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What You Ought to Know Before Signing A Franchise Agreement
| Guest post by: Amit Nahar |
Article Overview: You have done your research and have chosen a franchise business opportunity. You like the business and want to go ahead...but there is a hurdle in between. The company has given you its franchise agreement template and wants you to sign the same and then get started with the business. You have a lengthy document with several clauses/sub clauses and are not sure of what to do. I have tried to make this simple for you and have given you certain standard guidelines of what to do and how companies look at this document and expect the prospective franchisees to respond. At the end of the document, you will also see what characteristically a good franchise agreement contract sample must have. Beyond that, you will understand the importance of the franchise agreement and how it protects you as much as it safe guards the franchisors interests.
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What You Ought to Know Before Signing A Franchise Agreement
One of the most important parts of doing any franchise business is the franchise agreement. Every franchise relationship fructifies with the franchise sign up and hence the marriage with the franchisor and the franchisee is defined by the franchise contract. As an entrepreneur, you have to be extremely careful of what you sign, when you get into this relationship, as the next few years and the course of your life will stay altered forever. Let's begin understanding this entire process and how you should do this prudently, when you take up a franchise business.
We start with the understanding of what is the definition of a franchise agreement. We'd say that its ‘A legal document that clearly states the rights and responsibilities of the franchisor and franchisee and is subject to a defined geography and a period and conforms to the entire legal requirements of the said location, is commonly known as the franchise agreement. It is always very good to know the entire terms and conditions of any agreement, before you get into a contract with a franchisor. It is always good for a franchisee to know what a franchisor is offering. In the franchise agreement you will find some guidelines that will act as rules to govern your day to day running of the franchise and your overall functions. To know your rights and obligations, it is advisable to read all clauses in the agreement clearly. You need to ensure that, this agreement will make you run the business smoothly and will not hinder your functions in any way.
All the crucial information concerning the business should be contained in a good franchise agreement. The basic information should include the kind of business that is operated under this franchise, the name of the franchisor, the location and the mode used in advertising the franchise and the performance of the franchisor in the past. Before you sign an agreement with any given franchisor, these are some of the basic information you need to know which is linked with having a plan on how the franchise will operate, and what the future prospects are. In the agreement, the rights of the franchisee and franchisor should also be clearly stipulated. This is a good way of understanding what the franchisors wants you to do and what they would do.
There are some kinds of franchise business model where health risk is involved. If you are looking for such type of business franchise then your health and safety obligation should be clearly mentioned in the particular franchise agreement. It is good to ensure that you make use of an insured franchisor so that in case of emergencies you are well catered for. In case you terminate the terms of agreement, it should also show what the penalty is. When it comes to hiring of employees, an agreement should provide you with a clearly defined operation guideline.
For your own safety, it is good to know each and every aspect of the agreement you get into. It is good to make sure you know the legitimacy and genuineness of the franchisor you want to partner with before you sign an agreement. You need to look for a company that will offer you high quality services to your satisfaction. It is advisable to check on the satisfaction level of past franchisees before you sign such a company.
A new company, which is just beginning to franchise may have room for recommendations and negotiations on terms of franchise. However, established brands with several franchisees may rarely look at altering their standard franchise template. In fact, they would at the onset give you the franchise agreement sample, and ask you to go through the same, before they engage you more seriously. Most companies though, through their annual franchisee meets and other regular feedbacks from their existing franchisees, make amendments to their franchise contract template. These company's give you a chance to incorporate new business ideas to make your business a success. Beware of many companies who could be very tricky. They may have hidden terms and conditions. So, it is always advisable to keenly read through all details of the documents before you sign a franchise agreement and engage a proper franchise attorney or experienced franchise consultants who would guide you through the entire process.
Some countries also allows a minimum time period from when the agreement contract template is shared to when it is actually signed. If the does not exist in your country, it is always advisable to take at least 2 weeks' time and to read, understand and speak to franchise consultants or specialist franchise lawyers and then respond. Never, rush into signing a franchise agreement, just because the franchisor is pressurizing you to do so.
Hence to conclude, we could say:
1) It does not limit the franchise marketing functions and enable recruitment of franchisees instead of scaring them away of several limiting clauses. Hence a good franchise contract will take into account, what franchisees would be wary off signing and ensure that the same is excluded. This means, as a franchisee, you need not worry of any clause that will either harm you or restrict you beyond the functions of the business.
2) It ensures clear demarcations, and provides for future growth and ensures seamless entry and exit, having proper termination and post termination clauses.
3) It provides sufficient provisions and time for rectifications of errors, if any. It is designed to protect the relationship, rather than break it.
4) It restricts the liabilities for the franchisees and franchisors properly and provides for proper coverage through insurance and other damage control measures.
5) Above all enables the company and the franchisee to function, respond and do business freely. Is synchronized properly with the financial, operational and marketing functions of the business.
6) Is absolutely compliant 100% with the local laws of the land and does not contravene in any way with local customs, cultures, sentiments and way of life. Hence you have to be very careful with international franchise agreements, which could have certain clauses, that would be correct for one country, but may be irrelevant for yours.
Getting the Best Out of Your Franchise Agreement
"Untouchables" and "Discussables"
Make the Most of the Franchise Agreement
Explaining the Differences Between the UFOC and the FDD
The franchise sale
Franchise Agreements The Basics
Twenty Questions to Ask before you Buy a Franchise
How to Negotiate Your Franchise Agreement
Top tips to buy a franchise
How Franchising Works
Franchising Strategy
Hiring a Franchise Lawyer
Franchisee checklist - the franchise agreement
Franchise Agreement Key Provisions
Are You Ready to Start a Franchise?
More on the franchise agreement
Big Changes Coming in Franchise UFOC Meet the FDD
What support should you get for your franchise
Question Your Franchise Decision Making
How Franchisee Start-ups Can Accelerate Sales Growth
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- FTC Rule 436 defines franchising as anyone offering an Agreement that contains these 3 things:
1. Licensing a "Mark" - which can be a trade name, service mark, commercial symbol, slogan, etc.
2. In the body of the Agreement, there contains, significant controls and assistance.
3. The licensee is paying the licensor in excess of $500 within the first six months of the actual offering of the business.
Licensing and Franchising can mean the same thing today. If you do not decide to franchise and comply with FTC Rule 436, you may be in violation of Business Opportunity Laws that exist in 24 individual States.
Re: Enticing Franchises - Top 9 List
- All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers...
- [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there.
To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1]
Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published.
I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee?
- Dear Colleague
There is no easy answer to this question. Things to consider:
[list=]
The sizeof the Franchise
Clent base
Expected Turnover
Intellectual Property costs (recoup)
Number of Franchises
Number of employees
Original Set up costs
Franchise admin costs
An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc
The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000.
Hope that this gives you some idea
Take care
Ian[/list]
Re: Franchise Surveys
- Another good tool to researching a franchise is to speak with their existing franchisees.
This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application.
The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc...
This information is required by Federal Law to be disclosed to your prior to making a purchase.
So be sure to do your research and start with the Franchise Documents to get the initial information.
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