In many respects, purchasing a franchised business is very similar to that of purchasing an independent business. SEEK Commercial offer both business types for sale.
The most notable difference in purchasing a franchise is that a franchised business has a level of support provided by the franchisor and its franchise network compared to operating a small business on your own. Statistically a franchised business has a higher likelihood of success in comparison. One of the key advantages is the established brand recognition, especially in the first few years.
Another notable difference between purchasing a business and that of a franchised business is that as a franchised business owner, you are bound by the directions of the franchisor. As an independent business owner you enjoy the freedom to determine the direction of your own business.
The legal process and documentation required for purchasing a franchised business is the same as a non franchised business with exception of some further documents as outlined in this article.
A Franchise Agreement and Disclosure Document will be provided to you by the franchisor upon the purchase of a franchised business. The franchise agreement is a further document which must be entered into in addition to the Contract of Sale.
Essentially, a Franchise Agreement is an agreement granting you a right to operate a business under a system of the Franchisor. You are associated with its intellectual property and trade marks. In exchange is the payment of a fee for this right, usually in the form of royalties or service fees.
The Franchise Agreement deals with your relationship with the Franchisor and outlines the rights and obligations of the parties in relation to matters such as:
- Advertising and promotions;
- Accounting/reporting obligations;
- Assignment and sale of business;
- Dispute resolution procedures;
- Manuals and policy directives;
- Default and termination;
- Guarantee and indemnity.
Similarly, with the purchase of a business, professional advice is not only recommended but required to be sought under the Franchising Code of Conduct. In this regard, you would need to have a lawyer experienced in franchising review the Franchise Agreement and Disclosure Document. This will ensure its compliance with the Franchising Code of Conduct and to conduct general due diligence of the business and franchise system. Your lawyer would also be able to provide you with advice in relation to 'structuring' the purchase.
In considering the purchase of either an independent business or a franchised business, it is necessary to consider how to structure the purchase. You need to decide whether you will conduct the business as an independent proprietor, private company or as a partnership.
Depending upon your choice, taxation implications will arise and relevant shareholder or partnership agreements may be required. It is essential that accounting and legal advice is obtained before entering into a the purchase of a business or franchised business to save you further long term costs and stress!
Whether an existing business or franchise is right for you, be sure to explore all the options available. Browse an industry of interest on SEEK Commercial and review the current opportunties. Google is also a handy tool to research a business of interest and trade magazines can be a useful resource for industry news. Speak to family and friends or seek the assistance of a business advisor. Try to get as much advice as possible before making the big decision.
So you're ready to buy? Review the steps to buying a business.