Buying a Franchise - Step three

Continuing with our series on Buying a Franchise, this is step three. Now that you’ve set your financial limits and asked some very important questions you need to submit an application to the franchisor.

Most franchisors will ask you to submit a formal application form. Be wary of those who don’t – it’s a sign they don’t care about who becomes a franchisee or they may not fully understand the business of franchising. When you are looking to go into business for a period of (usually) five years or more, evaluating the franchisor in this way can be a good indicator of how professional they are and their franchise know-how.

Take your time with any application, think about your answers carefully. If you have to hand-write it, do so carefully. Be honest and forthcoming with information, it’s not in your best interests to mislead anyone about your ability to operate or fund the franchise.

A constant recurring issue for prospective franchisees is underestimating the amount of finance and working capital that is available. You should live within your means and invest within your means, as an undercapitalised business is difficult to make successful.

You may be asked to pay an application fee of some kind. Make sure you receive a receipt for the fee and a written assurance that the amount is fully refundable until you sign a Franchise Agreement.

In Australia, the Franchise Code of Conduct can help protect you here. The Code, which is part of the Competition and Consumer Act, dictates that a franchisor cannot charge a non-refundable fee until the franchise agreement is signed and a cooling off period of seven days has elapsed. However, it is best to get the franchisor to acknowledge that is the understanding as well as the law.