An important step on the road to becoming a franchisee is understanding and signing the Franchise Agreement.
After you have found the franchise that seems right for you, it’s time to dig a little deeper before signing on the dotted line and becoming your own boss.
What is the Franchise Agreement?
The Franchise Agreement is the written contract that sets out the rights and obligations of both you – the franchisee – and franchisor.
Some franchisors may require you to sign a confidentiality agreement or another preliminary agreement. These agreements are signed in exchange for confidential information about the franchise business that you have expressed an interest in purchasing.
The legal agreement is essential part of the process. The following areas will be included in the agreement, get to know each part and be sure to find the answers to the questions included in each section:
Understanding the flexibility and limits of your contract are important to ensure that you are aware of your requirements. This will allow you to work effectively with the franchisor and maximise your chance of success. In order to ensure that all consumers receive the same products, Franchise Agreements are almost always non negotiable and rarely altered.
- Will you have the option to expand your business and purchase additional franchises?
- What will the costs be of any new ‘units’?
- Can you sell or transfer your franchise, if yes, when will this be a possibility?
- Are there any restrictions on recruiting staff?
- What are the rights that you have to use the franchisor’s intellectual property e.g. trademarks, copyrights and other creations assigned to the franchisor by law?
Training and support
Most franchises will offer you a level of training and support, the details of which should be found in the Franchise Agreement.
- What types of training are provided?
- What is the duration?
- Are there any costs associated with any of the training such as travel or board and lodgings?
Marketing and advertising
Most franchisors will handle the marketing and advertising for you, implementing a strategy. and providing resources. The Franchise Agreement should detail the franchisor’s involvement along with your obligations.
- What will your financial contributions to the marketing and advertising spend mean for your business?
- How will your franchise be promoted, locally or nationally?
Franchise Agreement length
- The length of the franchise term, i.e. the agreed time period that you will operate as a franchisee and details on how the term ends are essential parts of the Franchise Agreement.
- Does the contact make the length of the agreement clear?
- Is it two, five or ten years?
- What happens after the contract ends?
- Will there be a renewal fee and how long will future agreements be?
Franchise fees, both the initial royalty fee and the ongoing payment need to be checked thoroughly.
- What will the payment schedule be?
- Is there a minimum royalty fee or will the fee always be a fixed percentage of gross sales?
If you are provided with a territory ensure that it is clearly detailed in the agreement.
- How is the territory worked out?
- Is it an exclusive territory and is it fixed for the duration of your contract?
- Where can other franchises open up and is there a map detailing all territories?
Ending the contract early
The situation should be clear if either you or the franchisor decide to end the contract early, e.g. if the franchisor decides to sell the business.
- What will happen if the franchisor sells the business or doesn’t meet the contractual responsibilities?
- What if you fail to meet your requirements or want to leave the contract early?
Signing the Contract
This will be a crucial and exciting moment, as from that point onwards, you will be a franchisee of your chosen franchise system.
Be sure that you are clear about the franchise partner that you are going to into business with and find out if the contract is being signed by the right party. Usually, either the master licence owner or parent corporation sign the agreement. Do you know their reputation? You will be working with them for the length of the agreement so start as you mean to on and keep things clear.
It is important to seek the legal advice of an experienced franchise solicitor, to ensure that you have a good understanding of the contract.
Still looking for the right business? Browse franchise opportunities available on Reed Commercial.Tags: franchise agreement