Franchise Information—Understanding Franchise Agreements
Franchise Information—Understanding Franchise Agreements
The franchise agreement outlines the way your business will work within your franchise system. It gives both you, the franchisee, and your franchisor a clear understanding of the terms of your business relationship.
The franchise agreement also serves to ensure uniformity, which is beneficial not only to the franchisor but to the franchisee as well. If, for example, a customer has an unsatisfactory experience at another unit within your franchise, he will be unlikely to want to do business with your unit. Therefore, the franchisee is under obligation to maintain uniformity, and the franchise agreement will establish parameters for that uniformity.
These parameters include what products you’ll use or sell at your franchise and the quality of services that must be provided by your employees.
The franchise agreement also details what actions will be taken should you breach these parameters. It explains, for example, what notices the company must give you and how much time you have to respond once notice is given.
What Should be Included in a Franchise Agreement?
First and foremost the franchise agreement should state that you are part of the franchise and that you have a fixed fee (your franchise fee) to pay in compensation for this privilege.
The franchisor has the right to approve or disapprove of sites for your location, but at the same time they will be obligated to assist you in the selection of a site for your business.
There will be a section in the agreement that goes over the use of the franchise name. Specifically, you may not challenge the franchisor’s right to use the name and will be required to inform the franchisor if you discover someone else using the name without permission.
The franchise agreement also indicates how you will be expected to maintain the aforementioned uniformity.
Other Provisions You May See
The agreement will state the manner in which you must display signage at your locations. There may be certain requirements and/or restrictions on the use of a sign with the franchise name.
Often a section is included detailing what training and assistance will be provided by the franchisor. This section would go over the franchisor’s responsibility to help a new franchisee get his unit going.
A franchise agreement may contain a section on advertising. Some companies use a national advertising fund to which you will have to contribute but will also benefit from during a national ad campaign. Additionally, many franchisors want to retain the right to review any and all advertising/promotional materials you may use to ensure—you guessed it—uniformity.
A section about the operating manual will require that you abide by it and adopt any revisions made to it by the franchisor. You will be under a confidentiality agreement concerning the operating manual—which remains the property of the franchisor—because the manual will divulge everything about the franchise’s business plan.
It’s in the best interest of the franchisor that his franchisees operate out of clean, well-maintained buildings, so there may be a section of the franchise agreement pertaining to maintenance and repairs.
The franchise agreement will have requirements concerning records and accounting. You will be required to keep certain records and to provide your franchisor with annual statements which have been audited by a certified public accountant (CPA).
Standards and quality sections—which can be very lengthy in some cases—will, again, provide for uniformity across the franchise system.
If the business opportunity you’re availing yourself of requires a lot of labor or products that are produced at your location (this includes food), a franchisor will insist on quality assurance provisions. This, too, will be a lengthy section of the franchise agreement.
A section on modifications will basically state that the franchisor has the right to make system changes at anytime and require you to adopt them, but you, the franchisee, may not make any changes without approval.
The franchise agreement will specify what royalties the franchisee must pay for continuing to use the franchise’s name and business plan.
The franchisor will have some amount of insurance it requires franchisees to carry, and this will be outlined in the franchise agreement.
Of course, there will be a section of the franchise agreement that states how long your franchise will last. In many cases, this term coincides with a lease, so if, for example, you have a ten-year lease on your building, you will have a ten-year franchise agreement. The agreements may or may not be renewed at the end of the agreement period at either party’s discretion.
Something called a “covenant” section will state that you cannot use the knowledge and training provided to you by the franchisor to open an identical business that simply has a different name.
A section of your franchise agreement will detail what will happen at the end of the agreement including what rights each party has at that time. This section will also deal with actions that will cause you to be in default of your franchise agreement and, therefore, subject to termination by the franchisor.
The franchise agreement will state that you are required to obtain all permits, licenses, etc. necessary to conduct business in your area and that you must be in compliance with all local, state and federal laws. This section will also state that debts you incur in the course of doing business are your responsibility and not the responsibility of the franchisor.
A “nonwaiver provision” will explain that all provisions of the franchise agreement are enforceable at any time. Although a franchisor might not enforce a certain provision at a given time, they still reserve the right to enforce that provision at a later time. The same rule will apply to fees owed by the franchisee. If the franchisor does not accept payment from you for any reason, they will still have the right to collect on that debt at a later time.
Sometimes an arbitration clause will be included, although these clauses are disallowed in some states. If your franchise agreement does have an arbitration clause, it may require you to submit to binding arbitration in the event of a dispute.
Finally, the franchise agreement will designate you and your successors as the franchisee for that agreement and state that you are aware of the assumption of risk. The success of your business will not be guaranteed by the franchisor.
Franchise Information Understanding Franchise Agreements - To learn more about this author, visit Candice Clem's Website.
