|Benefit from an established brand, intellectual property rights and systems to follow.||Lack of control – you have to do things a certain way even though you may see a better way of running the business.|
|Owning a business which is part of a larger business network often provides support and systems.||Ongoing payment of royalties, purchasing specified products from specified persons and capital upgrades when determined by the franchisor.|
|Benefit from larger marketing strategy.||Advertising costs are fairly standardised which doesn’t give the chance to take advantage of cheaper advertising costs in a regional area.|
|Benefit from the bargaining strength of the franchisor.||Sometimes franchisor’s don’t pass on the benefits of their bargaining strength and require franchisees to participate in “loyalty” programs which affects profitability.|
Large & numerous documents
There are usually a number of large documents involved with this type of purchase (usually several hundred pages). Ordinarily you can expect, at the very least, a franchise disclosure statement, franchise agreement, business contract, lease/licence (and in some situations retail shop lease disclosures). It takes a considerable amount of time to review these documents – but you should review them so you know what you are signing up to. If you have any questions, you can raise them with us and seek our advice.
All commercial documents contain elements of risk. You should establish a level of risk which you are prepared to accept and review the documents in light of that. If the documents expose you to risks that are unacceptable, you should consider a different business opportunity.
Franchise documents are drafted in favour of the franchisor and the franchisor is often reluctant to negotiate any amendments because they want a single document to police. That said, if you want to pursue a franchised business opportunity, we recommend you request amendments to the agreement where you think it appropriate. There is no guarantee that your requested amendments will be approved, and your costs will increase depending on the length and nature of any negotiations.
Franchisor’s legal fees
In addition to your own legal fees, you will ordinarily pay the franchisor’s legal fees. These are usually several thousand dollars.
Typical costs for this type of purchase include:
- Advisor fees (eg lawyers and accountants);
- Search fees depending on the amount of due diligence you undertake;
- Purchase price;
- Franchisor’s costs;
- Consent fees (eg lessor, lessor’s mortgagee);
- Licensing/approval fees to government agencies;
- Transfer duty;
- Registration fees; and
- Operational costs.