174 checklist 2/3/07 10:24 am Page 1
TFM
FRANCHISE
BUYER’S CHECKLIST
when considering a franchise check...
The Franchisee Prospectus The Franchise Contract
should contain... must cover...
❏
Directors’ and key executives’ business experience
❏
Your rights to sell/transfer ownership of franchise
❏
Company’s track record
❏
Obligations to the franchisor, e.g. buying supplies / services
❏
Description of the franchise
❏
Rights to renew or extend contract beyond original term
❏
Initial investment required
❏
Terms and conditions for terminating contract
❏
Other payments due to the franchisor
❏
Description of exact training and support offered
❏
Data on help in raising finance
❏
Precise price, commissions, rental fees involved
❏
Restrictions on franchisee’s personal participation
❏
Precise boundaries of the territory awarded to you
❏
Termination/renewal of agreement terms
❏
Description of your heir’s rights in the event of your death
❏
Number of existing franchisees and their success rates
❏
Franchisor’s rights to select/approve sites
Be wary if the franchisor...
❏
Training and support guaranteed to the franchisee
❏
Financial information about pilot operation
❏
Promises huge profits with thin investments
❏
Financial data on the franchisor
❏
Says ‘act now to get in on the ground floor’
❏
List of franchisor’s banker and other professional advisers
❏
Fails to give statistics on sales and profits
❏
Promises ‘easy sales’
What to find out from the ❏
Fails to identify directors or principals
franchisor...
❏
Tries to ‘trade you up’ to a higher fee
❏
Says ‘act now, it will cost more later’
❏
Promises profits by sub-franchising
The Company’s financial health and history
❏❏
Has a name similar to a well known business
How long it has been franchising
❏❏
Promises large income from ‘work from home’
Details of pilot operation results
❏❏
Demands large ‘front end’ licence fee
Current number of franchisees
❏❏
Has a very short term contract
Permission to talk to random franchisees
❏❏
Provides no data on track record or financial strength
Main source of company earnings
❏❏
Cannot give plans for future development
Value and appeal of product or service
❏❏
Has vague territories
Long term viability of product/service
❏❏
Is ignorant of competition
Type and level of head office support
❏❏
Has incomprehensible contract
Full details of the training provided
❏❏
Is vague about support and training
Whether training is an extra cost
❏❏
Has weak advertising
Total cost of taking up the franchise
❏❏
Is vague about your financial obligations
Realistic working capital needed
❏❏
Has poor head office premises
Permission for bank references and other referees
❏❏
Tries to meet only in a hotel
Territorial practices and exclusivity terms
❏❏
Is evasive about access to existing franchisees
❏
Types and amounts of advertising
❏
Any need to buy products from the franchisor
❏
Target obligations
❏
Realistic profit and loss figures
❏
Management service fees or royalty payments
When investigating a franchise
❏
Operating restrictions
Launch assistance
opportunity, ensure these points do not
❏
❏
Sample contract
conceal problems.
174 © 2007 The Franchise Magazine
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168 |
Page 169 |
Page 170 |
Page 171 |
Page 172 |
Page 173 |
Page 174 |
Page 175 |
Page 176 |
Page 177 |
Page 178 |
Page 179 |
Page 180 |
Page 181 |
Page 182 |
Page 183 |
Page 184 |
Page 185 |
Page 186 |
Page 187 |
Page 188 |
Page 189 |
Page 190 |
Page 191 |
Page 192 |
Page 193 |
Page 194 |
Page 195 |
Page 196 |
Page 197 |
Page 198 |
Page 199 |
Page 200 |
Page 201 |
Page 202 |
Page 203 |
Page 204 |
Page 205 |
Page 206 |
Page 207 |
Page 208 |
Page 209 |
Page 210 |
Page 211 |
Page 212 |
Page 213 |
Page 214