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What to Look For in a Franchise Agreement

One of the most important aspects of becoming a franchisee is to understand what kind of documents you are signing when you join the franchise. Most likely, there will be a contract that details what is expected of the franchisor as well as you, the franchisee. To ensure that you're not legally signing yourself over to something you didn't know about, we've prepared a handy guide to looking at a franchise agreement.

Keep in mind that it's best if you  review the agreement with a solicitor that specialises in franchises, so you don't miss anything!

  • What does the franchise agreement cover? Make sure the franchise agreement is comprehensive, and that everything the franchisor has verbally agreed with you on is also included in the franchise agreement. This document should clearly lay out all your obligations to the franchisor and indicate the payments you need to make to the franchisor.
  • What am I agreeing to pay? Understand what kind of fees the franchisor will be charging. Usually there is an initial fee, but also be on the lookout for ongoing fees. These ongoing fees could be fixed or varied (varied fees are generally dependent on the percentage of revenue). Fees based on revenue can be a minimum fee or based on performance targets, and it will help you manage your franchise's finances as you build your business.
  • Do I get an exclusive territory? If you have an exclusive territory, then find out exactly what area it covers (e.g. postcode or region) and if you are only able to make sales in that territory. If you do not have an exclusive, defined territory, then make sure to stipulate what kind of direct competition is there, and how that can be avoided.
  • What kind of training and support do I get? Make sure the franchise agreement mentions what initial training and set-up support you will get, as well as the franchisor's ongoing training and support obligations. This should mention what will be involved in the training, and it might be helpful to set out a timetable for the training as well.
  • Do I need to buy anything from the franchisor? If your franchise requires products, make sure the franchise agreement mentions what you have to buy from the franchisor and/or a partnered supplier, or if you can choose to purchase products from a supplier of your own choice. Buying from the franchisor often means a discount, so ensure that is written in as well.
  • What are the terms of the contract? How long is the initial term of the contract? When the contract expires, is it renewable? How much do you owe if you renew?
  • What happens if you sell your franchise? Make sure the franchise agreement explains what happens if you were to sell your franchise business or (morbidly enough) pass away. Also, make sure the document details when/how the franchisor can terminate the relationship.

These are important things to remember when signing a franchise agreement. If you need a franchise solicitor's help in looking it over, browse through Franchise Direct's selection of Franchise Solicitors.

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