Do I have to pay a franchisor to conduct a viability study of my proposed franchise area?
A franchisor is not obliged to conduct a viability study for all areas that it offers to potential franchisees, although if it does it could make the franchise opportunity potentially much more attractive. In practice, it is unusual for the franchisee to pay for any viability study that is carried out by the franchisor as a one-off payment, although a franchisor may seek to include an element of the cost in the initial franchise fee. There may be limited circumstances where a franchisor may want to carry out a study at a potential franchisee’s cost, such as where a potential franchisee approaches a franchisor to operate in an area that the franchisor does not immediately consider as appropriate. Whether the franchisor has carried out a viability study or not, it is a very good idea for a potential franchisee to conduct his own viability study in the area it is considering operating the franchise business. As with any new business venture, it is important that a potential franchisee carries out a full and complete due diligence exercise on both the franchisor and the franchise business. Conducting a viability study should be just one of the elements of this.
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