Top Tips For Buying Into A Brand With A Franchise
2015 saw a demoralising downturn for industry in the North East and sadly, 2016 looks like it might follow that trend with further redundancies mooted in our region and subsequently, unemployment figures expected to rise. However, in economically trying times there are often inspiring examples of entrepreneurship and individual enterprise. Many people facing imminent unemployment or merely job insecurity are considering taking the plunge and becoming self-employed, often starting businesses in which they have no prior experience and, in many cases, seeing them thrive.
Starting a business does of course come with its own risks, it can also be costly and making such a life-changing decision should never be taken lightly. However, for those entrepreneurs that want to start a new venture but minimise the element of risk, purchasing a franchise might represent a viable alternative.
One of the main attractions of franchising is that it usually represents less of a risk than starting a business from scratch; the business plan already exists, there will already be established brand recognition and the franchisor is often responsible for marketing, advertising and, more importantly, training you.
Below are five tips which any prospective franchisee should consider before buying into a franchise:
1.Choose The Correct Business Structure
You should consider creating a corporate vehicle from which to operate the franchise. For example, it is common for franchisees to set up a separate limited company to run the franchise, which can be an efficient way to run the business from a tax perspective and it also limits your personal liability.
2.Conduct Thorough Research
It is important that you carry out a thorough round of due diligence before you invest in any franchise and before you choose to proceed you should ensure you are satisfied with, amongst other things, the nature of the franchisor’s operations, its reputation in the market place, the franchisor’s plans for future expansion and, crucially, how much you will need to invest in the franchise.
3.Review The Key Documents
Without question, the most important document for any franchisee will be the franchise agreement, which essentially governs the relationship between the franchisor and the franchisee for the duration of the franchise. However, there may be additional documentation, such as leases, confidentiality agreements and various other commercial contracts which may require additional consideration – so it is essential that you seek legal advice before you proceed.
4.Consider Employment Issues
It may not affect you immediately, but at some point you will almost certainly require staff to assist you in running the franchise. You should therefore ensure that you take legal advice before signing any franchise agreement and are aware of the relevant employment law issues which will apply to your business.
5.Consider The Costs
In addition to the costs of sheeting up the business and the initial investment in the franchise, it is likely that you will also be expected to cover the franchisor’s administrative and legal costs associated with the purchase of your franchise.
Whichever type of venture you decide to pursue, it is essential that you go into any franchise venture with your eyes open and that you are aware of your obligations as a franchisee. Franchise agreements will always be heavily weighted in favour of the franchisor, so ensure that you seek legal advice before you commit to any such agreement.
Our experienced corporate and commercial lawyers can help you make an informed decision and guide you through the logistics and pit falls of running a franchise.