Insights Whelan Lawyers – Melbourne Commercial, Franchising & Construction Lawyers

Buyers tend to study the start of a franchise relationship in detail and give far less attention to three exposures that sit slightly out of view: the premises the business trades from, the capital the franchisor can require you to spend after you have signed, and the provisions that govern how the relationship ends. Each is capable of reshaping the economics of the deal, and each is easier to address before you commit than after.

If financial due diligence tests whether the opportunity adds up, the franchise agreement tests what you are actually agreeing to. Around that agreement the Code builds a framework of protections, and within it sit a handful of clauses that will shape your market and your margins for the life of the relationship. Both deserve closer reading than they usually receive.

Every franchisor presents its system in the best light, and the strong ones have good reason to. The task for a prospective franchisee is not to second-guess that optimism but to translate it into numbers that reflect your situation, your site and your appetite for risk. A franchise that holds together on conservative numbers is one worth committing to; a franchise that works only on optimistic ones is not, however appealing the brand.

Good due diligence does not begin with the disclosure document, even though that is where most prospective franchisees expect to start. The disclosure document is a legal entitlement and the most detailed source the franchisor provides, but you do not receive it until discussions are well advanced. There is public information you can gather well before it arrives, and the picture is only complete once you have spoken to people already in the network.