Franchise New Zealand - Year 28 Issue 03 – Spring 2019

Page 78

Australia’s premier Test and Tag franchise Appliance Tagging Services now has opportunities for passionate franchisees in New Zealand

Low entry costs and large territories Access to an established ATS client base Sales and Marketing support Reports, invoices & debt collection done for you as part of Administration support  Genuine repeat business  No electrical experience required  Not weather dependent    

Contact Steve Wren +61 401 655 655 or by email to

thing you b Scott Goodwin and Nicole Duncan outline the most important factors


aking up a franchised business can be a stressful yet exciting experience. Buying any business, franchised or not, can be risky, and entering into a franchise agreement is a serious undertaking. It’s a binding legal contract which sets the basis of your relationship with the franchisor for the next 5, 10 or even 20 years, so you shouldn’t take it lightly. Getting advice from an experienced franchise lawyer is therefore a must. Here’s a list of seven of the most important things your lawyer should tell you – and there are many more!

1. Doing due diligence is important

‘Due diligence’ is like the pre-purchase inspection you might do on a house or car. Make sure you undertake thorough due diligence prior to entering into any franchise agreement. Some of this you will need to do yourself, but much should also be done by professional advisors who have specialist knowledge and have been here before. Apart from your lawyer, your research should include talking to an accountant experienced in franchising. This will help ensure the business is financially and operationally sustainable and viable; validate assumptions applicable to costs and forecasts provided by the franchisor; and compare debt-to-equity ratios.

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Also, don’t be scared to talk to other franchisees to evaluate their experiences with the franchisor and the system, and ask the franchisor questions about (among other things) the franchise system and the franchisor’s background and experience. There’s a list of Over 250 Questions to Ask on the Franchise New Zealand website at and specialist lawyers such as Goodwin Turner provide clients with a checklist of items to discuss with the franchisor. These include, for example, whether a franchisee has ever failed, the expected cost of fit-out, the level of ongoing support to be provided by the franchisor, and so on.

2. Review the manual

The manual, (or often a set of manuals), lays out the systems and tools which enable franchisees to operate their business on a day-to-day basis. Ask the franchisor for a copy of the manual which you can see and read before you sign the franchise agreement. Expect them to require you to sign a confidentiality agreement before they do so – after all, the manual contains their ‘trade secrets’. It is important that you are sure that you can comply with the manual from day one (as well as at all times during the operation of the business). Most franchise agreements will note that the terms of the manual are incorporated into (and form part of) the franchise agreement, and that a breach of the manual is deemed to be a breach of the franchise agreement. In other words, if you don’t comply with the manual then you will likely be in breach of your franchise agreement. This is never a good thing as it could expose you to risk of the franchise agreement being terminated.

3. Ensure you can comply with the system

Many people buy franchises with a dream of ‘being their own boss’. While owning and operating a franchised business does allow this to a certain Franchise New Zealand

Spring 2019

Year 28 Issue 03

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