Franchising: Your Buying Considerations

In the second of our series of articles, which provide legal guidance for participants in the fitness industry, we’re sharing guidance from Meridian Lawyers, who regularly advise Fitness professionals to help them understand their risks, roles and responsibilities in an increasingly litigious and regulated environment.

In this article, Michael Bracken and Greg Bawden from Meridian Lawyers’ Corporate and Commercial team, identify some of the key considerations when buying a fitness franchise.

Franchise systems are prevalent in the Fitness Industry. Buying a franchise has a number of advantages, such as the association with an established and reputable brand or service, assistance with setting up elements of the franchise, initial management training and on going support via established policies and procedures, and access to existing business systems.

These advantages make buying a franchise an attractive option – you’re going into business “for yourself but not by yourself”.

However, can have disadvantages too and whether or not to buy a franchise is always an important decision.

As with any decision of this magnitude, there are a number of important factors to consider and questions to ask, prior to signing documentation.

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You should:

  1. Satisfy yourself of the reasons for wanting to own your own business
  2. Be informed of the lifestyle and income implications of owning and operating your own franchise
  3. Asses, and narrow your options to franchise opportunities that are consistent with your reasons and lifestyle goals.
  4. Conduct due diligence – research the franchise system, request information and talk to current and former franchisees.
  5. Seek professional legal and accounting advice from practitioners who specialise in franchising (both of whom will play a crucial role in the buying process)
  6.  Understand all your rights and obligations of a Franchisee under the Franchising Code of Conduct
  7. Ensure you understand the franchising relationship and your rights and obligations under the Franchise agreement
  8. Ensure you have adequate financial capacity, be that borrowing or savings, to establish and to begin to operate the franchise
  9. Ensure you receive and adequately evaluate all disclosure material, including the Franchising Code information
  10. Select an appropriate franchise system with which you are comfortable, and commence the application process
  11. Use the cooling-off period to check your information and determine if you still want to proceed with your purchase.

Franchising Code of Conduct (the Code)

The Code is a mandatory code across Australia that regulates the conduct of the participants in a franchise system. It is part of the Competition & Consumer Act 2010 and is regulated by the Australian Competition and Consumer Commission (ACCC). Both franchisors and franchisees must comply with the Code.

Importantly, the Code provides protection for franchisees in relation to disclosure documents, cooling off periods, the management of marketing funds and dispute resolution.

Before entering into any franchise agreement, you should be provided with a copy of the Code, a disclosure statement, information statement and the franchise agreement.

Due diligence

Make sure that you conduct due diligence of the franchise – this is where you, as the proposed franchisee, have the opportunity to investigate the franchise and to satisfy yourself that you know exactly what you’re paying for.

Most importantly, before considering the a franchise, individuals should first seek the advice of their lawyer and accountant, both of whom will play an important role in the process.

Meridian Lawyers’ corporate and commercial team has dedicated expertise in the health and fitness industry and regularly advises gym businesses and franchisees, and fitness professionals on a range of matters such as:

  • Due diligence
  • Franchise and licence agreements and other contractual matters
  • Business structures, restructures, business and asset protection
  • Professional negligence and public liability claims
  • Complaints and demands for compensation
  • Regulatory issues relevant to fitness professionals and businesses.

Should you require advice about a franchise, including undertaking due diligence, please contact Meridian Lawyers’ corporate and commercial Principal Michael Bracken, Special Counsel Georgina Odell, or Solicitor Greg Bawden.

Article written by Meridian Lawyers for the What’s New in Fitness Magazine – Winter 2018 Edition.

This article does not constitute legal advice and does not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.

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