Thursday 15th of June 2023
Franchises have become a fascinating entrepreneurial opportunity for beginners who lack confidenc
...e and expertise. These entities offer a platform t...
Franchises have become a fascinating entrepreneurial opportunity for beginners who lack confidence and expertise. These entities offer a platform to own a venture with an established brand name and fan base. It gives budding entrepreneurs an easy way to accomplish their dreams without drudgery. They get to become the owners of a business that is part of a big network with several units operating in different locations. Franchisees are backed by expert franchisors who help develop and stabilise the business.
Ambitious individuals looking for a franchise business for sale in New Zealand must look for the best opportunities that can help generate quick returns. They must conduct due diligence on the entity to identify its profitability. They should also negotiate a favourable franchise agreement to make the term comfortable and feasible. It requires confidence and competence to put your needs on the table. Here is how to negotiate the best deal when buying a franchise. These tips can help aspiring franchisees build a perfect franchise with a strong relationship.
The franchise agreement is prepared by the franchisor, who ensures the terms and conditions favour them. The Franchising New Zealand Code of Practice (FANZ) holds them accountable. The code applies to everyone participating in the deal, such as the franchisor, franchisee, lawyer, and accountant. However, all franchisors are not members of FANZ. Nevertheless, they must maintain ethical business standards.
Since there are no legal franchise regulations, unfairness can arise in the distribution of responsibilities. This is why franchisees must examine the agreement with a lawyer. It must have all the required details related to the length of the agreement, obligations of the franchisee, royalties, initial fees, marketing fees, dispute settlement, territory, intellectual property, etc.
Potential franchisees can negotiate various terms before the agreement is signed. These include bringing down the royalties because they are an ongoing expense that can eat into the profits. Buyers can ask the franchisor to use a lower percentage of sales to calculate royalties to ensure higher revenue. They can also ask to reduce the initial fee, which is a one-time payment made at the beginning of the franchise term. Franchisees must examine the territory allotted for operations. An exclusive territory ensures it will not be encroached on by other franchisees in the network. Thus, they must push for an exclusive territory.
Usually, franchisors provide training and support to the franchisee, and this is documented in the contract. However, franchisees can negotiate to increase the training feature for all the employees in the unit. In addition, they can ask to reduce the monthly marketing contributions. Other terms that can be negotiated include adding a franchise renewal clause in the contract and reducing the renewal fee.
Potential buyers looking for a franchise business for sale New Zealand must hire a lawyer who is an expert in franchise deals to comprehend the contract. Many franchisors draft agreements that are not favourable for the franchisees, and these clauses must be negotiated to make them suitable for both parties. After identifying these clauses, buyers must discuss them with the franchisor.
They can involve lawyers in the negotiations to ensure legal compliance with contracts. Some franchisors may not agree to changes or inclusions suggested by prospective buyers because they want to follow a standardised contract for all units. However, franchisees should not get discouraged by their stance and should persuade prospective buyers to look into the suggestions and take some time to ponder them. If they do not relent, the buyer must look for another opportunity.
Franchise buyers must look at the financial projections provided by the franchisor and the expected revenue and performance from the unit. Some contracts state that if the franchisee does not generate the desired profits and meet the performance standards, the franchisor can terminate the contract without notice. However, the franchisee must use the financial acumen of an accountant to check the feasibility of the financial projections.
The expected numbers must be discussed with the franchisor if they are unrealistic and too demanding. In addition, the franchisee must evaluate the clause of sale of the franchise. Usually, if the franchisee decides to sell the unit to another buyer, the franchisor has to approve it first. These provisions must be clarified and understood carefully by both parties.
Negotiating the deal when buying franchise businesses for sale in New Zealand must begin with a clear understanding of your needs as a franchisee. The buyers must identify what is most valuable to them to achieve their goals and ensure there are no obstacles in their path. They should find support for negotiations by hiring a lawyer and accountant. They can also seek help from industry experts and mentors.
Potential franchisees should not feel pressured in the presence of the franchisor because of their lack of expertise in the field. They must enhance their knowledge about the franchise business model and agreements to speak confidently. They should clearly communicate their apprehensions, needs and desires for an open discussion. They should also maintain flexibility to understand the point of view of the franchisor.
Negotiations before signing the franchise agreement ensure both parties are satisfied with the terms mentioned in the contract and will abide by them. It helps to prevent an imbalance of responsibilities caused when franchisors draft the contract to suit their needs. When the franchisee negotiates terms and gets them changed to favourable conditions, they feel encouraged to perform.
They feel supported by the franchisor, which helps build a long-term relationship based on trust and mutual respect. The comfort offered by the franchisor increases the probability of meeting the business goals and succeeding as a franchisee. It ensures franchisees manage the unit according to their will and desires, making them highly engaged and motivated to perform.
Wrapping Up
Franchise agreement is the most important part of the deal. Franchisees must pay attention to the terms and conditions mentioned in the document and ensure they are being taken for a ride by the franchisor. The contract must suit the needs of both parties to ensure a successful association.
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