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Buying a franchise - tips and tricks

I’m thinking about buying into a franchise in the food area and it will involve a $300,000 outlay. The figures stack up and I have had an accountant and lawyer look at the numbers and the contract. Is there anything I have to do to make sure this will be a good investment?

You seem to have done the obvious things to minimise mistakes but with franchising, you really have to be careful. There are great franchise systems out there, but some overgrow – what was good when there were only 100 outlets could be only fair with 300 outlets and diabolical when there are 600!

It’s important to talk to franchisees already in the system and especially to those in busy shopping centres where there is lots of competition. That can be a good test of how resilient your franchise brand is. A relative of mine had a good franchise in a shopping centre but the centre renovated his area and he had to close down for six months. They gave him compensation but he lost quality staff and when the renovations finished they brought three big competitors that really reduced his revenue and profit.

I’d also check out the Australian Competition and Consumer Commission (ACCC) to see if there have been complaints against the franchisor.

I’d spend a lot of time as a customer in franchise outlets and take friends and family to see if they like the business.

This is a massive step and is a big investment that’s why I prefer people to tell me that they have accountants and lawyers who specialise in franchising. Some suburban professionals don’t have experience in the sector and can miss aspects of contracts that franchise experts will see and be able to explain the ramifications of.

I know lots of happy franchisees – most of them work really hard and it can be a good way to build wealth. I also know quite a number of unhappy franchisees and while the industry likes to say it is simply whingeing, incompetent franchisees, I have seen enough evidence of bad franchisor behaviour to say beware, do your homework and good luck!

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, January 19, 2010

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