Buying a Franchise in Malaysia: Assess the Risk of Opening Delays

A promised opening date is more than a marketing target. For prospective franchisees, every delay can mean money going out before the outlet generates any sales. Before choosing a franchise brand in Malaysia, check who bears the risk if the opening is delayed. Focus on the pre-opening schedule, payment triggers and the agreed steps if a stage is not completed on time.

1. Distinguish target dates from contractual obligations

Phrases such as “ready to open quickly” or “set-up is usually fast” do not explain anyone’s actual responsibilities. Ask the franchisor for a written schedule covering the period from signing the agreement until the outlet is ready to welcome customers. Each stage should identify the responsible party, the documents required and the evidence needed to confirm completion.

The schedule may cover approval of shop plans, completion of fit-out works, equipment delivery, premises inspections and the franchisor’s authorisation to open. Distinguish between matters controlled by the franchisor, those you need to manage and those that depend on third parties.

Ask specific questions:

• Is the opening date merely a target, or is it a contractual obligation?
• By when must the franchisor issue a decision on a complete set of plans?
• Who confirms that the outlet has met the opening requirements?
• What is the process if the outlet fails its first inspection?
• Is a soft opening allowed before the official launch?

The brand’s internal approval does not replace licences or approvals from the relevant authorities. Identify the requirements for your premises separately, so that the opening schedule does not rely on an assumption that all approvals can be obtained at the same time.

2. Identify payments that start before sales begin

The financial risk is not limited to the cost of delayed work. Some payments may begin when the contract is signed, equipment is delivered or access to certain services is activated, rather than when the outlet starts trading. Check what triggers each payment, not just the total amount.

Create a simple list with four columns: payment type, start date, recipient and whether payment can be deferred. Include wages for staff already recruited, utilities, equipment storage and opening marketing commitments. If the contract imposes fixed charges before trading begins, flag these separately.

Then model a delay using actual figures from your quotations and contracts. Estimate how much additional cash you would need if the opening date slipped. Do not assume that sales after opening will immediately cover all outstanding expenses.

Also check for expenses you may have to pay twice. For example, dated promotional materials may need reprinting, deliveries may need rescheduling, or perishable goods may no longer be usable. These are possibilities to assess, not inevitable costs for every franchise.

Ask for written clarification of any payment deferrals, credits or adjustments the franchisor is willing to offer. Do not factor this support into your cash forecast until it has been agreed.

3. Negotiate how risk is shared according to the cause of the delay

A clause placing all the consequences of delay on the franchisee deserves careful scrutiny, particularly if the franchisor controls key pre-opening decisions. The allocation of responsibility should reflect who can prevent or resolve the problem.

Distinguish between at least three situations: delays caused by the franchisee, delays caused by the franchisor and delays beyond either party’s control. Do not assume that problems involving the brand’s preferred contractor automatically become the franchisor’s responsibility; the contractual relationship with that contractor needs to be examined.

Points you could negotiate include:

• A deadline for responding to complete applications for approval.
• Written notice when a stage is expected to be delayed.
• A recovery plan with revised dates and named responsible parties.
• Adjustments to certain charges when the franchisor causes the delay.
• A final deadline that triggers a joint review if the outlet still cannot open.

These are suggested commercial protections, not automatic legal rights. Ask a lawyer to assess their effect and ensure that different clauses do not conflict. For example, flexibility over the opening date offers little help if the related payment obligations continue without adjustment.

4. Use the review period to confirm what has been agreed

Malaysia regulates franchising through the Franchise Act 1998, including its 2020 amendments. Under Section 15, the franchisor must provide a prospective franchisee with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed. Use this review period to compare the opening schedule with the obligations and payments set out in the actual documents.

Official registration guidance also lists the operations manual and training manual among the documents required for a registration application. However, the inclusion of documents in the registration process does not, in itself, make every promised opening date a guarantee to you.

Ask for written clarification of any discrepancies between the sales presentation, project schedule and contract. If a negotiated solution changes the disclosure document, the franchisor must address any applicable requirements for approval of those amendments; do not simply accept a promise that the documents will be updated later.

Practical step: Before signing, make sure you have a written opening schedule, an estimate of the costs of delay and a clear agreement on who bears the consequences. If any of these remains unclear, postpone your decision until you have clarification.