by Simon Lord
last updated 07/12/2023
Get The Right Advice
by Simon Lord
last updated 07/12/2023
A franchise can be a great way to get into your own business – but how do you reduce risk?
Just because a franchise is well-established doesn’t mean that it will suit everyone – and it doesn’t mean that every new outlet will be profitable, either. That’s why, if you’re looking at buying any business, you need to take good professional advice so that you can be sure you’ve made the right decision and free your brain up to focus on growing your new business.
Strangely, many people don’t bother to do that when it comes to franchises. Why not? Well, having talked to many new franchisees, it seems that too many people:
- Assume that everything will be okay because the franchise has a good reputation;
- Think that by not using a lawyer or accountant they will save money on professional fees that they need to invest in the business; or
- Use an inappropriate advisor – the family lawyer, for example – who might be great at conveyancing but have little experience and few contacts in the franchise world.
Alas, the people who take these appealing shortcuts often learn an important lesson the hard way. Whether you’re investing $5,000 or $500,000, it pays to take proper advice to ensure that you know what you are getting into and that your chosen business can meet your needs.
Spend and save
For the franchise buyer, then, it’s vital to check out the differences between franchises to make sure that any opportunity really is as good as it seems to be. Here’s why it’s worth spending a little time and money on advisors:
1. You’ll save time (and maybe even money).
Choose experienced advisors and they’ll probably have come across the franchise system you’re investigating before. Even if it’s new to New Zealand, the chances are they will be able to find out more about it from contacts overseas than you will. And if it’s a brand new system, they will at least know the characteristics to look for in a successful franchise. They might cost more per hour than non-specialist advisors, but they will give you better advice and take less time about it.
2. You’re less likely to make mistakes.
You might not know what rents or margins are normal in a certain industry, but your advisors should. You might not know whether a sub-lease arrangement leaves you exposed, but your lawyer will. You might be new to business borrowing, but your banker will know what is and isn’t possible – and the fact that you are buying a franchise may mean special terms are available if you talk to the right people.
3. You’ll know what to expect.
One of the most important tasks of your advisors is to ensure that you know exactly what the franchise entails and that you know what will be expected of you as a franchisee. That will not only help you to make the right choice of business but also enable you to settle into your new role faster.
4. You’ll be confident your chosen franchise will meet your needs.
Whether your reasons for buying a franchise are short-term growth, long-term security or lifestyle, involving advisors and briefing them honestly about your goals will help ascertain whether the business will really meet your needs.
5. You’ll get impartial advice.
If you find a business you love, it’s easy to focus on the positives and miss some of the warning signs. For all sorts of reasons, a good franchise may not actually be the right one for you. Advisors can help you see beyond the dream to the reality, and help you make the right decision.
What advice do you need?
The three key people that you need to speak to are a lawyer, accountant and, if you are going to require finance, a banker.
When you buy a franchise, you are getting into a legal arrangement that involves rights and obligations on both the franchisee and the franchisor. It is therefore extremely important that you should have a clear understanding of what those will actually mean to you in practice.
How about using an accountant? Well, one of the primary reasons for buying a business is to make money, so you want to ensure that the franchise you are considering is actually a sound proposition and that it can provide the financial returns that you are looking for. An experienced accountant can help you investigate this.
Many franchise professionals believe that getting good legal advice is so important to a prospective franchisee that Franchise Association members have to tell purchasers, ‘You are also required to have the Franchise Agreement explained to you by a solicitor experienced in franchising and you should seek financial advice on the franchise proposition from an accountant experienced in franchising.’
As for franchise bankers, the good news about them is that they have a huge amount of expertise and knowledge about different franchise systems but they aren’t actually going to charge you anything for sharing it. It’s therefore a simple matter to talk to them fairly early in your researches to find out what they know and start to build a relationship with them.
How do you choose the right advisor?
So how do you ensure that your chosen advisors are the right ones for you? Here are some tips.
1. Don't assume that your normal family lawyer or accountant has the skills to analyse a franchise opportunity. Franchising is a specialist field and it pays to use specialists. They may charge more per hour but they will know what is and isn't acceptable, they will have contacts in the field and they may well take less time than someone inexperienced in franchising
2. Look for advisors who are demonstrably focusing on the world of franchising already. The Directory is a good place to start, as it lists both members of the Franchise Association and others with specialist knowledge in this area. It separates out:
3. Choose people who are able to demonstrate knowledge and experience of franchise systems in the field in which your chosen business is operating. Don't be afraid to ask for a summary of their relevant experience.
4. Check the reputation of each advisor with your other advisors - some may work particularly closely with other specialists and be able to recommend someone.
5. Make sure that you choose people with whom you can build a good rapport. You need to be honest with your advisors and trust that they will respect your confidences and give you good advice. In all likelihood, you will be working with them not just while you are buying your franchise but as your business grows, too.
6. Be prepared to pay reasonable fees for professional advice. It's not worth saving a few dollars at the outset and getting poor advice. Most advisors charge on an hourly basis, so find out what this is and get a written estimate of the likely number of hours involved. Ask to be kept informed in writing of any extra hours incurred.
7. Accept that the advisor's job is to advise. The decision whether to proceed or not is just the first of many decisions you will need to make in running your own business, so be prepared to take responsibility for your own future.
With the right team of advisors behind you, buying a franchise can be much less stressful – and less risky – than trying to do everything on your own. The trick is to choose the right advisors in the first place, be honest with them and listen carefully to what they have to say.
At the end of the day, the decision whether to proceed or not will be yours and yours alone, but if you have listened to the voices of experience then you stand the best possible chance of making the right decision for your future success.
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