Due Diligence – Franchising- Money Issues

1. What fees are payable? Consider royalties, promotion and advertising funds, initial fees, renewal and sale fees, legal fees, start -up costs – required equipment etc

2. How are fees calculated – are fees fixed or percentage?

3. When are fees Payable?

4. How are fees paid? Eg direct debit

5. What are fees paid for? Is the franchisor required to provide any identifiable level and quality of service in return for the payment?

6. How are fees reviewed and are there likely to be substantial increases?

7. What other start up costs will you incur? Uniforms, equipment, fit out, occupancy costs.

Many franchisors impose a sale fee which in some cases can be tens of thousands of dollars. It is important to know at the point of entering the franchise what it will cost to escape the arrangement when, in the future, that becomes necessary.

If you are required to contribute to a marketing or other cooperative fund the franchisor must prepare a financial statement of the fund=s receipts and expenses and the amount spent on administration, production, advertising. Unless 75% of the franchisees agree otherwise, this statement must be audited within three months of the end of the financial year. The franchisor must give you a copy of the statement within 30 days of your request.

If you require help checking your Franchise Agreement before you purchase or if you have a concern contact J J Riba & Co

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About jjriba

Joseph Riba is an Australian Business lawyer. Joseph Riba has worked for more than a decade in the franchising industry. He was admitted as a lawyer in Queensland Australia in 1993 and commenced J J Riba and Company Commercial Lawyers in 1998. Between 1999 and 2010 Joseph Riba worked for a National Franchise System known as Bright Eyes. J J Riba and Company have developed structures and systems to help small business owners carry out their plans to expand their business interests using franchising. J J RIba and Company are developing new systems to assist their clients avoid risk and achieve results for small business owners without the expense associated with large firm advice. J J Riba and Company aim to use their knowledge of franchising and business law to provide high level advice at an affordable cost. View all posts by jjriba

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