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Buying a Franchise Business

To even begin considering purchasing a business in Australia, you must become acquainted with the franchise sale process.

A franchise can be compared to a marriage, in that it is a long-term relationship in which both parties need to trust and respect one another. In addition, the ‘marriage’ must include passion in order for both sides to benefit. This can only work if strong bonds are formed before a commitment is formed.

When selecting a franchisor you should ideally choose someone who is trustworthy, ethical, and professional. A franchisor with these qualities will be more beneficial to your business. This also works the other way around as the franchisor will decide whether they want to work with you based on your work ethics. Carefully consider these points during the selection process.

 

The Process of Purchasing a Franchise Business

1. Planning

The first step is to determine how much capital is available to establish your own company under a larger and more established one. This can be done by firstly determining what you have to offer a business in terms of capital, experience, and resources. You can then start searching for industries that you find appealing as well as business that will fit into your way of life, whether you have a family or live in a certain area.

2. Making Contact

You may find it difficult to pinpoint one franchise as there are so many in Australia. This is where we come in. LINK Business can give your personal advice that will speed up this process, giving you a better idea of what kind of franchises are suited to your skills and finances. We can also research franchises that you are interested in and send you an information pack.

3. Information Pack

Your personal information pack will consist of an introductory letter, a brochure, a confidentiality agreement and could also include an application form. This pack provides you with a summary of specific aspects of the business, such as its goods and services, past records, and price. It may also include requirements of the franchisee themselves. These could be skills such as ‘ability to create a friendly atmosphere’ or ‘enjoys outdoor sports’. If you are interested in the business you can proceed with the next step which involves filling in the confidentially agreement included in your pack, and planning a time to discuss the details.

4. Confidentiality Agreement

The confidentiality agreement simply reveals your interest in the business but is not committing you to anything. Franchisors will see that you are serious and willing to not expose any confidential information about the business to any third party other than your professional advisors. In doing this the franchisor will not be faced with competing businesses stumbling upon classified information.

5. First Meeting

You can expect the first meeting to be casual, providing you with an opportunity to discover more about the franchise. Whoever else will be involved in the franchise should also be present at this meeting.

In preparation it is vital to increase your knowledge about the franchise. This can be done by reading up on the business but you may also want to pay visits to outlets as a customer, explore their website, and be on the lookout for advertisements.

The franchisor will then ask you questions in return, giving you an opportunity to prove yourself as a potential franchisee. You will need to approach these questions in a way that makes you seem like the best option for their franchise. At the end of the first meeting you should have a better understanding of where you stand. If you wish to continue with the process you will need to fill in and return the application form.

6. Application Form

In filling in the application form you are not bound to the business as it is not an official contract. The form will most likely be made up of numerous questions, some more personal in nature than others. In this way the franchisor is able to determine how dedicated you are to their company. Less personal questions may ask about you work and business history, and references. To better understand where you stand you may be asked about partner involvement and finances.

In providing the franchisor with this personal information they are then able to assess your situation and determine whether or not you have sufficient funds, security, and working capital to begin the franchise. Your answers must be completely genuine in order to improve your chance of achievement.

7. Disclosure

The franchisor will likely organise a second meeting after having considered your application. Better franchisors will take you through the details of the franchise, helping you make a decision about the purchase. This information is usually compiled as a prospectus or ‘disclosure document’.

When it comes to business forecasts, franchisors are not careless due to the fact that it is almost impossible to know the outcome. To help you make a clear decision you will need an estimate of sales, costs, and potential return on your investment. In the disclosure document you should find financial information that will assist in the creation of a personal business plan.

It is not uncommon for the franchisor to request a deposit of several thousand dollars in the midst of this process. This action demonstrates your reliability and in turn identifies how serious you are. If at any point you no longer want to continue with the franchise you should be fully refunded.

8. Interview

The interview gives the franchisor the opportunity to ask more personal questions about your plans. Technically this is not a job interview as you are not applying for a job. Instead it is the time to determine where you stand with the franchisor and how this relationship could develop over time. At this stage you will be judged as a potential franchise owner.

To impress most franchisors you must stand out as a team player, meaning that you play by the rules, and listen to your teammates. This is important in dealing with sales in which communication with the public, customers, and staff is required.

In certain cases it will work to your benefit to not have any previous franchise experience. The franchisor can then decide how he or she wishes to train you to use their system. Being willing to learn new skills displays that you are open-minded, rational, organised, and have keen perception.

The world of business franchise does not work well with the free-spirited. Independence can be acquired by doing away with security, training, support and the purchase of authority. Franchisors have control over stock, business hours and business promotion, meaning they can set limits on these factors. You should therefore try to be an ‘intrepreneur’ – someone who is prepared to work within the given parameters of a defined system – rather than an ‘entrepreneur’. An ‘intrepreneur’ is respectful of how the franchisor wishes to run the parent business, but is also eager to build their own business.

If you application has been accepted by this time you can expect to be in the running for the franchise. Franchisors put in place this long and tedious selection process in order to narrow down the number of applicants and to ensure that you are exactly who they want to run the franchise.

9. Franchise Agreement

Once you and the franchisor are positive that the franchise is in safe hands it is important to ask for a copy of the franchise agreement. This legal document organises the framework for the franchise. It includes an outline specifying the relationship, duties, and obligations to be played out by the franchisor and franchisee. Before signing this legally binding contract we advise that you seek professional legal guidance.

10. Other Franchisees

In the disclosure document you will likely be provided with a list of existing franchisees and how to get in contact with them. We suggest that you get in touch with as many as possible to learn more about what they do as franchisees. In doing this you will get more than one view into the life of the business, which can help you with your own franchise. You must not get overwhelmed by extreme answers, instead focusing on the overall picture which may or may not live up to what the franchisor promised.

At this point you can see how the franchise systems have fared. By looking at manuals and using the provided software you will be given the opportunity to examine the system. A sneak peek of what you will soon encounter yourself.

11. Professional Advice

After everything you’ve encountered you should now be confident about whether or not you want to join. You will now need to request professional help – commercial, financial, and legal.

In terms of finance, an accountant can verify the financial information supplied by the franchisor to create your business. Don’t waste time investing your hard-earned money if you have consulted an accountant.

When you visit a lawyer who has prior experience in the industry they will simplify the franchise agreement for you. This is a key point because not all solicitors and accountants have worked with franchises and those who have will be more helpful than those who haven’t.

You should not expect your lawyer or accountant to approve or support the franchise you have decided to purchase. Their job is to recognise any points that might find you in a less than favourable position in the future.

12. Make Your Decision

Franchises are not about full autonomy, but about making the right decisions to better your own franchise. You should now be in a position that allows you to make a knowledgeable decision. Your decision will be defined by judgement and risk assessment.

From here you will need to decide whether you want to proceed with the purchase of the franchise. Once the franchisor is in agreement the franchise fee will need to be deposited into a solicitor or brokers trust, confirming its safety.