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You’ve taken the step to analyse yourself in order to understand what sort of franchise you will succeed in, you’ve looked into the market to see what’s on offer and you’ve assessed the potential franchisors; the last and most important aspect, to get right, is the franchise agreement.
The Franchise Agreement is a legally binding, written document that will specify the expectations and responsibilities of both the franchisor and franchisee. It will be a detailed contract that, once signed, will be used to govern the relationship between the two stakeholders. If any disputes or disagreements occur during the relationship, the franchise agreement will be used as proof of terms and conditions.
As this will be the document that outlines the work that you will undertake and the supervision you shall receive, it is of utmost importance that you complete your due diligence to ensure that it is something you can adhere to. As it has caused issues in the past and with it being so important, the franchise agreement must be disclosed at least 5 days before any signature can be provided to discourage aspiring franchisees to jump in without triple checking the agreement.
It is advised that, before you sign anything for the franchise agreement, you seek legal help with experienced franchise specific solicitors.
The Franchise agreement will have very similar elements for all franchise opportunities and we shall cover most aspects below:
Who are you doing business with? You need to check the reputation of the party who is signing the agreement, as that will be the partner you will be working with potentially for many years.
How long does the franchise agreement last? Is it clearly stated and what happens when it expires? Will there be a renewal fee? Is it a sufficient period so that franchisee can receive a positive return on investment? Points to consider.
With regards to the allocated territory, you should evaluate whether or not it has potential to provide a positive ROI. Is this area exclusive to you and what are the rules for expansion into new territories?
For more detailed information take a look here – How to choose a Franchise Location
The initial and ongoing fees should be outlined, carefully examined and compared to your expected/estimated earnings to ensure that it is a profitable venture. This should also outline any management service or royalty fees, which are common for franchise opportunities.
For more detailed information take a look here – Franchise Fees
This will either be for yourself or your team, depending on what franchise you go for. What you need to check is; will the there be training provided and will this cover all aspects required to run this franchise or will additional training be required?
If you are providing training for your staff, how will this be performed? The choice of online/virtual training is now available, however, if you choose the traditional method (e.g. in a training centre) you should include these costs into your budget forecast.
This will differ hugely depending on which franchise you decide upon, but you must check the following; what are the rules for sourcing the supplies and/or products required for your operation? Are you buying directly from the franchisor exclusively and, if so, what are the rules around fair pricing? Are you allowed to source your own products? You need to ensure that you are able to purchase the goods required for your operation at a cost that isn’t detrimental to your franchise.
You need to check what services will be provided for you in terms of advertising; it’s not uncommon for a franchisor to take sole responsibility for this, however, they may expect you to run these services. You should look into what return you normally expect from this, any costs involved and what marketing avenues you can utilise.
You should look into the support you will receive as a franchisee; your franchisor may be able to help you in terms of pricing and operational training for your team.
The Franchise Agreement consists of many different elements and yours will probably have different components, as shown here, but the overarching consensus around the franchise agreement is; this is how you will have to work for the contract length, so ensure that you are receiving everything required to make this work and that you are able to commit to the forecast.