Buying A Franchise Business – Do I have to get professional advice before entering into a franchise agreement?

In a word….Yes. It is important to get the right advice from professional legal and financial advisors before you enter into any franchise agreement. Acquiring or selling a franchised business is a significant decision, and often involves a significant financial commitment, so having good independent advice is essential. When acquiring a franchised business, you will need to provide the franchisor with a statement saying that you have sought advice from a legal adviser, business adviser and/or an accountant. If you choose not to seek this advice, you will have to provide your franchisor with a statement saying that you have been told you should seek advice, but you elected not to do so. These documents must be provided to the franchisor before entering into any franchise agreement. There are many elements within the purchase process that will involve professional advice such as: A solicitor’s involvement will cover such things as; – The Franchise Agreement, The Lease Agreement, Disclosure Documents, Tripartite Agreements and the final settlement process. In most cases these agreements will be “assigned” to the new incoming franchisee. Assigned means that the new incoming franchisee will take over the existing agreement with the same terms and conditions that the current franchisee operates under, the only change to the document should be the new franchisees entity details. All new agreements are just that – new, and therefore solicitors will review these agreements, and in some cases there may be room to negotiate the terms of the agreement. An accountant’s involvement will cover such things as; – Due Diligence where by the accountant will review the trading history of a business through the profit and loss statements, balance sheets, depreciation schedules and BAS statements. In the application pack process it is common that the franchisor will request a comprehensive “Cash-Flow Projection” and “Business Plan” and in most cases the accountant is engaged to prepare these documents or to assist the new incoming franchisee in preparing these documents. Whether a solicitor, accountant, broker, banker or franchisor all advice and undertakings relating to a franchise purchase or sale should be performed within the legal boundaries of the “Franchising Code Of Conduct” which is regulated by the ACCC. When purchasing a franchise business there are many people involved in the process, and it is a process. The process involves; The Buyer – your solicitor, accountant and bank manager, The Seller – their solicitor, accountant and bank manager, The Franchisor – and their legal advisors, The Landlord – their solicitor and The Business Broker, who’s roll is to monitor the progress of a sale and communicate with everyone mentioned here. It’s important to understand that the Business Broker is the “Pivot” which means the broker can communicate directly with both buyer and seller, and is often the only person with a business sale that can do that.  Add it up! That’s thirteen people, why would you NOT consider seeking legal advice? Honestly, it could turn into a legal mine field if handled incorrectly, so take the time, and make the effort to find a good lawyer, accountant and business broker – it will make the process so much easier when you deal with competent professionals. Ian Salter