Franchise investment demands great care

We have received various complaints concerning dissatisfaction and disappointment in establishing mutually profitable business relations through franchising lately. Without seeking "profit" from the issue, we only want to suggest that franchise buyers, who are generally small-scale investors, should carefully and accurately study the market prospects and business feasibility of the franchise offered. A fairly large number of foreign franchisers from the U.S., Singapore, China and Australia, as well as local ones, are promoting franchise businesses by promising profits. But in reality, after signing franchise agreements, the business turns out to be completely different from what has been offered.

There are several ways to ascertain whether the franchise being sold has good prospects and is feasible. Franchisers' financial statements and profit-and-loss accounts, at least in the last two years, should be examined. It should also be found out whether or not these documents have been audited, preferably by public accountants.

If you are account-illiterate, please ask your knowledgeable friends, colleagues or relatives. Also study the franchise market to determine its high potential and/or wide marketability. How long have they undertaken the business? Over five years indicates their adequate experience. Be sure to check the turnover of professionals or employees working with them. If the personnel turnover is high, be careful. In the case of foreign franchise purchases, also check their systems and contracts of imported raw materials. We have often discovered that imported materials and products are not supplied on time. It is because the legal arrangements between local franchisers and foreign suppliers are not clear (particularly from China).

The next step is to study franchise contracts thoroughly, for a maximum of two weeks. Explanations should be promptly sought from franchisers about ambiguous details, even revisions if is required. Third-party opinion on the legal aspect of contract provisions is recommended.

Apart from franchising, care should be taken when cooperating in the different fields of agribusiness extensively offered in recent years. Be sure to choose truly bona fide business partners with proven business profits, so as not to be disillusioned.

AMIR KARAMOY

Jakarta