Things to Consider Before Buying a Franchise

by on October 27, 2010

When moving in to buy a new franchise, there are a few things which must be taken care of, or thought of.

One must always be very clear about the reason behind the purchase of any specific franchise. You are expected to take a closer look at the franchise from the service comparison prospective. Geographic area too has to be taken care of, for a franchise might be attractive from this aspect, but the other might not.

The long term goals of the franchiser, the uniqueness of the product or the service, too have to be evaluated by the one buying a new franchise.

Also one must be very cautious when striking a deal and must, beforehand see if the agreement comprises of the fair dealing provision. Standards of fair dealing have to be observed by both the parties. All these help in protecting the franchiser from empty and hollow promises together with the protection from false statements.

Encroachment and several other threats, which the franchiser is due to face in the coming future, must be discussed and given in writing to avoid trouble. An area of protection has to be offered by the franchise company in writing. This exclusive territory makes it very clear that the company is not allowed to compete for a similar business within the same field.

It has been seen that the franchise companies often levy heavy charges on companies, which exit the system before the date of expiry of the agreement. Therefore, it becomes very important that prior discussion is done to avoid or lessen the damages.

Several franchise companies often make you sign agreements, which do not allow you to transfer you franchise to any other party. But, usually a time comes, when one wishes to pass in on or vend it to some other party and generate some revenue.

One must ensure that the franchise does not restrict one from associating with or joining an Independent Trade Association formed by other franchisees. The franchise company too does not have the rights to stop you from competing with the franchiser, after the completion of the term. However, there have been cases when the franchiser has made the party sign agreements which restrict them. So, go through the agreements and make the franchiser make amendments, if required.

The franchiser sometimes is seen to use the money pooled in by both the parties for their personal expenses, which have nothing to do with marketing or advertisements. Make sure this does not happen with you.

The general release agreement, favouring the franchiser is often put forth by the franchiser, which is to be signed at the end of the relationship. While they do not pose any harm, but make sure that the release is mutually applicable to both the parties.

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