Buying a business | 7 min read

How to buy a franchise

Last updated: March 16, 2020

Owning a franchise means going into business for yourself, but not by yourself. Check out our guide on how to buy a franchise, so you know the steps to take to make it happen.

How to buy a franchise

  1. Understand if franchising is right for you
  2. Research franchises
  3. Choose the right franchise
  4. Understand the recruitment process
  5. Get professional advice
  6. Examine the franchise agreement
  7. Finance your franchise purchase

 

1. Understand if franchising is right for you

The decision to buy a franchise or an independent business generally comes down to what’s important to you and what you want from your business.

If you’re drawn to convenience, structure and a ready-made support system, franchising could be for you. But if you love the thought of calling all the shots, an independent business may be the way to go.

Remember, there’s risk in every business purchase, so it’s crucial to do the groundwork before you dive in.

 

2. Research franchises

Figuring out where to start your franchise research can feel overwhelming. Here are four steps to kick-off your search:

Find the right industry
The best industry for you will be one that matches your skills, interests and budget. And with over 1,000 franchise brands in Australia, you have a lot of options.

While you don’t have to be a coffee connoisseur to own a cafe or a fitness junkie to buy a gym, being excited by your business can help you stay motivated in the long run. So start by looking at what interests you and if there’s an industry that fits.

Check your experience
Many franchises, like most in hospitality, cleaning and retail will provide thorough on-the-job training. But some, like those in law and accounting require specific experience or qualifications, so check you have the right qualifications before you go any further.

Explore costs
Brand recognition and location are big factors when it comes to price. A proven brand with a lot of success will typically cost more than a franchise that’s just starting out. Stores with high foot traffic or in sought after locations tend to cost more, while businesses in rural areas, or quieter neighbourhoods won’t be as pricey.

A franchise’s industry also affects the price tag. Large, high turnover businesses like supermarkets and hotels are generally at the higher end of the scale. These types of franchises require you to have access to a significant amount of capital before they’ll consider you. While those that call for limited  expertise, like lawn mowing or dog washing don’t tend to require a large initial investment.

See what’s available
A great place to research is online, using a site like SEEK Business. Pounding the pavement in your local shopping area is also a good way to see what’s around. You can also check out any upcoming franchising events such as the Franchising Expo.

A brand will ask you some basic questions when you first reach out to them. This will help them work out if you fit their franchisee criteria. It’s also your first chance to find out more about them, so don’t be afraid to ask questions!

 

3. Choose the right franchise

Weighing up different franchise opportunities and ‘looking under the hood’ is your first task.

As part of this process, you need to check whether a franchise is ticking all the boxes, not just fitting into the industry and price you want. This means:

  • Questioning the brand and culture, and making sure their purpose is something you can get behind
  • Understanding their vision for the future and seeing if their strategy and forecasts marry up to your long-term plans
  • Analysing their business model, including any royalty costs and ongoing fees
  • Checking the level of support and what the head office will provide to you as a franchisee
  • Considering the level of autonomy and how ‘hands on’ you’re expected to be

 

4. Understand the recruitment process

Most franchises have a structured recruitment process to ensure you’re a good fit.

After your initial talks, if you’re still on the same page you should expect to sign a non-disclosure agreement. Then you’ll receive a copy of their Disclosure Statement. This document is a legal requirement under the Franchising Code of Conduct and will give you a range of important information about becoming a franchisee. The Disclosure Statement will include information about finances, past and projected performance, market reputation, details on previous and current franchisees, and any disclaimers.

How long does the recruitment process take? At a minimum you should expect a range of interviews and meetings, education to understand the brand and thorough job training. More rigorous selection processes can involve psychometric testing, in-home and family interviews and ‘ride alongs’ with existing franchisees. As a general rule, the bigger the business, the longer it will take.

Don’t think of this step as something for the franchisor. It’s also a chance for you to have all your questions answered. Make sure you speak to franchisees at this point. They’re the ones who are in the hot seat, after all.

 

5. Get professional advice

There’s risk in every business purchase and buying a franchise is no different. So, unless buying franchises is what you do every day, get the experts on your side.

A team of professionals, like a lawyer, accountant or business advisor will guide you through the buying process and help you perform your due diligence.

When you’re buying a franchise, it pays to enlist the help of professionals who specialise in franchising, so keep this in mind when gathering your team.

 

6. Examine the franchise agreement

Your franchise agreement is the formal contract between you and your franchisor. It gives you the legal right to own and operate a franchise under the brand’s rules and regulations. Once you’ve signed it you’ll be legally bound by its terms and conditions.

It may seem obvious, but the first thing you should do is sit down with a highlighter and make sense of what’s included. If there’s something you don’t understand, have questions about, or if there’s something missing, make a note to discuss it.

Anything not written in your contract won’t be legally binding. So if you’ve discussed something, check if it has been included. Your franchise agreement also needs to cover rules on suppliers, pricing, transfer of ownership, protection of territory, royalty fees, hiring staff, training, and other relevant support.

This is where your team of experts are going to shine. They’ll check and clarify information and help with any documents you need to provide back to the franchise. Note that there’s usually a cooling off period of seven days after entering into any agreement.

 

7. Finance your franchise purchase

It’s common (and best practice) to know how you’re going to finance your purchase before you sign on the dotted line.

Talk to the franchisor or franchisees about finance options and any tips they may have. Some brands have existing relationships with banks and other lenders, so see what’s available and whether it’s a good fit.

If you’re looking at debt finance as a way to buy your franchise, you’ll generally need to provide a solid business plan and evidence of the franchise’s success, which the franchisor should be able to help with.

It’s not uncommon for franchise buyers to miscalculate the costs needed to start and run a franchise. You’ll need to factor in legal fees, accounting costs, tax, insurance, registration, leasing payments, as well as a range of ongoing costs (which should be laid out in the franchise disclosure document). If in doubt, be conservative. It’s better to have money left over than not enough to start with.

Remember, there are a variety of ways to finance a business purchase, so look at all the possibilities.

 

Conclusion

Owning a franchise isn’t for everyone, and the process isn’t as simple as just signing a contract. However, if you put in the effort to understand the brand and get the right fit, it could be the business ownership experience you’ve been looking for.

Now you know the steps to take to confidently research, assess and settle on a franchise, you can get started and work out which franchise is the best match for you.