There are many traps for the unwary when buying a franchise business. A good franchise business should guarantee a hard-working owner an excellent return on their investment. Some franchise business systems do not give their franchisees a good return on their investment. Some franchisees are lucky to earn the equivalent of an average wage despite all their hard work. It is vital to get the right legal and financial advice when buying a franchise business.
Franchising is one of the fastest growing industries in Australia. The business format offers franchisees the opportunity to run their own businesses, while being backed by an established and proven business system. Unfortunately, not all franchise businesses and franchise systems are successful. A bad franchise agreement and a bad franchise system can cause the operator of the franchise business significant financial failure, significant stress and a waste of valuable time.
Our experience suggests that a franchise system should be avoided at all costs:
If considering buying a franchise business avoid the temptation to be a pioneer. The whole idea of buying a franchise is that the system should be tried and tested and the business model is guaranteed to work, if the system is followed
There is bad press about the franchise system or its directors
Talk to past and present franchisees. If the general feeling is negative it might be a good idea to look at another franchise system
If the number of years left in the term (including any renewed terms) is very limited
If the franchise agreement includes minimum sales requirements that are clearly unrealistic given the sales figures of similar franchises within the group
The franchisor does not provide you with an up-to-date and complying disclosure statement and draft franchise agreement, and otherwise does not comply in all respects with the Competition and Consumer Act 2010 (Cth)
If the terms of the franchise agreement are clearly unreasonable
Excessive rental rates payable to landlords
Before participating in a franchise system, it is good to know your options and to get both legal and financial advice.
JDS Lawyers can provide to you advice on:
Drafting and reviewing franchise disclosure documents
Drafting and reviewing franchise agreements
Drafting instruction manuals
Ensuring compliance with Franchising Code
Advice on breach notices arising from franchise agreements
Providing advice regarding the acquisition and / or selling of a franchise business
Providing advice on associated matters, such as leasing, licence agreements, business structuring and asset protection
Litigation for matters under the Competition and Consumer Act 2010 (Cth)
Where to source help with franchising?
At JDS Lawyers we like to establish close relationships with each of our clients so that we can find the right balance between the commercial environment and the associated risk.
For further information on how our firm can assist you contact John and the team at JDS Lawyers today.