If you wish to purchase a franchise, you must consider your capabilities, career goals and lifestyle to find the best match. Furthermore, to ensure you find a franchise opportunity that suits you, you must enquire with the prospective franchisor. Indeed, this might involve asking some tough questions. Therefore, this article will take you through five questions to ask your New Zealand franchisor.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
1. What Business Experience Do You Have?
One of the first things you should ask a potential franchisor is how much experience they have. To ensure the success of your franchise, you will want to be sure that the franchisor has sufficient knowledge they can pass on to you. Moreover, you can ask a few specific questions to help ascertain the franchisor’s business experience.
Firstly, you should question how many years of experience they have in the industry. Although the franchisor might have years of general business experience, you want to be sure they have experience in the specific industry the franchise operates in.
Secondly, you should also question how many franchised businesses they have, including how many company-owned outlets they run. This will help you understand how much knowledge they have of the day-to-day operations of a franchise.
Finally, you might also want to ask if any franchised businesses have failed. Although this will not necessarily indicate a franchisor’s capabilities, the reason for their business failure will provide a good indicator of their business skill level.
2. What Are the Costs Involved?
The questions you should ask a prospective franchisor are about the costs and finances associated with the business will relate to the:
- franchisor’s costs; and
- franchise network’s general financial status.
To ascertain the costs of operating a franchise, you should ask:
- what is the initial franchise fee, and when is this due;
- how are royalty fees calculated, how often are these due, and what do they pay for;
- are there any other ongoing costs associated with owning a franchise, for example, do you have to contribute towards a marketing fund;
- whether there is any income guarantee; and
- how much working capital will you need.
The next type of finance question you might have relates to the financial status of the entire franchise. For example, you might want to question:
- how the franchisor makes their money;
- whether the financial results of other franchisees are shared; and
- how transparent the franchisor is about revenue.
3. What Marketing Materials Will I Have Access To?
Marketing is a critical component of any business. However, it is crucial for franchises. This is because a large portion of what you buy when you purchase a franchise is the ability to exploit and benefit from the business’ intellectual property and marketing materials. As such, you need to be sure to ask the right questions, including:
- what marketing materials you will have access to, and how you can use them;
- whether you should spend a certain amount on local marketing; and
- whether you have to contribute to a marketing fund and how these funds are spent.
4. What Training Will I Receive?
The next central question to ask a prospective franchisor is what type of training they will provide you upfront and throughout the franchise term. Training and support are synonymous with the success of a franchise. As such, each franchisee should receive suitable training and support throughout the entire term of the franchise agreement.
This makes it important to understand how much your franchisor values your training and what this looks like in practice. For example, some questions you may ask include:
- how long is the initial training period;
- what does this training look like, and who receives training;
- how is success in the training period measured; and
- is any ongoing support and training provided to your franchisees.
5. What Are Your Legal Obligations Towards Franchisees?
Perhaps most importantly, you want to ensure you have a safety net before entering a franchise agreement. This requires an understanding of the franchisor’s obligations towards their franchisees. The franchise agreement serves as the basis for this legal relationship. However, there are some other questions you should ask to understand your rights as a franchisee, including whether:
- the franchise agreement is negotiable;
- you can receive a disclosure document;
- there are minimum performance levels;
- you have a right to renewal at the end of the franchise agreement;
- you can sell the franchise; and
- there are specific grounds to terminate the franchise agreement.
Clear answers to each question will ensure you feel confident about your relationship with the franchisor.
Key Takeaways
When buying into a franchise system, you must buy a franchise that will suit all your capabilities, career goals and lifestyle. To do this, you will need to ask your franchisor several questions, including what:
- business experience they have;
- costs are involved;
- marketing materials you will have access to;
- training you will undergo; and
- legal obligations the franchisor has towards franchisees.
If you need assistance deciding if purchasing a franchise is right for you, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
It would help if you bought a franchise that suits you. As such, you should be sure to ask the prospective franchisor about their experience and the costs involved with owning a franchise. You should also question the marketing materials and training you will be provided with and ask questions that will help you understand the franchisor’s legal obligations towards you.
When you buy a franchise, you purchase the rights to use the franchisor’s business systems, brand and operations. This agreement is set in place for a specified period in exchange for an initial fee and ongoing royalty payments.
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