Researching Your Franchisor
by Simon Lord, last updated on 4th June 2015
Buying any sort of business always involves a certain amount of risk, but there's an expectation that when you buy a franchise that risk will be substantially reduced. When you're buying from an established name that's usually the case, but even then it is possible to get it wrong. And if the franchise you are buying is new-to-New Zealand, you owe it to yourself and your family to do your homework and make sure that you are making a wise decision.
One valuable source of information can be the Internet. Unfortunately, however, it is not always possible to judge just how reliable that information is. Generally, online information can be divided into four types.
1. Information placed by the franchisor or their agents for the purpose of selling franchises. This information should be legally accurate, but beware: it may be out of date, it may not be authorised by the franchisor or it may not apply to New Zealand or to the particular aspect of the franchise in the area you are considering. Check all information with the franchisor before relying on it.
2. Information professionally written by third parties (eg. newspaper or magazine articles) about the franchise. Such information may give a useful ‘flavour' for the franchise but unless the details have been checked and signed off by the franchisor then they may not be accurate. Again, do not rely upon such information unless it has been verified by the franchisor.
3. Statutory information (eg. company records, legal decisions) concerning the franchise and/or its principals. Statutory information is increasingly available online, although it can take time to find it. You need to search for information on the franchisor and any affiliated companies, its directors, officers and principals by name. Sometimes this can throw up some surprises - better to know about them before you sign a franchise agreement.
4. Information written by interested parties about the franchise. Google ‘Starbucks' and you'll find mentions in blogs, dedicated fan sites and all sorts of other references. Finding your way through these can take forever, and most people don't bother. But sometimes there is valuable information available from franchisees or industry observers. There is a growing trend in the US for disgruntled franchisees and ex-franchisees to vent their frustrations on line. While not a reliable source of information, such references can throw up some useful questions for intending purchasers. One useful shortcut to bad news is to type in the franchisor's name followed by the word ‘scam', ‘con', ‘swindle' or ‘failure'. This tends to highlight any negative opinions fairly quickly. Again, be aware that the Internet is often not a reliable source of information and that such opinions may be worthless. Even if it seems sound, bear in mind that such information from overseas - good or bad - does not necessarily apply in New Zealand. If any comments do seem to raise legitimate concerns for you, take them up with the franchisor. There are two sides to every issue and it is not fair to listen to only one side.
Finally, perhaps the best source of information of all about the people with whom you are considering entering into a binding business contract are your professional advisors. These divide into three main types: your lawyer, accountant and banker. In all cases, make sure you are dealing with a franchise specialist. Not only will they know what to look for but you will also benefit from their experience, history and contacts.
New Zealand is a small country and everyone knows someone who knows someone else. This fact makes it hard for genuine rogues to flourish, and has helped to ensure that our franchise sector has never suffered from some of the failures seen overseas. However, researching a franchise is not just about avoiding the rogues: it's about choosing the best possible business opportunity for you and making sure that there is a good fit between your aims and attitudes and those of your chosen franchise. Follow the above steps and you'll increase your chances of making a great decision.
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