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Make the Most of the Franchise Agreement

Written by: Michael Hemenway

Article Overview: The market has been studied, the category chosen and now you're ready to sign the paperwork to purchase a franchise. Here's some of what you'll encounter in the franchise agreement

Make the Most of the Franchise Agreement

When you want to join the franchising business, the first thing you should do is study the market really well. Choose the field, which appeals to you the most and go through information on all the established and new players present in that segment. Then narrow down on those who fit your budget and ask for the UFOC from the franchisors. Read them well, visit them on the “Discovery Day” and then, if everything goes all right, talk about signing the agreement papers.

The franchise agreement is the backbone of relationship between the franchisor and franchisee. It is the ‘commandments’ that will govern both of them. Hence, take your time in reading the agreement; and if needed, employ an attorney proficient in franchise agreements.

The main provisions that will be there in your franchise agreement are:

1. Training/Ongoing Support: The section will deal with the training programs the franchisor will provide the franchisee and his staffs. Both corporate and on-location training can be provided. It will also tell about the amount of on-going support the franchisor will offer.

2. The franchise fee: The amount of money the franchisee will have to pay including franchise fee and other charges.

3. Royalty: The monthly fee that you need to pay for using the company name.

4. Trademark and patent usage: Franchising is all about buying the reputation of the company and so, this clause will make sure that the franchisee rightly uses the trademarks, signage and patent of the franchisor.

5. Assigned territory: The territory under which you will operate and also, whether it is a protected territory.

6. Duration of the franchise agreement: How long the agreement is going to last.

7. Operation protocol: Guidelines on how the franchisee will run the unit on a day-to-day basis.

8. Advertising: The advertising programs the franchisor will carry out in order to promote the franchised unit and the amount the franchisee is required to pay for it.

9. Renewal rights/cancellation policy: What will happen when anyone wants to move out of the relationship? Some franchisor may add the Arbitration Clause that will take any legal action from any side to an arbitrator and not to a court.

10. Resale guidelines: When you want to resale the franchised unit, the franchisor may impose certain restrictions.

If you go through the franchise agreement, you will find that it is leaning towards the interests of the franchisor. It is a document prepared by them and you, as a franchisee, have little say on it. Most franchisors will not negotiate on the agreement, because when you are running a large and successful franchising operation, it is not feasible to have different agreement terms with each one of them. If a franchisor is ready to negotiate with most clauses except the fees, it is better to think twice before joining. The reputation of a franchise chain depends on the uniformity of services/products, so the franchisor must take necessary guards in protecting it.

Then again, it never harms in asking and hence, always clarify beforehand whether you can change even a single word of the agreement. If it is no, then you can either sign it or leave it. If the answer is yes, then sit with your attorney and try to find ways of tweaking the franchise agreement to your favor.

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  Franchisee checklist - the franchise agreement

Article Tags: amount of money, backbone, cancellation, discovery day, duration, franchise agreement, franchise agreements, franchise fee, franchisee, franchising business, franchisor, franchisors, ongoing support, protocol guidelines, provisions, royalty, segment, signage, staffs, ufoc



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