Franchise Agreements – Five Considerations Before Signing One

Many people are opting for owning a franchise instead of having a job in the corporate world. This is mainly due to the empowerment presented by this strategy and the level of control they get over their own destinies. Though this can be a great way of becoming successful in life, you should be careful before you sign the franchise agreement. The agreement dictates the relationship between the franchisee and the franchisor. It also contains some very important information providing the options to be considered in the future in case the relationship does not work out as expected. It is important that you completely understand the agreement before you place your signature on it. Listed below are five things you should make sure you fully comprehend before signing the franchise agreement.

franchise agreement1. Agreements are Usually Non-Negotiable

Strong franchise companies have a uniform contract for all the agreements that they make. The franchise agreement is usually as is and you are required to sign what other franchisees are signing. In case there are some provisions in the agreement for further questions and clarifications, you should take this opportunity and ask to be provided with a letter of clarification that addresses the specific points that you have issues with. This way, even with a contract that is non-negotiable, you still have some level of comfort knowing that you completely understand every part of the contract.

2. Willingness of the Franchisor to Negotiate Huge Portions of the Agreement Should Be a Red Light

In case the agreement states that everything is open for negotiation, you will have to question the level of certainty and confidence of the brand that you are in dealings with. If they do not have strong standards and are always wavering, then they are not good people to work with. As part of the process, it is always advisable to ask the franchise company whether they are willing to negotiate and modify the terms of the franchise agreement. You also need to get expert assistance in order to negotiate in a proper manner and get the best deal you can.

3. Franchise Agreements are Typically Unilateral in Nature

The agreement is usually written from the perspective the company. This may seem unfair or unreasonable at times and this is usually the case. This may not be as bad as it may seem to most people at first but usually it is aimed at protecting the entire franchise system as a whole. This comprises the brand and integrity of the brand and business of the franchisee in general. The franchisee company believe they can do this particular task best and that is exactly how they will get down to writing the contract. In case you are not comfortable with the approach of a particular franchisee, you can always opt to go for another company that takes care of your interests in a much better way. This way, you will not feel oppressed or taken advantage of in any way and you will have fulfilled your needs in another way without having to put your self in a sticky situation.

4. Franchise Agreements Contain the Full Obligations of the Franchisor and the Franchisee Including Must Do’s

Within the very first paragraphs of the agreement, you will notice that it is full of rules. These includes the things that you must do regularly in accordance with your business operations. The main aim of the rules is to give you an understanding of the business and how you can operate yours in a way to obtain success. This is why the rules are so many and so clearly spelled out in order to reduce the chances of misunderstanding and ambiguity. In order to ascertain any of the must do rules in the agreement, you can make calls to a couple of existing franchisees and obtain more information from them. In any case you are not so comfortable with any of the mandatory provisions in the contract, you should start looking for a different franchise to pursue and save yourself the long legal battles that are bound to come in the future.

5.  Agreement Contains List of Can’t Do’s

This is a counterpoint to the above-mentioned rules. Most franchise agreements make a point of explicitly prohibiting what you cannot do while operating your business. Most of the cant do’s are mostly common sense. For example, the rule of no-compete. However, they are usually included so that they can act as a reference point in case one of the parties breaks the rules. This is also in regards to intellectual property protection as you are provided with the trade secrets and operation mechanisms of the franchisor. You are not supposed to compete with them and you cannot use the information you obtain from them unless you are part of the system.

Most of the rules that are prohibitive are meant to protect the entire system from any malicious actions of a fellow franchisee. The behavior of a franchisee in their business operations usually has a huge impact on your business operations and ultimate success. The franchise agreement has to have enough restrictions so that some time down the line, a franchisee will be prohibited from conducting their business in a manner that harms your own interests and also other franchisees. When you look at the can’t do’s from this point of view, they tend to make more sense.

The five considerations outlined above will help give you a better understanding of franchise agreements and their effect on you as a franchisee. These are the most aspects of the agreement and has a direct impact on you – the franchisee. This is why you should consider bailing out in case you are not comfortable with any of the terms, conditions and rules outlined in the agreement. This will help you take charge of your own destiny and avoids the situation where you regret your decision. Do this and you will always be happy that you’ve made the best decision ever.

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