Top 10 Checklist for Buying a Franchise in 2020

Thinking about quitting your job to become a franchisee? NZ Franchise Association has outlined 10 priorities you need to consider. The number one priority for any prospective franchisee who has found a franchise brand, or brands, they are interested in potentially joining is to make sure that the franchise is what it says it is.

You’ll receive all sorts of impressive franchise marketing collateral and promises when you’re speaking with a franchise about investing but it’s your job, above all else, to retain a cool head, steady hand and clarity of mind. Ultimately, you’re looking to find out that what you’re being told is mirrored in reality.

So how exactly can you do that? With the mantra of ‘research, research, research' running through everything you do in your franchise due diligence, here are 10 key areas to focus on:

Work out what you can afford

Levels of investment range greatly. It’s important to find out what the total start-up fee typically is, not just the franchise fee. Assess and understand from the beginning of your process what you can afford to invest and how much you are prepared to borrow from a bank or family – and remember to consider working capital.

Use the NZ Franchise Association (FANZ)

The Franchise Association of New Zealand (FANZ) is the peak body representing the franchising community at government and other industry forums. FANZ primary goal is to proudly advance business growth and prosperity through excellence in franchising.

Members of the Franchise Association are franchise professionals who are committed to upholding ‘Best Practice in Franchising’. The Association works hard to promote the benefits of dealing with members, both for those looking to purchase a franchise and those who seek professional advice. Franchisors, Franchisees and Affiliates can gain much from membership to the Association.

Take the Prospect Franchisee Certificate

This program has been designed to help you better understand franchising, your suitability for franchising and important information and guidance to consider when evaluating the purchase of a franchise opportunity.

Speak to existing franchisees in the network

You want an extensive list to choose from, not just a few that the franchisor provides you with. Remember that, in this case, the franchise contacts provided to you may be cherry picked by the franchisor. Speak to both successful and any less successful franchisees to give you a rounded view. Existing franchisees can tell you what the franchisor’s support is like; if the turnover/profit projections are realistic, and many other things from the coalface of the business. Essentially, check that what you’re being told is reflected in their experiences.

Understand the franchise

Make sure you understand all the business operations and what you’ll be doing on a daily basis, as well as the lifestyle it will give you. You may choose a field you’re experienced in, or one that you’re passionate about – but think carefully about what you want to do!

Consider the training

Be sure that the training provided – both initially to get you up and running and on an ongoing basis to help your business grow – is sufficient for you to be able to gain the skills required to operate the business successfully.

Consider ongoing fees

Franchisors charge a management service (royalty) fee, which will usually be collected either as a percentage of monthly turnover, or through the supply of the raw materials that you need to operate. Make sure you understand the structure and level of fees, and what you get in return. These fees fund the ongoing support that you receive and the future development of the business.

Talk to head office staff

Don’t underestimate the importance of meeting the people involved at head office, finding out who you would be in contact with and what their experience is. You need to have a good, ongoing relationship with these people, so you need to ensure that you can work with them on a regular basis.

Get the franchise agreement checked by a franchise lawyer and Franchise Accountants

You’re about to sign a legally binding contract, usually for five years at a time. Getting it reviewed by a lawyer and a Franchise Accountant – to know exactly what you’re signing up for – is essential! Franchise lawyers can be found on the bfa website.

Selection process

If the franchisor doesn’t appear selective about who they recruit, walk away. You want to see that they are stringent in their process and don't just allow anyone and everyone to join the network whose brand you will be trading under. Investing in a franchise should be a two-way recruitment process.