Some Strategies for Investing in Overseas Franchising
Posted on November 16, 2010 by My Franchise Law
There are several factors to consider when deciding whether purchasing an overseas franchise is right for you or not. Here are a few items to consider when researching a potential investment.
What are the risks? Legally, international franchisors will have to follow all U.S. franchise requirements when starting a new business within the country. They will have to provide a Franchise Disclosure Document to each potential investor, which details important facts about the business (from its profit and existing units to its history of litigation and/or bankruptcies). The franchise agreement will also have to adhere to federal standards, which protects investors from unreasonable contractual terms and conditions. It is also important to retain the services of a trained franchise attorney to assist you in reviewing each company’s FDD, or when considering a potential franchise contract to ensure that you are getting a fair deal.
What should I research? You may wish to hire a research company to investigate the background of any business you are considering. It is import to verify the accuracy of any information that has been provided during the initial investment stages. You will want to know their past track record with other foreign investors, how the company is functioning financially, and whether or not they are strong enough to withstand expansion. Also, if there is a master licensee working within your country, you will want to review their support network for new franchisees, their performance background, their financial position, and how well they adhere to the existing business framework.
What are some warning signs that this franchise investment is not right for me? For new investors, it’s important to determine how successful other franchisees have been in bringing this new franchise into your chosen country. How did the product or service translate into the new market? Were there communication problems between the parent company and the new units? Was their franchising experience stressful? Did the new franchises turn a profit? By reviewing the success or failure of those who have come before you, you will be able to better determine if there are structural problems within the company, and if local franchisees are happy with their investment.