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What is the Franchise Agreement?
The franchise agreement outlines the way your business will work within your franchise system. It gives both you, the franchisee, and your franchisor a clear understanding of the terms of your business relationship.
The franchise agreement also serves to ensure uniformity, which is beneficial not only to the franchisor but to the franchisee as well. If, for example, a customer has an unsatisfactory experience at another unit within your franchise, he will be unlikely to want to do business with your unit. Therefore, the franchisee is under obligation to maintain uniformity, and the franchise agreement will establish parameters for that uniformity.
These parameters include what products you’ll use or sell at your franchise and the quality of services that must be provided by your employees.
The franchise agreement also details what actions will be taken should you breach these parameters. It explains, for example, what notices the company must give you and how much time you have to respond once notice is given.
What Should be Included in a Franchise Agreement?
First and foremost the franchise agreement should state that you are part of the franchise and that you have a fixed fee (your franchise fee) to pay in compensation for this privilege.
The franchisor has the right to approve or disapprove of sites for your location, but at the same time they will be obligated to assist you in the selection of a site for your business.
There will be a section in the agreement that goes over the use of the franchise name. Specifically, you may not challenge the franchisor’s right to use the name and will be required to inform the franchisor if you discover someone else using the name without permission.
The franchise agreement also indicates how you will be expected to maintain the aforementioned uniformity.
Other Provisions You May See
The agreement will state the manner in which you must display signage at your locations. There may be certain requirements and/or restrictions on the use of a sign with the franchise name.
Often a section is included detailing what training and assistance will be provided by the franchisor. This section would go over the franchisor’s responsibility to help a new franchisee get his unit going.
A franchise agreement may contain a section on advertising. Some companies use a national advertising fund to which you will have to contribute but will also benefit from during a national ad campaign. Additionally, many franchisors want to retain the right to review any and all advertising/promotional materials you may use to ensure—you guessed it—uniformity.
A section about the operating manual will require that you abide by it and adopt any revisions made to it by the franchisor. You will be under a confidentiality agreement concerning the operating manual—which remains the property of the franchisor—because the manual will divulge everything about the franchise’s business plan.
It’s in the best interest of the franchisor that his franchisees operate out of clean, well-maintained buildings, so there may be a section of the franchise agreement pertaining to maintenance and repairs.
The franchise agreement will have requirements concerning records and accounting. You will be required to keep certain records and to provide your franchisor with annual statements which have been audited by a certified public accountant (CPA).
Standards and quality sections—which can be very lengthy in some cases—will, again, provide for uniformity across the franchise system.
If the business opportunity you’re availing yourself of requires a lot of labor or products that are produced at your location (this includes food), a franchisor will insist on quality assurance provisions. This, too, will be a lengthy section of the franchise agreement.
A section on modifications will basically state that the franchisor has the right to make system changes at anytime and require you to adopt them, but you, the franchisee, may not make any changes without approval.
The franchise agreement will specify what royalties the franchisee must pay for continuing to use the franchise’s name and business plan.
The franchisor will have some amount of insurance it requires franchisees to carry, and this will be outlined in the franchise agreement.
Of course, there will be a section of the franchise agreement that states how long your franchise will last. In many cases, this term coincides with a lease, so if, for example, you have a ten-year lease on your building, you will have a ten-year franchise agreement. The agreements may or may not be renewed at the end of the agreement period at either party’s discretion.
Something called a “covenant” section will state that you cannot use the knowledge and training provided to you by the franchisor to open an identical business that simply has a different name.
A section of your franchise agreement will detail what will happen at the end of the agreement including what rights each party has at that time. This section will also deal with actions that will cause you to be in default of your franchise agreement and, therefore, subject to termination by the franchisor.
The franchise agreement will state that you are required to obtain all permits, licenses, etc. necessary to conduct business in your area and that you must be in compliance with all local, state and federal laws. This section will also state that debts you incur in the course of doing business are your responsibility and not the responsibility of the franchisor.
A “nonwaiver provision” will explain that all provisions of the franchise agreement are enforceable at any time. Although a franchisor might not enforce a certain provision at a given time, they still reserve the right to enforce that provision at a later time. The same rule will apply to fees owed by the franchisee. If the franchisor does not accept payment from you for any reason, they will still have the right to collect on that debt at a later time.
Sometimes an arbitration clause will be included, although these clauses are disallowed in some states. If your franchise agreement does have an arbitration clause, it may require you to submit to binding arbitration in the event of a dispute.
Finally, the franchise agreement will designate you and your successors as the franchisee for that agreement and state that you are aware of the assumption of risk. The success of your business will not be guaranteed by the franchisor.
Franchise Information Understanding Franchise Agreements - To learn more about this author, visit Candice Clem's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
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