Franchise lawyers Manzoor Ishani and Leigh Head guide you through 10 steps when buying a food franchise
After selecting a franchise, there are a number of matters you should address before you open for business.
This article gives you some of the required steps and the order in which they should be taken to help you complete the transaction more efficiently in terms of costs and your time and effort.
1. Decide whether you want to be involved in a service or retail business.
2. Decide what you can afford and search what is available within your price range.
3. Get as much detail from the franchisor as possible. Where the franchisor provides financial illustrations, study these to satisfy yourself that the income in those illustrations satisfies your needs and requirements. Bear in mind that these are illustrations and may be optimistic.
4. If you think you will need a loan, contact your bank to discuss whether the bank will lend you the money you may require.
5. Arrange for an experienced franchise solicitor to review the franchise agreement.
6. If you and your solicitor are satisfied with the agreement, ask your accountant for advice on the financial detail. By this time, you should know the type of premises you will occupy or your “territory”. Your accountant will help with profit projections and a business plan to support any bank loan application.
7. At this stage, you will probably be asked to sign the franchise agreement, but let your solicitor advise on the timing of your signature which should be conditional on your securing satisfactory premises and a bank loan.
8. Where retail premises are involved, start talking to your franchisor about the details of converting the premises into a franchised outlet.
9. By this time, your bank should have responded to your loan application and you might be able to finalise the lease for the premises. Do not commit until you have your bank’s agreement to the loan and you have signed the franchise agreement.
10. Once you have acquired the premises, proceed to convert the premises into a franchised outlet and to training with the franchisor.
From stage 5, the sequence of events up to when you are ready to open for business will vary depending upon the nature of the franchise.
A time will come when you have to make three significant commitments to three different parties:
1. to the franchisor by signing a franchise agreement or an agreement to purchase;
2. to your landlord by signing a lease or an agreement to take a lease of the premises (or in the case of a mobile franchise, signing a lease, hire purchase or purchase agreement for a vehicle); and
3. to the bank for the loan.
Aim to synchronise these three transactions so that you undertake these commitments simultaneously.
Congratulations, you are now ready to start running your own food franchise!
Leigh Head is a partner in Sherrards Solicitors’ Company Commercial department and leads the firm’s Franchise Team. The firm advises franchisors and franchisees in a multitude of sectors. A number of well-known brand names in the food franchise sector count on Sherrards for timely, business focused legal advice including Dominos, Southern Fried Chicken, Café Fratelli, Esquires Coffee and Muffin Break.
For further information
This article appears in Food Franchise magazine in which Sherrards write a legal column every quarter.