Investigation of the Franchisor and Business
The franchisor
will assess you to see if you are suitable as a franchisee and for
the business. However, you should also assess and investigate
the franchisor and the business before you pay any initial fee or
sign the legal agreement. Some investigations that we
recommend that you carry out include:
- Financial - you should take financial or
accountants' advice and should ask to see the franchisor's
accounts, and if possible a franchisee's accounts to check that
the profit and revenue levels are as reported. You need to be
satisfied that the franchisor has sufficient money and assets and
is not in danger of becoming insolvent.
- Franchisees - you should ask the franchisor
for a full list of existing franchisees (an ethical franchisor
should have nothing to hide) and should contact as many as
possible. You can ask about the support and training received, how
well the business is working for the franchisee, relations with
the franchisor. One important question is to ask the franchisee
whether, if he or she could turn the clock back, they would buy
the franchise again.
- Companies House - you can do an inexpensive
search at Companies House to check who the directors and
shareholders of the franchisor are, when the company was set up,
and to get a copy of the latest filed accounts for the
franchisor.
- Advisers - you can check what the franchise
departments of the main banks have as a lending stance on the
franchised business. You can not rely on a willingness to lend as
meaning that the franchise is working well, but if the banks are
not willing to lend to franchisees of a particular franchisor,
then that would be a negative signal.
- BFA - you should ask whether the franchisor
is a member of the British Franchise Association and whether it
complies with its Code of Ethics, and if not, why not.
- Franchisor - ask the franchisor as many
questions as you want until you are satisfied. For example, you
should ask how many terminations there have been of franchise
agreements, how many sales of existing franchisee businesses,
whether the directors or shareholders have had or currently have
any previous franchise interests, what the future plans are for
the business, what support and training they offer.
- Internet - search the internet for references
to the franchisor and the business
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