Buying an Existing Franchise Business: Secure Your Right to Continue

Buying an existing franchise business can give you an established customer base, staff and premises. Yet the most important check concerns continuity: will you actually be allowed to keep trading under the same brand, and on what terms? A franchise network consists of independent businesses, and paying the purchase price alone does not guarantee admission. The acquisition and your right to operate within the network therefore need to be arranged together.

1. Establish what you are buying and whose approval you need

Start by distinguishing between a share purchase and an asset purchase. In a share purchase, you buy the company's shares. The company remains the same contracting party, and its debts and liabilities arising from past operations remain with it. However, the franchise agreement may still require the franchisor's approval for a change of ownership or control.

In an asset purchase, the buyer acquires the assets and business operations specifically agreed. Do not assume that the franchise agreement will transfer: this may require the franchisor's consent or an entirely new agreement. Nor does the network's trade mark become the buyer's property, even if the premises' fixtures and fittings and the local business change hands.

Ask the seller for the current franchise agreement, including all schedules, amendments and any side agreements. Also establish whether the franchisor has a right of first refusal or any other right affecting the sale process.

Ask the franchisor the following questions in writing:

• Does the proposed transaction require your approval?
• What criteria do you use to assess a prospective franchisee's suitability?
• Will the existing agreement continue, or will you offer a new one?
• What training, fees and other conditions are attached to approval?

Do not rely on the seller's assurance that the franchisor is happy with the change. You need confirmation from the relevant contracting party.

2. Understand Finnish regulation and the importance of pre-contract information

Finland has no specific franchising act, no statutory franchise disclosure document in a prescribed format, and no mandatory registration system for franchise agreements. This does not mean that material information can be withheld during contract negotiations.

Relevant legislation includes the Finnish Contracts Act, the Unfair Business Practices Act, the Trade Marks Act and the Competition Act. General principles of contract law concerning good faith and disclosure affect what the parties must tell each other. The Unfair Business Practices Act prohibits false or misleading statements in business in the circumstances specified by the Act.

The Finnish Franchising Association's Code of Ethics is a form of industry self-regulation, not legislation. Check whether the network has committed to it and how that commitment is reflected in its agreements and practices. Membership or a reference to the Code is no substitute for your own due diligence.

Buyers also have a responsibility to make their own enquiries. Request information relevant to your decision in writing well before signing. Keep copies of financial projections, responses and draft agreements. If the sales material promises exclusivity but the agreement allows another outlet to open next door, that inconsistency must be resolved before the purchase, not afterwards.

3. Check whether the outlet can genuinely continue operating

It is not enough for acquisition due diligence to establish that the outlet has been profitable. Find out whether it will still meet the network's requirements after the change of franchisee. Depending on the contract terms, a change of ownership may trigger requirements such as training, a systems change or refurbishment of the premises.

Ask the seller for details of notices or warnings from the franchisor, outstanding franchise fees, inspection reports and unresolved disputes. With the seller's consent, ask the franchisor about the outlet's contractual status and any remedial work required. Establish separately which shortcomings the seller will address before handover and which will be your responsibility.

Review the lease for the premises at the same time. A long franchise agreement is of little use if the lease expires soon or the transfer needed for an asset purchase cannot be arranged. Check the continuity of essential permits, equipment leases, software arrangements and customer contracts. Where the transaction constitutes a transfer of a business, staff transfers and associated liabilities must be assessed under the business transfer provisions of Finland's Employment Contracts Act.

Then compare the seller's financial results with the terms that will apply to you. A new franchise fee, a higher marketing levy or a compulsory investment may change profitability even if sales remain unchanged. This allows you to assess the future you are buying, rather than simply the seller's past performance.

4. Align the purchase price with the contract term and financing

Establish how long you will have a secured right to operate. If little time remains on the current franchise agreement, do not calculate the purchase price on the assumption that renewal is automatic. Renewal may require fresh approval, investment or acceptance of revised terms.

Prepare a financing plan that separates the purchase price, any joining and transfer fees, professional fees, refurbishment costs and working capital. Check who charges each fee and when it falls due. Also discuss the tax treatment with an adviser, taking the transaction structure into account.

Give your lender both the current agreement and a draft of the terms under which you would operate. A bank loan or a potential guarantee from Finnvera, Finland's state-owned specialised financing company, requires a separate assessment; neither should be treated as confirmed funding before a decision has been made.

Also model a scenario in which sales fall or the start of operations is delayed. Will you have enough money to service debt, pay franchise fees and cover your own living costs without assuming that the agreement will be renewed? If not, reconsider the price, the financing structure or whether the acquisition makes sense at all.

5. Make completion conditional and responsibilities explicit

Have a lawyer experienced in business acquisitions and franchise agreements ensure that the documents work together. A key protection for the buyer is not being obliged to complete the acquisition if the right to continue in the network cannot be secured on the agreed terms.

The sale and purchase agreement can make completion conditional on matters such as the franchisor's written approval, signature of a new franchise agreement, confirmed financing and any necessary landlord's consent. Also specify deadlines, arrangements for refunding any advance payment, and what happens if a condition is not met.

Record the seller's warranties about the accuracy of the information provided, and agree who is responsible for any identified shortcomings. Ensure that completion of the acquisition, the start of the franchise agreement and the handover of the business are coordinated. This avoids a situation in which you own the outlet but cannot yet use its brand or systems.

Practical reminder: before entering into a binding purchase, confirm three things in writing: the franchisor's approval, the terms of your own agreement and funding for all transition costs.