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
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Breakdown of the initial investment required
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Details of other payments due to the franchisor
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Guidance on raising finance
- Requirements for franchisee's participation
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Terms for termination/renewal of agreement
- Number & success rates of existing franchisees
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Franchisor’s site selection/approval rights
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Overview of guaranteed training and support
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Financial statement from the franchisor
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Details of the franchisor’s professional advisers
What to find out from the franchisor:
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Financial health and track record of the company
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The company’s franchising history
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Results of the pilot operation (if applicable)
- Current number of franchisees
- Permission to talk to existing franchisees
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Company’s main source of earnings
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Value, appeal and long-term viability of product/service
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Head office commitment to support
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Full details of the initial training programme
- Additional training costs to the franchisees
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Total size of the franchise investment requirement
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Realistic estimate of working capital needed
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Bank and other references
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Territorial practices and exclusivity terms
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National and regional advertising practices
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Exclusivity of product supply contracts
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Franchisor’s margins on product supply
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Target obligations
- Realistic franchisees profit and loss figures
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Management Service Fees
- Restrictions on franchisee's operations
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Franchisor’s launch assistance programme
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A sample of the Franchise Agreement
Be wary if the franchisor:
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Tries to get you to sign a Deposit Agreement to reserve a territory
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Does not offer an automatic right to renew your agreement
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Has a very short-term contract
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Pressures you to ‘act now’ before the cost goes up
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Tries to trade you up to a higher fee
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Demands large front-end licence fee
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Promises huge profits with thin investments
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Promises ‘easy sales’
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Promises profits by sub-franchising
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Promises large income working from home
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Fails to give statistics on sales and profits
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Evades identifying Directors or principals
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Has no data on financial track record
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Cannot give plans for future development
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Has incomprehensible contract or vague territories
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Is vague about support and training
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Has a name similar to a well-known business
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Is ignorant of competition
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Has weak advertising
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Avoids detailing your financial obligations
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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:
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Description of exact training and support offered
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Precise price, commissions and rental fees involved
- Precise boundaries of the franchise territory
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Obligations to the franchisor
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Rights to renew or extend beyond original term
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Your rights to sell/transfer ownership of franchise
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Terms and conditions for terminating contract
- Heir’s rights in the event of your death