Franchise Agreement and the Steps

Checking the Franchise Agreement
The franchise agreement is the contract between both parties (the franchisor and the franchisee) which sets out all the responsibilities and obligations of all the parties. Because the agreement is generally put together by the franchisor it will often tend to be favoured in that direction. This means that you will have to check it out with your lawyers and make any amendments that are not acceptable before signing.

You need to be very clear on each term that is included in the agreement and if you are not happy with any particular condition see that it is amended or deleted entirely. Remember that this agreement is a formal understanding of the franchise situation between both of the parties so every point needs to be fully clarified. There must be little margin of error to avoid arguments later on.

Whatever you do, make sure you obtain it in writing. Never, ever accept someone's word about a particular part of the franchise. Unless you have received it in black and white it will hold little water later on if there is a dispute.

Some of the points that need to be covered in the Franchise Agreement include the following:

  1. Franchise Fee.
    What is the cost of the franchise, how it made up, what commissions or royalties is are payable etc.

  2. Termination.
    How can the franchise be terminated, what are the terms and are they reasonable.

  3. Promotion.
    Are you able to do your own advertising and promotion or does it all have to come through and be part of the group advertising run by the franchisor?

  4. Commissions & Royalties.
    What are the full details of the royalties that you have to pay and how is this figure calculated?

  5. Financing.
    Are there any financing arrangements available with the franchise?

  6. Support & Training.
    What is the support and training provided by the franchisor?

  7. Selling.
    Are you able to sell your business freely or do you have to obtain permission before selling? Do you have to give the franchisor first refusal at a fixed price or is the price that is used one that is set by the market or valuation?

  8. Intellectual property.
    If there are patents or trademarks involved are they fully secured and can they be transferred to a new owner?

  9. Territory.
    Is there an exclusive territory involved? Will having an exclusive area be an advantage or disadvantage to you?

  10. Plant & Equipment.
    Do you have to purchase the plant and equipment from the franchisor or can you secure these from somewhere else at better prices?

  11. Insurance.
    Do you have to buy insurance through the franchisor or can you arrange insurance yourself?

  12. Prices.
    Are the prices for your products and services fixed by the franchisor or can you set them yourself to meet the market?

  13. Competing.
    Are you able to retain ownership in a similar business while the franchise is in force or will you come under a no competition clause which prevents you from operating something similar?

  14. Disputes.
    Does the agreement provide for a method of solving disputes such as negotiation or arbitration?

  15. Quiet Use.
    Are you able to quietly carry on your business without interference or are there times where the franchisor is able to enter your premises for whatever reason he or she deems necessary.