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Franchising can be a great way to start your
own business. And the failure rate for franchises is much less than for non franchise start-ups.
But you still need to do your homework and ask and be satisfied about many questions which you
might not think about in your enthusiasm to start your own business.
The franchise agreement from a major franchisor
will generally be on a take it or leave it basis.
That is the agreement will not be negotiable as
the franchisor can't afford to negotiate individual agreements with each
franchisee.
But that does not mean that you should not ask
the right questions and satisfy yourself that the situation that arises when there is a dispute or
the franchisee is incapacitated or dies is provided for.
1. What law governs the
agreement?
Many successful franchises in your country may be international
companies...........the law applicable for an international franchise may well be another
jurisdiction.
2. What happens if the franchisee
dies?
Is there provision for the franchisor to provide staff to run the
business to keep the show on the road?
3. Is there a renewal option when the
agreement ends?
If there is are you happy to commit to sign an agreement in say, 10
years time, having no opportunity to see the new agreement? What are the
terms?
4. Can you sell the business? Can the
franchisor veto your purchaser?
5. When the agreement is terminated is
there a non compete clause? For how long?
6. If the agreement is terminated and the
premises is yours, how much will it cost to debrand?
7. Is the training and system manual up
to date? When was it last updated?
8. Is there an advertising fee payable?
Can it be justified? Is there marketing spend on the brand?
9. Is there a management services fee?
How is it calculated?
10. Does the franchisee have to inform
the franchisor of any improvements he has made to the system?
11. Is the franchisor the owner of the
trademark? And if not will he provide a licence to the franchisee for the use of any trademarks and
intellectual property?
12. Who will own the premises? Will the
franchisor provide any advice in relation to location and premises?
13. How long has the franchisor been
carrying on business? How many company owned outlets?
14. If the franchisor is supplying goods
is there a credit limit? Will a minimum stock of products be imposed? Is a vehicle required? Will
it have to be branded?
15. What books and records will the
franchisee have to supply to franchisor?
16. Will a confidentiality agreement be
required?
17. Who will pay for initial and ongoing
training?
18. Is there a territory? Is it
exclusive?
19. How long will the agreement last? Is
it compliant with competition law requirements?
20. Is training provided for staff? Is it
ongoing?
21. Is more than 10% of the initial fee
for use of the name and trademark? Can this be justified?
22. What initial stock will be needed?
Will the franchisee have to purchase equipment, stationery from the
franchisor?
23. What ongoing obligations have the
franchisor in relation to problem solving, management, finance and marketing, provision of staff in
an emergency, research and development and maintaining and improving the
manual?
24. Will franchisee be required to
advertise locally?
25. Does the franchisor have the right to
communicate with the franchisee's customers?
26. Has the franchisor the legal right to
purchase the franchise from the franchisee? On what terms?
27. Is the franchisor entitled to appoint
a manager if the franchisee dies or is incapacitated?
28. Who is entitled to terminate the
agreement? On what terms? What events will bring this about?
29. What will happen when a dispute
arises? Is arbitration provided for? Litigation?
30. Does the franchisee have to enter
into any restrictive covenants?
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