FRANCHISING AGREEMENT BASICS
What you need to look for when you want to start a franchise and are ready to sign the franchise agreement.
So you’ve taken all the appropriate steps; you’ve researched, asked questions, found out about the competition, scouted locations and lined everything up. Now it’s time to sit down and sign the franchise agreement. But before you do, there are several things you need to know. The franchise agreement will be the bedrock of your business, and success (or failure) may lie somewhere inside all those conditions and terms. A smart franchisee will read the franchise agreement very carefully, making sure they understand everything within it. Here are some of the most commonly misunderstood or potential problematic areas you need to be aware of:
1. Be sure negotiation is available. Some franchising agreements can be discussed, changed or amended, while others cannot. Make sure you know where your franchiser stands. It’s quite common for some clauses to be non-negotiable, while others are open to discussion. If you want to alter your franchising agreement, make sure you know what you want to change before you start negotiating.
2. Know what you can or cannot sell. Sometimes it will be very clear what you can or cannot sell through your franchise. Other times, however, it may not be. Make sure you understand exactly what kind of business transactions you are allowed to sell, what you are not allowed to sell and what isn’t mentioned. If something is unclear, you’ll want to get some clarification before you commit your signature to paper.
3. Marketing is vital. Franchisers want to see the franchisee succeed, but in their eagerness they may require you to sustain a marketing budget that is too high. If your agreement calls for a specific marketing budget, you may want to alter it so you have some more leeway. In the early years of a business, too much advertising can kill your cash flow, and being beholden to a set marketing strategy can cause difficulties.
4. Watch for default. Whenever you own a franchise, the franchiser will want to ensure you are complying with their rules and not damaging the franchise’s brand. There are often numerous clauses in any franchise agreement that lay out what you can or cannot do, and what actions will result in you loosing your franchise. These are some of the most important clauses in the franchise agreement, so make doubly sure you understand each and every one of them.
5. Get a professional. Yes, you can do it all yourself and you’ll probably be fine. But buying a franchise can be very complicated, and you just may not have a lot of experience reading or writing legal documents. To be doubly sure your franchise agreement is a good one, you should consult a legal professional who deals with franchising situations. The money you spend consulting with them may seem like a lot at first, but it will be money well spent.
Franchise Agreements The Basics - To learn more about this author, visit Ian Macleod's Website.
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Ian Macleod
(Visit Ian's Website)
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