Legal steps to buying a franchise in the UK

Having selected a franchise you wish to buy, there are a number of matters to which you have to attend before you can open for business.

The following general guide should help you to complete the transaction more efficiently, both in terms of costs and also in terms of your time and effort.

Step 1: Obtain as much detail from the franchisor as possible.

Where the franchisor provides financial illustrations, study these carefully to satisfy yourself that the income shown in those illustrations satisfies your needs and requirements but always bear in mind that these are only illustrations and may be optimistic.

Step 2: Contact the bank.

Whilst reviewing the information supplied by the franchisor, contact your a franchise department in a major bank (if you think you will need a loan) and discuss with him/her whether, in principle, the bank will lend you the money you require for the type of franchise you are contemplating buying.

Most banks now operate fairly sophisticated information systems whereby bank managers have access to a central office from which they can obtain detailed information about many franchises, which will enable them to make a decision.

Step 3: Contact a franchise lawyer.

If your efforts at stages 1 & 2 above prove to be satisfactory your next step is to arrange for a franchise lawyer to review the franchise agreement and advise you on it.

Step 4: Contact your financial adviser.

If you and your franchise solicitor are satisfied with the agreement see your accountant for advice as to the detailed financial aspects of the franchise.

By this time you should have some idea of the sort of premises you will be occupying or your "territory" i.e. your area of operations in the case of a mobile franchise.

The franchisor may have produced some financial projections for your particular business, if not, your accountant will help you to put together profit projections etc. and, if necessary, a business plan in support of your loan application with your bank.

Step 5: Sign your franchise agreement.

At this stage you will probably be asked to sign the franchise agreement.

You should be guided by your franchise solicitor as to the timing of signing the franchise agreement, which should be conditional on your securing satisfactory premises and a bank loan.

Step 6: Secure your premises.

Where retail premises are involved, at this stage serious effort should be made to secure satisfactory premises and you should start talking to your franchisor about the details of converting the premises into a franchised outlet.

Step 7: Finalise applications.

By this time your bank should have responded to your application for a loan and if the answer is yes you will be in a position to push those involved into finalising the lease for the premises.

It is important that you do not enter into a binding commitment to take on premises unless and until you have your bank's agreement to the loan and you have signed the franchise agreement.

Step 8: Receive training and support.

Once you have completed the acquisition of the premises you can go about converting the premises into a franchised outlet and going on the franchisor's training course.

From step 5 the sequence of events up to when you are ready to open for business will vary depending upon the nature of the franchise.

The important thing to remember is that there will come a time when you have to make 3 significant commitments to 3 different parties

      • To the franchisor by signing a franchise agreement or an agreement to purchase a franchise
      • To your landlord by signing a lease or an agreement to take a lease of the premises (or in the case of a mobile franchise, signing a lease, hire purchase or purchase agreement for a vehicle); and
      • To the bank to take up the loan. Wherever possible you should aim to synchronise these different transactions so that you undertake the three commitments simultaneously.

© Manzoor G K Ishani All rights reserved.

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