payable on renewal?
10. Intellectual Property
Are there trade marks, logos and other copyright items?
What is their legal status?
What rights are there to use them?
What profile do the logos, trade marks and franchise
name have?
Does the franchisor undertake to enforce and protect
intellectual property rights?
11. Support and Training
What training is provided, at commencement and
subsequently?
Where and when does it occur?
Who has to pay for the training?
What other support is available?
What has been the experience of other franchisees?
Are there franchisee meetings? Who pays for them and
how often are they held?
12. Operating Manual
Is there a comprehensive operating manual? Does it form
part of the agreement?
Has it been assessed?
What does it show about the franchising system?
13. Advertising Material
Who controls advertising?
Is the franchisor to advertise on behalf of all
franchised outlets? If so, to what extent?
Does the franchisor vet all advertising?
Is there an advertising levy?
Is an advertising subsidy payable to franchisee?
Does the franchisor charge a levy to its own outlets?
14. Purchasing Requirements
What restrictions apply to the sourcing of: equipment?
services and other products?
Does the franchisor charge a mark up?
What protection does the franchisee have against price
increases?
Do purchase requirements offend competition law
provisions?
Can the franchisee buy elsewhere if it meets required
standards? Are these standards reasonable?
What does the operating manual say about purchase
requirements?
15. Resale Price Maintenance
Are there terms on resale price maintenance or possible
resale price maintenance? Are they legal?
Are there maximum or recommended prices?
16. Taxation
Have the tax implications been checked?
17. Competition Considerations
Can the franchisee carry on other businesses or have
additional franchises?
Can the franchisor inhibit or prevent production in
certain circumstances?
Are there restraints on the franchisee competing after
the conclusion of the franchise? If so, are they sustainable?
Do competition restraints infringe the Commerce Act?
18. Insurance
What insurance is required? For what risks?
Whose interests are to be covered?
Must the insurance be with a particular insurer?
19. Indemnities
Are there indemnities between franchisors and
franchisees?
Are any indemnities subject to insurance provisions?
Are the indemnities reasonable?
20. Guarantors
Is a guarantee required? If so, by whom?
Are guarantee provisions reasonable?
21. Variation of Agreement
How can the agreement be varied?
By the franchisor on notice?
De facto, by the franchisor varying the operating
manual?
By resolution of the franchisees?
22. Temporary Operations
Are there provisions for temporary operation in the
event of death or illness of the franchisee? Are these reasonable?
23. Policing
When may franchisor's representative enter premises,
inspect books and demand repairs be effected?
What reports are required and what records have to be
kept?
24. Transfer and Assignment by Franchisee
Can the franchise be assigned or sold?
What qualifications must an assignee have?
What is paid to the franchisor on assignment?
Is the franchisee released from his obligations on
assignment?
25. Termination Provisions
Are they fair?
Are the terms acceptable to the financier?
Can the agreement be terminated for a reason beyond a
party's control?
What notice is required?
Can the franchise be terminated for minor reasons?
What happens to telephone and facsimile numbers on
termination?
What happens to stock and advertising material still on
hand on termination?
If the franchisee stays in the premises, what
provisions apply about redecorating or re-equipping the premises?
Is there any compensation or goodwill payable on
termination or expiration?
26. Dispute Resolution
Is there a dispute resolution procedure?
If so, is it by mediation or arbitration? |
