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 franchise owner’s participation
  • Terms for termination/renewal of agreement
  • Number & success rates of existing franchise owners
  • 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 franchise owners
  • Permission to talk to existing franchise owners
  • 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 franchise owner
  • 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 franchise owner profit and loss figures
  • Management Service Fees
  • Restrictions on franchise owner’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 franchise owners

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