Guide to Buying a Franchise – Interview with Affandy Faiz from FranCorp Malaysia.

First thing, I want to highlight that in Malaysia, we have Franchise Act 1998 that says before you buy a franchise, the franchisor needs to give you two documents. The first document is what we call a disclosure document, the second document you need to receive from the franchisor is the franchise agreement. Now if any franchisor gives only a franchise agreement for you to review, something is not right there. Because the law says you need to give two documents and allow the franchisees to study the documents for ten days. This is what you call the compulsory practice. Now what is a disclosure document, this document tells everything about the franchisfre. All the investments you need to make, all the fees you need to pay, are there any other fees besides royalties, beside the initial franchise fees, advertising fees. So the disclosure document also tells the candidates or the people buying the franchise if there are any litigation or bankruptcy proceedings against the company. In a way a disclosure document is like a prospectus. Now that is the most important document before you even take a look at the franchise agreement. The disclosure document summarizes what the franchise agreement is all about, once you are happy with the disclosure document, then you move on to reading the franchise agreement. Study the franchise agreement. Basically the disclosure document will explain in layman’s terms what the franchise agreement is all about.

We strongly encourage people buying franchises to engage a lawyer or professional accountants to help them and advise them accordingly. However, lawyers and accountants can only advise the business owners. And the end of the day, they have to make decisions for themselves; whether they like the business, whether they think the business suits their characters or if the business is in demand.

This is what you call the ‘dark horses’ in the market. When you are buying a franchise there’s a branded franchise, that means a franchise which has already a brand recognition, people know the name the moment you see the yellow M, you know what it is. With a branded franchise, the risk is lower because it’s been proven. Why is the risk lower? Because the amount of investment is high. So high investment and low risk, so low returns. But if you're looking at looking at non-branded franchise, meaning franchise that that are the ‘dark horses’, the investment is low, simply because they are new start-up franchises in the market. But the risk is high though because you don’t know whether this franchise is going to a big name in the future. Normally it would take about 3 to 5 years before a new franchise makes a name for itself. So sometimes it is a commercial decision for you to make, whether you want to choose a branded franchise or come in with a new one. At the end of the day you have to judge by yourself.

Normally what the franchisor will disclose to the franchisees is they will be collecting a percentage of the sales to contribute towards a pool of fund which will be used for marketing of the entire franchise system. The franchisee have the right to get the franchisor to disclose later on how much they have spent on advertising through account auditing.

_{Part 1: What are factors to consider before buying a franchise?}

_{Part 2: What are the benefits and responsibilities of franchise ownership?}

_{Part 4: How do you investigate franchise offerings?}

_{Part 5: What are the tactics these franchise companies use to lure you in?}