You and your solicitor have examined the Franchise Contract. You’ve done your research about the franchise, and the numbers add up. You’ve spoken with other franchisees in the business, and like what you’ve heard. You feel ready to sign the Franchise Agreement.
The Franchise Agreement is a legally binding contract that should stipulate in exacting detail, the responsibilities and expectations for the franchisor and franchisee.
Keep in mind that Franchise Agreements are written to be generally more advantageous toward the franchisor. Once signed, you are legally obligated to uphold all the provisions of the Agreement, so it is absolutely essential that your solicitor review this contract and have everything explained to you in plain English.
Before signing, compare the Franchise Agreement to the initial information to make sure the franchise offering as outlined matches what is stipulated in the Agreement. If any verbal promises were made to you, be certain these are written into the Agreement. Once signed, the Franchise Agreement governs your relationship with the franchisor, and any disagreements or misunderstandings will be subject to the terms in the Agreement.
Because it is a legally binding contract, there are certain critical elements typically found in all business contracts and some that are unique to franchises. You and your solicitor should carefully scrutinise every aspect of the Agreement to be sure you understand all the implications.
Some Negotiation Tips
Many franchisors have rigid Franchise Agreements that all their franchisees must sign and adhere to. However, some franchisors may be more flexible about negotiating the terms in the Agreement. But, be careful – since franchises are all about proven systems and consistency, a franchisor that seems too eager to bend the rules may be a sign that the business is in a measure of trouble.
Items that typically offer room for haggling include
- Territory rules about exclusivity, future expansion or changes in size
- Grand opening support and resources provided to you
- The training provided to you and possibly your staff
- Rules about transferring the franchise to other franchisees
- Fee schedules and payments
- “Default cure” which governs how much time you have to correct a problem that keeps your franchise from operating properly before you are in default of the contract
- The start-up date when you are expected to launch the business
- How the price will be calculated for the franchisor to buy your business once you’ve reached the termination date
- Your liability limits regarding franchise performance
Your solicitor and your accountant are the most familiar with your individual situation, so seek their advice about which Franchise Agreement terms you should attempt to alter to make more favourable for you.