When buying a business from an existing franchisee, there are some things you can do to minimise the risk of a dispute arising with the seller:
Do your homework on the franchise system and your ability to finance the purchase. If you believe that the business is overvalued, then negotiate. You'll often lose your ability to change the price once the business sale contract is signed. Sometimes it's difficult to work out what you want to pay for the business if the seller won’t give you all the financial information. Sellers can be reluctant to give out too much information until you sign the contract. If you're not comfortable to proceed until you receive this information, then offer to sign a confidentiality and non-disclosure agreement. This will give the seller the comfort that you won't misuse their information.
The seller or their business broker will generally prepare the contract. Read the contract thoroughly and have it reviewed by your lawyer before you sign it. Contracts are legally binding and cover the entire agreement between you and the seller. It's critical to ensure that the contract clearly sets out your respective rights and obligations, along with everything you're expecting as part of the purchase. Disputes can arise if the contract is silent or ambiguous about something.
Remember that contracts are always up for negotiation. You should ensure the following things are addressed:
- Is stock-in-trade included within the purchase price, or do you need to pay extra for it?
- Who's liable to pay the franchisor's costs (such as the transfer/assignment fee, training fee and their legal costs)? If there's a lease involved, who's liable to pay the landlord's costs?
- Ensure the contract is subject to you being satisfied with your due diligence enquiries into the business, ...