152 checklist 29/10/07 11:32 Page 1
Franchise buyer’s checklist
When considering a franchise...
The Franchisee Prospectus
should contain...
a74 Directors’ and key executives’ business experience
Company’s track record
The Franchise Contract
a74
a74 Description of the franchise
must cover...
a74 Initial investment required
a74 Your rights to sell/transfer ownership of franchise
a74 Other payments due to the franchisor
a74 Obligations to the franchisor, e.g. buying supplies / services
a74 Data on help in raising finance
a74 Rights to renew or extend contract beyond original term
a74 Restrictions on franchisee’s personal participation
a74 Terms and conditions for terminating contract
a74 Termination/renewal of agreement terms
a74 Description of exact training and support offered
a74 Number of existing franchisees and their success rates
a74 Precise price, commissions, rental fees involved
a74 Franchisor’s rights to select/approve sites
a74 Precise boundaries of the territory awarded to you
a74 Training and support guaranteed to the franchisee
a74 Description of your heir’s rights in the event of your death
a74 Financial information about pilot operation
a74 Financial data on the franchisor
a74 List of franchisor’s banker and other professional advisers
Be wary if the franchisor...
What to find out from the
a74
Promises huge profits with thin investments
franchisor...
a74
Says ‘act now to get in on the ground floor’
a74
Fails to give statistics on sales and profits
a74 The Company’s financial health and history a74
Promises ‘easy sales’
a74 How long it has been franchising a74
Fails to identify directors or principals
a74 Details of pilot operation results a74
Tries to ‘trade you up’ to a higher fee
a74a74 Current number of franchisees
Says ‘act now, it will cost more later’
a74a74 Permission to talk to random franchisees
Promises profits by sub-franchising
a74a74 Main source of company earnings
Has a name similar to a well known business
a74a74 Value and appeal of product or service
Promises large income from ‘work from home’
a74a74 Long term viability of product/service
Demands large ‘front end’ licence fee
a74a74 Type and level of head office support
Has a very short term contract
a74a74 Full details of the training provided
Provides no data on track record or financial strength
a74a74 Whether training is an extra cost
Cannot give plans for future development
a74a74 Total cost of taking up the franchise
Has vague territories
a74a74 Realistic working capital needed
Is ignorant of competition
a74a74 Permission for bank references and other referees
Has incomprehensible contract
a74a74 Territorial practices and exclusivity terms
Is vague about support and training
a74a74 Types and amounts of advertising
Has weak advertising
a74a74 Any need to buy products from the franchisor
Is vague about your financial obligations
a74a74 Target obligations
Has poor head office premises
a74a74 Realistic profit and loss figures
Tries to meet only in a hotel
a74a74 Management service fees or royalty payments
Is evasive about access to existing franchisees
a74 Operating restrictions
a74 Launch assistance
a74 Sample contract
152 ©2007 The Franchise Magazine
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