Franchise Buyer Help

Martin Mendelsohn represents many major national and international franchise companies. Martin has been active in many parts of the world providing support and assistance to franchise associations and has advised governments. He has written, co-authored and edited numerous publications, many of which have been translated into several languages. Martin also lectures frequently at conferences and seminars worldwide.

How to evaluate a franchise
by Dr Martin Mendelsohn

There is more to making a decision to buy a franchise than to evaluate the proposition.

Many prospective franchisees have never been in business on their own account so the first on the list for evaluation should be him or her self.

Self examination must be objective and realistic and should enable the prospective franchisee to reach a conclusion about what sort of franchise would be best after taking into account such factors as, for example:

• What do I do best – manual work, selling, organising, mixing with people?
• Does my family support me?
• Am I capable of putting all my financial eggs in one basket?
• Do I really appreciate the stress levels which go with self employment?

It is important to weigh up the pro’s and cons of franchising compared with other ways of going it alone. The pro’s include:

• training;
• benefiting from being able to use a tried and tested business system;
• continuous back-up and support;
• being part of a larger organisation or benefiting from the advantages which size produces, eg. bulk purchasing and pooled resources.

It is necessary to investigate the Franchisor and how long it has been in business; the shorter the period the more searching the enquiries the longer the period the more likely that there is a track record on which to check up.

Choices may need to be made between the franchisees on offer to be certain that the right decision is made.

There are danger signals:

• Do not become involved in Pyramid Selling schemes ie. where selling participation rights is more profitable than selling the end products or services if indeed there are any;
• Heavy initial fees and low or non-existent continuing fees;
• a contract which does not match the promises;
• a hard sell;
• get rich quick offers;
• unhappy existing franchisees in the system.

You are strongly recommended to contact the British Franchise Association and obtain a Franchisee Information Pack which will provide you with a further explanation.

What to look for in a Franchise Contract
by Dr Martin Mendelsohn

The franchise contract will govern the dealings between a franchisor and franchisee. It will therefore be a comprehensive document which should deal with:

• what is to be done to assist the franchisee in opening for business;
• what happens during the relationship;
• what will happen if there are breaches of the agreement; and
• procedures for terminating the agreement and the consequences.

The contract will appear to be one sided and in many ways it will be. That is inherent in the nature of legal agreements where one party licences the other to use intellectual property rights in respect of such matters as trade marks, know-how, business systems and goodwill.

The reason for this is that each franchisee will be trading under the same business name, using these intellectual property rights with the objective of producing identical services and/or products to a uniquely high standard. Any failure by a franchisee to achieve that can cause harm to the goodwill and reputation of the system which will affect all other franchisees. It is in a sense a team game and the captain (the franchisor) has to be able to lay down and enforce the ground rules.

Some of the controls may appear harsh or difficult to understand, but the franchisor should be able to explain why they are there and what they are there for. For example, no franchisee would be allowed to sell his/her business without the franchisor approving the purchaser. The reason is simple – the purchaser will become a franchisee and must therefore satisfy the franchisor’s requirements for a franchisee. Otherwise the whole character of the system could change if purchasers did not match those requirements.

There are many other examples which could be given but space does not permit further elaboration.

You are therefore strongly recommended to contact the British Franchise Association and obtain a Franchise Information pack which will provide you with a further explanation.

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