10 Questions You Must Ask Before Entering Into A Franchise Agreement

Franchise businesses are one of many ways in which commercial law allows someone who has money to invest, to start a business. Some of the most recognisable business names in the world are run on a franchise basis such as McDonald’s, KFC, Subway, and Hertz. Beyond these global giants which require an upfront investment of hundreds of thousands of dollars, there are thousands of smaller franchise opportunities that can be purchased for a lot less.

However, simply because a franchise opportunity does not cost a six-figure sum to get started, it does not mean that every one of them is the right choice for you. even Small franchises will set you back a sizable sum, so you must ensure that before you make your final decision to invest, that you carry out several checks on the franchise. In particular, there are ten questions to which you want answers from lawyers before signing on the dotted line.

What Is The Success Rate Of Franchisees?

Probably the first question you need answering is how well are the current franchisees are doing and what is their success rate. If you can, speak to the current franchisees yourself to learn of their experiences thus far with the franchise.

How Are Other Businesses In This Market Sector Performing?

Another important piece of research is assessing how well your competitors are doing. Whatever market the franchise you are considering is in, it will have competition. If they seem to be doing well, that should be seen as a positive as it indicates a healthy and vibrant marketplace with lots of potential.

Who Is The Target Audience?

One of the most important elements of your new business you must evaluate is who your target audience is going to be. Information about their demographics will give you an indication if you are targeting a wide and diverse audience or a very narrow one.

What Is The Potential For Growth?

Once the previous three questions have been answered, they will give you a much stronger indication as to whether the franchise you are considering has growth potential, or whether it is stagnant, or worse receding.

What Is The Investment To Profit Potential Ratio?

It is now time to crunch the numbers and for this, you may wish to employ an accountant or commercial financial adviser who can determine whether the profits that are projected are sufficient to give you an ROI that is acceptable to you.

What Will Be The Ongoing Costs Of Doing Business?

Every business, whether a franchise or not, will have costs. You need to establish what the day to running costs are of an individual franchise as this will impact your profit margins.

How Much Will You Need To Contribute Financially To Franchise -Wide Marketing?

Beyond the cost of running your franchise, it might be that part of your franchise agreement requires you to contribute to the corporate marketing budget which would include TV, radio, newspaper, magazine, and online advertising.

What Are The Physical Restrictions Of Your  Franchise?

Franchises are usually operated on a territory basis meaning you are likely to be restricted to operating within a defined area or location. Before you start you need to know what those territorial limits are and the extent of the restrictions.

What Are The Terms Of The Franchise As It Relates To Property Lease, Contract Length, Early Termination Fees Etc?

This is where it is highly recommended that you seek the help and advice of a commercial lawyer. You want to check the franchise agreement thoroughly and ensure there is nothing in it that could create a problem in the future, or which seems unfair.

If You Terminate Can The Balance Of The Franchise Be Transferred To A New Owner Of Your Choosing?

It may also be the case that you have someone willing to take over your franchise and if that were to happen you must know what the financial stipulations are with regards to transferring the franchise and recovering your investment.