Finance for Buying a Business
A checklist for buying a franchise.
Key financial information
- Current financial statements, preferably going back three years: Balance sheets
- Profit and loss statements Business tax returns
- Projected sales and profits of the franchise, and the method used to calculate them
- Current fees Ongoing fees
- What do you get for them? Advertising
- Promotional material Shop fit-out Equipment
- What are the conditions of the relationship? Are there transfer fees if you sell?
- How are royalties determined?
- Does the disclosure agreement include a list of current and previous franchisees?
- What do they say about the business?
Legal, compliance and contractual issues
- Is the franchisor involved in any current or potential litigation?
- Do you need licences or permits to operate the business?
- Check all existing contracts such as leases and mortgages, especially on the business premises
- Get your lawyer to check the franchise agreement. What are the restrictions on selling, staffing, pricing and supply arrangements?
- Is a lease involved?
- If so, check the lease. Is there a right to renew? Who owns the fit-out?
- Are there other inclusions?
- How long has the franchise business been established?
- Does it comply with the mandatory Franchising Code of Conduct?
- Obtain a credit reference on the franchisor
Where to find out more
- Australian Competition & Consumer Commission
- Franchise Council of Australia
- Are their sales growing?
- How is the industry performing?