Small Business

Some things to consider before entering into a franchise agreement

Purchasing a franchise is a great way to make the leap into business ownership. Individuals making the leap will get an established name, marketing help, and operating procedures which will provide an outline for running the business successfully.

It’s important to remember entering into a franchise agreement is a serious undertaking. Marsh & Maher lawyer and franchising law expert Marianne Marchesi says franchises are still like any other business in terms of the investment and commitment required.

As such, prospective franchisees should review the franchise agreement carefully and seek advice from a franchising lawyer. Marchesi says to look out for a few key things in franchise agreements including:

  • What is the term of the franchise agreement? Does this allow the franchise enough time to recoup its investment and make a profit?
  • Are there any restraints following the end of the franchise agreement which will prevent the franchisee from conducting a similar business? 
  • Does the franchisee have exclusive rights to a territory?
  • When can the franchise agreement be terminated?

“It is important that legal and accounting advice is sought from professionals with expertise in franchising,” Marchesi says.

“Franchising is a niche area requiring specialist knowledge, therefore it is important to obtain appropriate advice.

“It is also a good idea to become familiar with the (Franchising Code of Conduct) prior to franchising your business or entering a franchise agreement.”

If you’d like to familiarise yourself with the code, The Australian Competition and Consumer Commission has some great information for franchisors and franchises, which you can find here.