Malcolm ZoppiSun Oct 15 2023
Buying a Franchise UK (Top 5 Things To Do)
Buying a franchise has many benefits, including owning your own business and benefitting from a proven business model.
Buying a franchise has many benefits, including owning your own business and benefitting from a proven business model with an existing brand. Although, it is important to note that becoming a franchise owner is very different from buying into a franchise as a new franchisee: the risks are different. Learn more about the risks involved in buying an existing business here.
Before embarking on the journey of purchasing a franchise, these 5 things are essential for you to consider.
1. Understand what the existing franchise is
Buying a franchise means you will be the business owner and you will be ultimately accountable for all actions or omissions. Therefore, before buying a franchise, it’s important to understand what the franchise is and how the franchise you are interested in works.
What is involved in the franchise?
To consider how the franchise works require you to investigate the business from the aspects of the relevant industry, business opportunity, business idea and business plan, franchise cost, target market, franchisor’s finances, working capital, royalty fees, product/service offering and so on. It is also important to understand the history of the business to understand how successful it has been and whether there have been any past issues which could affect its future performance.
What can the franchise offer you?
Before purchasing the franchise, you need to know what benefits the franchise can offer you as the new business owner. This includes an established brand and name recognition, a functioning business model with existing resources and a franchise network, and access to the support of the franchise in areas such as marketing, operations and how to recruit new franchisees.
Understand the contractual and legal obligations
The contractual obligations that come along with owning a franchise include understanding the different legal documents that are involved in the process, such as the Franchise Agreement and Disclosure Document. These documents outline the terms and conditions of ownership, as well as the rights and obligations of both the franchisor and franchisee.
What kind of support is offered to the franchisee?
The support the franchise can provide to its existing franchisees plays an irreplaceable part in any existing or new franchises. This includes access to resources such as an information pack, training materials, business advice, and marketing support etc. It is also important to understand how the previous franchisors deal with disputes or issues that arise between franchisees, as well as what type of customer service the business provides.
2. Review the franchise agreement and corporate information
It is essential to review the Franchise Agreement before purchasing the existing franchise, as it outlines the terms and conditions of the purchase. The franchisor will typically be responsible for providing a Disclosure Document which outlines all material facts of the franchise system and is required by law. A review of this document will help you understand what you are signing up for and what rights and obligations you will be responsible for.
It is also important to review all other corporate documents such as the Franchise Manual, which contains detailed rules and regulations that must be followed by franchisees in order to operate successfully within the franchise system. These documents should be carefully reviewed as they contain important commercial and corporate implications which could affect the future performance of the business.
The review process should also include looking into other important factors such as industry trends and customer needs, to ensure that the business is a viable option. You should also pay attention to the assigned territory that comes with the purchase. This will be included in the Franchise Agreement and is important to consider as it outlines what area your franchisees are able to operate within and how much competition there may be in your chosen market.
By taking the time to review these documents, you can ensure that your purchase of a franchise is the right fit for your needs and ambitions. Understanding the legal obligations involved in taking over a business can help to protect you from any potential risks and make sure you are making an informed decision.
3. Review the proven business model validity
Make sure the business model still works
When buying a franchise, it is important to ensure that the business model is still valid. To this end, you should investigate how many uk franchisees are currently operating in the system and whether or not their businesses are successful. It can also be useful to speak with current franchise owners to get an idea of their experiences and successes within that particular system, as well as how much competition you may face in your chosen market.
Focus on the financial performance
Additionally, it is important to look into the franchise’s financial records and performance over the past few years to verify that the business model is proven and successful. If the previous franchisor cannot prove its successful track record or is hesitant to show you financial reports from previous years, this should be considered a warning sign and further investigation should take place before making any commitments.
Researching why the current owner is selling will also give you insight into any potential risks or issues that may be associated with the business. Moreover, checking for legal trouble or disputes is essential.
Check the business support system
A proven business model should include an effective training and support system that can provide franchisees with the necessary tools and resources they need to succeed.
Getting in contact with the existing franchisees is a great way to gain insight into their overall franchising experience and determine if they are satisfied with the training and support they receive from the franchisor. This can provide you with valuable information that will help you make an informed decision when taking up a franchise opportunity.
By taking the time to investigate these aspects of an established franchise business, you can make sure that you are making a sound and profitable decision that is based on reliable information and proven validity. Doing your due diligence will help to protect you from potential risks and ensure that your purchase of a franchise is the right fit for you.
4. Understand why you want to own a franchise business
Before any decisions are made, it is important to think clearly why you want to buy an existing franchise and have your own business, and what advantages and disadvantages it offers over starting your new business from scratch. This will help to understand why you want to do so and whether the advantages overweigh the disadvantages for your current situation.
Like most franchisors, being a business owner of a franchise, you can set up your own rules. These rules may include initial franchise fee, royalty fees, operational standards such as product quality and pricing, marketing requirements, franchisee-to-franchisor communication and reporting requirements, franchise territory restrictions and more.
Generally, existing franchises offer a more established brand name, as well as access to franchise resources and business opportunities. However, they also come with more stringent rules and regulations. Also, franchise buying will involve time and financial costs especially when you should conduct extensive due diligence as to important factors such as the current and potential performance of the business. By making a balance sheet, you can make sure that buying an existing franchise is what you want and what suits you the best under the circumstances.
5. Instruct corporate lawyers
Due diligence is an essential part of buying a franchise. It includes investigations into the financial performance, cash flow, legal documents, franchise costs, contractual obligations of the franchisor and so on.
Therefore, the process of buying a franchise can be complex. But it doesn’t have to be overwhelming. Corporate lawyers who specialise in franchising, like GZ Legal, can provide you with professional legal advice and guidance to ensure your transaction is completed in a timely and efficient manner.
They can help you by reviewing the franchise agreement and conducting due diligence on the target business. With their assistance, you can ensure that the due diligence process is comprehensive and complete and that all aspects of purchasing a franchise are considered and evaluated before making any decisions. This way, you will have peace of mind knowing that you have made a sound investment and are on the right track to creating a successful business.
Learn more about corporate acquisitions here.
To buy existing franchise businesses in the UK, by taking the time to research the above 5 aspects, you can make sure that owning a franchise business is the right decision for you and your future. With due diligence and professional legal advice, any purchase of a franchise can be successful.
GZ Legal lawyers are experts in this field, so get in touch with us today to start your buying process! We look forward to working with you!
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