Close examination

The devil is in the detail. A cliché? Possibly - but not a bad one to have in mind when considering buying a franchise. Jane Masih reveals

Any prospective franchisee should proceed with a degree of caution when weighing up different franchise opportunities. Don't be afraid to ask searching questions to ensure you really know what the business will demand of you, both financially and by way of commitment and effort. The detail is important. For example, if you are not sure if the financial illustrations provided by the franchisor are describing turnover or profit, ask, because there is a world of difference!

Make sure you know how long you are committed to the business before the agreement ends. Remember, being a franchisee is not like being an employee. It is highly unlikely you will simply be able to give notice and leave.

What will happen if the franchisor encounters trading difficulties and goes out of business during the term of your franchise agreement? Where does that leave you? Do not assume that you will be able to carry on trading independently, and automatically be released from the agreement.

Find out who really owns the rights to the brand name used in the franchise. Does the franchisor have a clear and unquestionable authority to grant you a license? Is the brand name registered as a trade mark in the geographical territory in which you are going to operate? If the answer is yes, ask for details of the registration. A copy of the trademark certificate will give you peace of mind that the name you will be using in your business is properly protected.

And, not to be overlooked, what do you really get for your initial licence fee investment? Is initial training and marketing assistance included, or will there be extra charges? Is the training any good? Are you required to purchase or lease expensive equipment and/or enter into a lease of commercial premises?

How are the ongoing fees calculated and what happens if you do not pay for a month or two? Do not assume that the franchisor will be happy to waive payment if your cashflow is facing pressure. Non-payment of fees is likely to result in termination of your franchise and business.

The key is to ask the searching questions before you sign on the dotted line. Discovering that the detail of the business is not what you had been led to believe or perhaps had simply assumed, can be an expensive and difficult lesson to learn.

Of course it is all very well for someone experienced in franchising to ask the right questions, but where can you turn as you begin your investigations? Banks with specialist franchise teams have very useful publications listing the type of questions you should be asking. The British Franchise Association (bfa) is a good source of information and regularly runs seminars for prospective franchisees.

Before you sign the agreement you should ask an experienced franchise solicitor to review it and provide a report explaining the main terms. They will also give you an objective opinion about whether the agreement conforms to good franchise practice. The bfa's website - www.thebfa.org - contains a list of bfa-affiliated solicitors.

It is all too easy to be persuaded by glossy brochures and convincing tales of easy profits. The truth is that there are very few (if any) franchise opportunities that do not require significant investment from the franchisee, not necessarily in terms of money alone, but effort and a willingness to conform to the franchisor's business system and adopt the franchisor's methods consistently and diligently.

The devil then, really does lurk in the detail, always ready to trap the unwary or incautious. Making your decision based on a sound knowledge of exactly what is required of you together with an understanding of your contractual obligations will greatly increase your chances of selecting and enjoying a franchise that exceeds your expectations.

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