Back to: Franchising

Buying into a franchise may be a fast way to get into a small to medium business with good brand awareness and credibility, but because of potentially large capital outlays, ongoing royalty fees and advertising levies, you'll need to do due diligence using several sources.

Details of any franchise must be contained in the Franchise Agreement and Disclosure Document, which should be reviewed by your legal adviser and accountant or both. The agreement outlines the scope of the relationship, terms, territorial exclusivity arrangements, performance criteria and training obligations.

In addition, there's a mandatory Code of Conduct, which was introduced by the federal government in 1998 to provide for a cooling-off period and to make sure the franchisor discloses all material matters. A dispute resolution process is also set down in the code.

• Before deciding which franchise is right for you, you should consider the following questions:
• What's the franchisors track record (financial and management)?
• Do you fully understand their business system?
• How are existing franchisees going?
• How many franchisees are there?
• What are the plans for expansion and growth?
• What kind of training, education and support is provided?
• How much control do you (and the franchisor) have?
• What are the renewal and termination terms and conditions?
• Can you obtain finance or are you financially able to purchase the franchise?
• Are you suited to the industry (physically, educationally, emotionally)?
• Are you comfortable with the franchise, their products, services, brand and image?
• Do you see your investment in a franchise as a long-term commitment?
• Have you considered the commitment on you family, future and future security?