If you are considering buying a franchise, you need to understand the agreement(s) between yourself and the franchisor.
Like any contract, this forms the basis of your agreement. Make sure you read it carefully, have it reviewed by your own legal counsel, and clarify any questions you might have.
Get it in writing. Verbal explanations and clarifications are good and necessary. However, you want to make sure you get any additional explanations or discussions in writing. In a best-case scenario you will never need them and your business relationship will be successful. In the event things go sour, you will want to have written copies of all your agreements and understandings.
A franchise consulting company can help you find the best franchise opportunities to fit you and your needs.
Elements of A Franchise Agreement
- Territory Rights – the geographic area where the franchisee is permitted to operate
- Minimum Performance Standards – benchmark values for sales, revenue or other metrics
- Franchisor Service Requirements – lists the services the franchisor is obligated to provide
- Franchisee Payments – royalty or other payments must make to the franchisor.
- Trademark Use – Permission to use the brand and other marks of the franchisor to promote the business
- Advertising Standards – The baseline requirements to promote the franchisor’s products
- Exclusivity Clause – The exclusive right to sell the franchisor products within a given territory
- Insurance Requirements – requirements for the franchisee to insure against business losses and other liabilities.
- Non-Compete and Confidentiality – franchisee requirements to not engage in competing business, and to keep details of the business relationship confidential
- Dispute Resolution – how any disagreements between the two parties are handled
- Termination and Exit – how the agreement is terminated. It should include both voluntary and involuntary dissolution. It could also cover how to sell the franchise to another party.
Why A Franchise Agreement is Important
Franchise agreements provides legal protection for the interests of both parties. Clearly defined responsibilities and obligations lessen the chances of a dispute or disagreement.
Franchise agreements provide consistency across a brand. The franchisor wants the customer experience to be consistent. A franchise with consistently high standards is more likely to be successful.
A successful franchise has developed a high-quality brand. The franchise agreement helps maintain the integrity of the brand. This comes about by preventing misuse of sensitive assets like trademarks and other marks.
Franchise agreements are the backbone of any successful franchise operation. They set the rules and standards for both parties and can provide flexibility where required.
