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

Fees

• Current fees Ongoing fees
• What do you get for them? Advertising
• Promotional material Shop fit-out Equipment

Training

• What are the conditions of the relationship? Are there transfer fees if you sell?
• How are royalties determined?

Other franchisees

• 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?

Premises

• Is a lease involved?
• If so, check the lease. Is there a right to renew? Who owns the fit-out?
• Are there other inclusions?

Track record

• 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?