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Trying to develop a new idea in the commercial world can be a difficult task. Often, you do not know if the market will view your product or service favourably. One of the ways people get around this is by buying into a franchise. This allows you to take an existing idea and replicate it in another location. The owner of the business (the franchisor) benefits as they can grow their business, and you (the franchisee) benefit as you have a higher chance of your business succeeding. There are certain aspects of a business that you should consider before you buy a franchise. This article will explain what these aspects are when buying a greenfield franchise in New Zealand.

What is a Greenfield Franchise?

A greenfield franchise opportunity is when you buy a new franchise from a business instead of buying an existing franchise business. When you buy a greenfield franchise, you establish a new business in a new territory but retain the business model and branding of the franchise. A greenfield franchise can also be the first franchise of a business. Buying a greenfield franchise allows you to start your business from scratch and customise it to suit your strengths. However, you must make sure that you abide by all the terms in the franchise agreement. 

Location and Finding Suitable Premises

When you buy a greenfield franchise, it is your responsibility to find premises to house it. Your franchisor may have some idea about how you can find a premise, or they may be willing to buy a property for you to rent off them. Finding a suitable location for your greenfield franchise is essential. This is because your location can determine how many sales your business gets. For instance, this is especially the case if your business is in an industry that relies heavily on a welcoming store-front, such as retail or hospitality. 

You also have to make sure that the area you choose will cater to your product or service.

One way you can find out whether your product or service will do well is conduct market research. Market research allows you to test the community to see if your product or service is currently being sold or if it is needed. If you find that your product or service is not popular in a specific area, you might need to consider moving your greenfield franchise to another location. 

State of the Business

Another important aspect to consider when buying a greenfield franchise is ensuring that the business is in a good financial state. Buying a greenfield franchise from a struggling business may be detrimental to your chance of success and could be a sign that the business model is flawed. As a potential franchise owner, you can request the business’ financials, so you should analyse these closely. It is prudent to hire an accountant to analyse the financial statements independently if you do not have experience in that department. 

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Franchise Agreement Scope

The franchise agreement is a contract that recognises the relationship between a franchisor and a franchisee. This document determines the rights and obligations of each party in the arrangement and how much scope they have over each other. If you are buying a greenfield franchise, you should consider how much control your franchisor has over you. They are likely to want to retain a significant amount of control over the structure and branding of your business, but you should make sure that you are given enough control to tweak your structure if need be. Your franchisor is likely to agree if these changes positively impact your franchise and the business as a whole.

Key Takeaways

Buying a franchise is a great opportunity to get into business in New Zealand as you can rely on an established brand. However, there may be some hesitation when buying a greenfield franchise in a new area. Nevertheless, you should consider if this is a risk worth taking. If the greenfield franchise is successful, then you may be able to open further franchises and thus become a master franchisee. A master franchisee is a franchisee that can licence out the business model to other franchisees in a specific area. You must do your due diligence when you buy a greenfield franchise so that you have the highest chance of success.

For legal assistance with franchising, LegalVision’s New Zealand 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

Can I sell my greenfield franchise?

Yes, you can sell a greenfield franchise. However, your franchise agreement may stipulate that you can only do this after a certain amount of time. 

Can my franchisor increase the franchise fees?

No, whatever is written into your agreement is binding unless both parties agree to alter the term of the contract. 

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