Franchising
What You Need To Know
Buying a franchise is a big step. So before you make the move, it pays to know everything you
can about the business you are considering.
Based on our own experience, here are some of the most important tips we can offer you:
Seek professional advice
Getting independent third party advice is always a sound idea. However, when getting advice from an
accountant, tax practitioner or lawyer, make sure that they are familiar with franchising.
We can provide you with a list of franchise specialists in each of these specialist fields,
or you can contact
The Franchise Association of New Zealand (FANZ).
It's also a good idea to talk to other franchisees in the system you are considering joining.
Check the Agreement carefully
You need to ensure both parties' rights and obligations are clearly covered in a formal Agreement. Things
in the Agreement to look for include:
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Do you as the franchisee have security in owning the business and the scope to develop it?
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Are there restrictions on other franchisees opening up in your area?
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At the expiry of the Agreement will you be able to renew?
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What are the conditions related to the sale of the business assets and goodwill that you
develop? Are there restrictions on when you can sell, or who you can sell to?
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Does it include equitable termination clauses, should either party need to terminate the Agreement?
Look beyond the Agreement & Operations Manual
A good franchisor will provide you with background and marketing information as well as the formal
Agreement and Operations Manual documents. There are a number of things you need to consider, including:
The Market
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Is demand established?
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Is the market big enough in your local area to allow your business to be successful?
The Product
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Is it new and will it take time for significant demand to become established?
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Does it form a part of people's discretionary expenditure, which means demand may
be affected by general economic conditions beyond your control?
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Could the product or service be overtaken by new technology or changing lifestyles?
The Location
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What are the customer foot and traffic flows at the site you are considering?
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Are there any plans for redevelopment in the area, and how might that affect your business?
The Competition
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Are there, or are there likely to be, any businesses selling similar products or services in the future?
The Company
As a prospective franchisee you need to assure yourself of the franchisor's financial health, integrity
and ongoing ability to support you. Some of the ways to help check these issues are:
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Check the Companies Office records for information about the company and its directors
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Check at the Commerce Commission and the Ministry of Consumer Affairs for any complaints lodged
against the company
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Your lawyer can help check for any legal action pending against the company or its directors
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Use a credit agency to check on directors and shareholders.
The Disclosure Document should provide you with details on the franchise owners.
How much should I expect to pay?
The initial commitment will vary depending on the franchise being considered.
In addition to the initial franchise fee and establishment costs there are other costs to consider,
which may include:
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Franchise service fees - often charged as a percentage of sales
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Levies for advertising and training
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Mark-up on supplies
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And don't forget to account for the fees you'll need to pay to professional advisers
during the initial stages of analysing and assessing the proposal.
More Information
To discuss franchising or funding proposals, including fees & charges and terms & conditions, or for
a copy of our comprehensive brochure, e-mail us or call 0800 251 858.
For a current list of franchise opportunities in New Zealand visit the Franchise Business website.