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There are many franchise opportunities out there. Some are more profitable and successful than others. Once prospective franchisees sign a franchise agreement, they are responsible for their unit and will need to invest significant capital to get started. Assessing a franchise opportunity involves many considerations. It is vital to establish whether it presents a profitable opportunity and whether you are a suitable candidate to operate that franchise. This article will explain several key points potential franchisees should consider before signing a franchise agreement.
Franchise Opportunities
When considering a franchise opportunity, the overarching question is whether it presents a profitable venture. You will invest your time and money and want your business venture to succeed.
Assessing a franchise opportunity is about the opportunity itself, the broader franchised brand, and whether you are the right fit for the role. A franchise opportunity may appear viable, but you might not be the most suitable candidate.
Key Points to Consider Before Signing a Franchise Agreement
The following section outlines several points all prospective franchisees should consider in relation to a franchise opportunity before they sign a franchise agreement.
1. Consider Whether the Franchise Opportunity Will Be Profitable
Profitability is key. In this first stage, you will research the franchised brand extensively. You must conduct due diligence and thoroughly research all facets of the opportunity before investing.
There are various ways you can conduct your research. For example, you can talk to current franchisees and discuss with them whether your unit might be viable. You can ask the franchisor questions but do not rely solely on the information they provide. Research online and find all the information you can about the company. Investigate the company’s history, find out how old it is, and how other franchisees have fared.
Consider aspects of the opportunity such as:
- the geographic location;
- if there is a proven business model in place;
- the size of the available market within that area, and
- potential competition.
2. Carefully Scrutinise the Agreement for the Franchise Opportunity
It is of utmost importance that you understand the terms of the franchise agreement. The franchise agreement is the legally binding contract franchisees share with franchisors. All potential franchisees should read this carefully. If the franchisor has given you other documents, such as a franchise disclosure document and an operations manual, make sure you read these too.
Investment in legal advice at this early stage can ensure you make a good business decision. The wrong decision can prove very costly later on. A solicitor can also negotiate the terms of the agreement and ensure that your best interests are protected.
Terms that the franchisor should include within the agreement are as follows
- your roles and responsibilities and those of the franchisor;
- details of the initial fees and ongoing costs you will owe;
- the program of training and support you will receive as a franchisee;
- exclusive territory rights, if applicable;
- your rights to the franchisor’s systems and intellectual property;
- restrictions;
- renewal terms; and
- termination terms.
3. Consider Whether You Are the Right Candidate for the Role
You may be able to establish potential profitability, and the franchise agreement may appear to be reasonable, but are you the right person for the role? Many factors will shape your answer to this question. For example, do you have the capacity to commit to what the franchisor expects of you? Is it most appropriate to make this investment at this point in your career?
Discover the key legal and commercial issues to consider when buying a franchise.
Also, whether good or bad, your relationship with the franchisor will shape your future business journey. You must foresee a solid long-term working relationship with this person.
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Key Takeaways
Potential franchisees must know how to distinguish a good franchise opportunity from one that may not be successful. Each franchise opportunity can be vastly different from the next. Carefully read the franchise agreement and any other documents the franchisor gives you. Then, it is essential to conduct thorough research. Go beyond the information the franchisor has provided you. Research the business and the potential market opportunity and speak to current franchisees. Consider seeking legal advice at this stage. A solicitor can also conduct due diligence and advise you on the viability of the opportunity.
Researching the opportunity and whether you are a good match for the role is crucial. Consider whether it is what you are looking for and whether you can meet the franchisor’s expectations. You will likely work closely with the franchisor. Therefore, you must foresee a good working relationship with them.
If you are a prospective franchisee who needs help assessing a franchise opportunity, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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