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Check Before Cheque

Refer to this checklist when researching your franchise opportunities of interest.

The Franchise Prospectus should contain:

  • Business background of Directors and key Executives
  • Description of the franchise
  •  Breakdown of the initial investment required
  •  Details of other payments due to the franchisor
  •  Guidance on raising finance
  •  Requirements for franchisee's participation
  •  Terms for termination/renewal of agreement
  •  Number & success rates of existing franchisees
  •  Franchisor’s site selection/approval rights
  •  Overview of guaranteed training and support
  •  Financial statement from the franchisor
  •  Details of the franchisor’s professional advisers

What to find out from the franchisor:

  •  Financial health and track record of the company
  •  The company’s franchising history
  •  Results of the pilot operation (if applicable)
  •  Current number of franchisees
  •  Permission to talk to existing franchisees
  •  Company’s main source of earnings
  •  Value, appeal and long-term viability of product/service
  •  Head office commitment to support
  •  Full details of the initial training programme
  •  Additional training costs to the franchisees
  •  Total size of the franchise investment requirement
  •  Realistic estimate of working capital needed
  •  Bank and other references
  •  Territorial practices and exclusivity terms
  •  National and regional advertising practices
  •  Exclusivity of product supply contracts
  •  Franchisor’s margins on product supply
  •  Target obligations
  •  Realistic franchisees profit and loss figures
  •  Management Service Fees
  •  Restrictions on franchisee's operations
  •  Franchisor’s launch assistance programme
  •  A sample of the Franchise Agreement

Be wary if the franchisor:

  •  Tries to get you to sign a Deposit Agreement to reserve a territory
  •  Does not offer an automatic right to renew your agreement
  •  Has a very short-term contract
  •  Pressures you to ‘act now’ before the cost goes up
  •  Tries to trade you up to a higher fee
  •  Demands large front-end licence fee
  •  Promises huge profits with thin investments
  •  Promises ‘easy sales’
  •  Promises profits by sub-franchising
  •  Promises large income working from home
  •  Fails to give statistics on sales and profits
  •  Evades identifying Directors or principals
  •  Has no data on financial track record
  •  Cannot give plans for future development
  •  Has incomprehensible contract or vague territories
  •  Is vague about support and training
  •  Has a name similar to a well-known business
  •  Is ignorant of competition
  •  Has weak advertising
  •  Avoids detailing your financial obligations
  •  Tries to meet only in a hotel or has poor head office premises
  •  Is evasive about access to existing franchisees

The Franchise Agreement must cover:

  •  Description of exact training and support offered
  •  Precise price, commissions and rental fees involved
  •  Precise boundaries of the franchise territory
  •  Obligations to the franchisor
  •  Rights to renew or extend beyond original term
  •  Your rights to sell/transfer ownership of franchise
  •  Terms and conditions for terminating contract
  •  Heir’s rights in the event of your death

Buy A Franchise

  • > How Franchising Works
  • > Are you suitable for Franchising?
  • > Franchise Criteria
  • > Franchise Websites
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  • > Franchise Exhibitions & Events
  • > Own a Master Franchise
  • > Own a Franchise Resale
  • > Terminology in the Franchise Industry
  • > Check Before Cheque
  • > Learn how to become a successful Franchisee
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