Basic Steps of Buying a Franchise

After having selected a franchise you wish to buy, there are a number of steps you must follow before you can open for business.

The following general guide should help you to complete the transaction more efficiently, both in terms of costs and also in terms of your time and effort.

 

Step 1: Obtain detailed information from MDA CAPITAL INVEST, a.s.

MDACI provides in its webpage detailed information on the franchise, including financial illustrations you must carefully study to satisfy yourself. Also, you must be sure that the projected income shown in those illustrated information satisfies your needs and requirements.

The information provides always the three (3) major sizes of business:

 

1. Small-sized franchise project;
2. Medium-sized franchise project; and
3. Large franchise business.

 

The Franchisor must be sure of its financial capacity, consisting of the required equity contribution of 15% of the Total investment Capital/Total Investment Capital, and the other related charges i.e. Export Credit Insurance Fee.

 

Step 2: Contact your local (receiving) bank

While reviewing the information provided by MDACI, please contact your local Banker (receiving bank) (if you think you will need a loan) and discuss with him/her whether, in principle, the bank is ready, will and able lend you the money you need for the type of franchise you are contemplating buying or whether the bank is ready to be receiving bank and secure the reimbursement of the 85% of the Total Investment Capital for the required period of time i.e. up to 5 or 8 years. Most banks require the following basic information: certificate of registration/incorporation, profile, financial statements/annual reports of all the project entities, products definition, the techno-economic study, business plan, detailed technical design, existing certificates of quality and licenses (if any), etc.

 

Step 3: Contact your Lawyer or engage a (franchise) Lawyer

If your efforts at stages 1 and 2 above prove to be satisfactory your next step is to arrange for a (franchise) lawyer to review the Franchise Agreement and advise you on it.

 

Step 4: Contact your local financial Adviser

When you and your franchise Solicitor are satisfied with the Agreement, please contact your accountant for advice on the detailed financial aspects of the franchise. By this time you should have some idea of the type of premises or construction site, you will be occupying or your area of operations in the case of a mobile franchise. Under a Franchise Project Development Agreement (FPDA), MDACI shall produce a business plan, financial and profit projections, etc. and, if necessary, a techno-economic study for your particular business, in support of your loan applications with your MDACI’s Financial Consortium and your local receiving bank.

 

 

Step 5: Sign your Franchise Agreement

After your are about are sure of the size of business you want to do, you will probably be asked to sign the Franchise Agreement. You should be guided by your franchise solicitor as to the timing of signing the Franchise Agreement. This signed Franchise Agreement shall be part of the required documents provided in step 4, which shall be submitted to the MDACI’s Franchise Consortium for your loan application. For each type of franchise, MDACI shall provide a list of required documents and studies for loan application. The studies and documentation shall be produced by MDACI at Franchisee’s own cost.

 

Step 6: Secure your Premises or Project Construction Site

Where retail premises are involved, at this stage serious effort should be made to secure satisfactory premises or construction site and you should start talking to MDACI about the details of converting the premises into a franchised outlet or about the designs and layout of the Plant.

 

Step 7: Finalize applications

By this time your bank should have responded to your application for a loan and if the answer is yes you will be in a position to push those involved into finalizing the lease for the premises. It is important that you do not enter into a binding commitment to take on premises unless and until you have your bank's agreement to the loan and you have signed the franchise agreement.

 

Step 8: Receive training and support.

Once you have completed the acquisition of the premises you can go about converting the premises into a franchised outlet and going on the franchisor's training course.


 

IMPORTANT NOTE:

From step 5, the sequence of events up to when you are ready to open for business will vary depending upon the nature of the franchise.

 

The important thing to remember is that there will come a time when you have to make 3 significant commitments to 3 different parties

 

1. To the franchisor by signing a franchise agreement or an agreement to purchase a franchise;
2. To your landlord by signing a lease or an agreement to take a lease of the premises (or in the case of a mobile franchise, signing a lease, hire purchase or purchase agreement for a vehicle); and
3. To the bank to take up the loan. Wherever possible you should aim to synchronise these different transactions so that you undertake the three commitments simultaneously.
 

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