Three years ago I was approached by client intending to buy a café franchise. She was a married mum who hadn’t worked full time since her first child was born almost two decades ago, and her family was being supported by her husband who worked away from home most of the year.
She explained to me she had worked at her children’s tuckshop, knew how to make a small café business run, and believed she could really make a good go at this business.
Buying a franchise is not for everyone, the fees can be high and unless you know what you are doing you can easily become a glorified manager, all the responsibility without all the profits. Worse still, many of the café/food franchises are in large shopping complexes with high rentals and outgoings and this one was no different.
It turned out this business wasn’t even operating, the last franchisee had abandoned it, and the franchisor had taken it back, waiting for someone to come in and buy/run it. This would mean the business had no good will other than the franchisor’s name, which would leave her with a GST liability.
Despite the potential costs she wanted to proceed but was concerned with the legal fees given what she would have to spend just to get into the franchise. Concerned now as I was, I asked, “do you really want a franchise?” and she said “No, but this is the only location I can make work, plus it has all the equipment”.
I asked if she would be interested to take a risk and attempt to take both the lease and plant and equipment, whilst getting rid of the franchisor all together. It would cost more in legal fees but could save tens of thousands of dollars each year in franchise fees whilst giving her the freedom to run her business the way she wanted to. It was a resounding yes.
After some tough negotiations, including walking away at one point, the franchisor agreed to sell the plant and equipment and surrender its rights to the lease whilst we negotiated a cheaper rent because it wasn’t a franchise.
She spent an extra $3,000.00 in legal fees but saved approximately $80,000.00 in franchise fees, not to mention the ongoing fees.
Three years later she had one of the best cafés in the region with her name on it. She’s since set up another business in the town, and her husband no longer has to work away from home.
Before jumping into a deal, consider all your interests not just your legal interests. When looking at costs, compare it to the value of the deal, it only costs too much if it’s not worth it.