Franchising: Finance and legalities
Written on the 3 May 2013
When buying a franchise, its important to do your research and carry out your own financial and legal checks to ensure everything is in its place. Here are some key factors to consider before you sign on the dotted line:
The right financing could make all the difference in paying off your loan sooner, accessing cash when you need it and allowing flexibility for lifes uncertainties. Get started with:
Your net worth
Know your current net worth. Look at your assets (what you own) such as savings, real estate, investments, etc. Then list your liabilities (what you owe) such as mortgages, loans and bills. The difference between these two is your net worth.
A breakdown of costs
Know exactly how much youll need to finance your franchise. This includes the initial investment as well as the day-to-day running costs of the business and ongoing contributions. Ask for a breakdown of costs, including working capital. Put together a budget of how much income youll require and take into consideration any additional expenses such as planned refurbishments or equipment hire.
The right financial fit
Banks are one of the most common franchise finance options, with many specialising in the franchise sector. Some franchises are even bank accredited and can help facilitate the loan process. If you want help weighing up the banks financial options, a franchise finance broker can work as your liaison. Alternatively, you may have the option to fund the costs yourself from your own savings. Seek professional advice from a franchise banking specialist and a trusted accountant to help you make the right franchise finance decision.
Reading the fine print and having a thorough understanding of your legal requirements is a critical step in franchise investment. Look for:
A solid reputation
Choosing a reputable, legitimate franchise group is a safe move and protects you from more unscrupulous operators. The Australian Competition and Consumer Commission (ACCC) does monitor the franchising sector for any fraudulence, however its wise to stick with recognisable and trusted brands with a proven track record.
The franchise agreement
This is a binding legal contract between you and your franchisor. It outlines your obligations and requirements as the franchisee, and once signed youll be legally bound to its terms and conditions. Every franchise agreement is different, so use a reputable franchise attorney to review the franchise agreement and seek clarification when in doubt.
Code of ConductThe Franchising Code of Conduct is a mandatory industry code that regulates the relationship between the franchisee and franchisor. Its worth familiarising yourself with the code and understanding your obligations.
Want to find out more about buying a franchise? Contact Snap and start exploring one of Australias most successful franchising models.