Buying a franchise can be a great way to go into business with the backing of an established brand and operating system. But it is still a major investment, and the franchise agreement can have a big impact on your day-to-day business and long-term value. Before you sign, it pays to understand the key terms, the real costs and the risks, and to carry out proper due diligence.

Key issues to check before you sign

Start with the franchise agreement. It should clearly explain what you can do, what you must do, and what happens if things do not go to plan. Pay close attention to reporting obligations, supplier restrictions, performance standards and dispute processes. These documents are often drafted for the franchisor’s benefit, so it is worth checking whether the terms are workable for you.

Do not focus only on the purchase price. You may also need to cover an upfront franchise fee, fit-out costs, working capital and professional fees, along with ongoing payments such as royalties, marketing levies and software charges. Make sure the numbers stack up for you, not just on paper.

Good due diligence goes beyond the sales pitch. Review the business history, ask how the support model works in practice, and speak with current or former franchisees if you can. If there is a disclosure document, read it carefully. It is also worth checking whether the franchisor belongs to the Franchise Association of New Zealand.

Territory can have a real impact on value. Check whether you have an exclusive area, what happens with online sales, and whether other franchisees can compete for the same customers. Clear territory rights can help avoid disputes later.

It is also worth looking closely at the franchisor itself. How long has the network been operating, how many outlets are trading, and is the system growing steadily or losing franchisees? The strength of the brand and the health of the network can be just as important as the wording of the documents.

If the business operates from leased premises, make sure the lease and franchise term work together. The length of the lease, renewal rights, rent reviews and assignment provisions can all affect the value of the deal.

Support, control and planning ahead

A good franchise should come with training, systems and practical support. At the same time, you will usually need to follow strict rules about branding, suppliers, pricing, software and marketing. It is important to be comfortable with that balance before you commit.

Before you sign, check how you can exit. Can you sell the business, transfer the franchise agreement, or secure renewal? Also look at restraint clauses, termination rights and any costs that apply when you leave.

If you are considering buying a franchise, ask for the documents early, talk to your accountant, and get legal advice before signing or paying a deposit. Early advice can help you spot issues, ask the right questions and move ahead with confidence.

Need advice before you sign?

If you are looking at a franchise opportunity, we can help you understand the documents, identify the key risks and make sure you know what you are signing up for. Our commercial team gives clear, practical advice so you can make your decision with confidence.

Get in touch with Smith and Partners to get the advice you need before you sign the franchise documents.