When you buy a franchise business, you will have to sign a franchise agreement. This contract is what binds the franchisee and the franchisor together. It defines the relationship and in the case of a dispute this is the first document that will be examined and scrutinised to evaluate what promises were made, kept or broken by either the franchisee or franchisor.
Seeing as how important the franchise contract is, it goes without saying that any potential franchisee considering buy a franchise, must get professional legal advice from a competent solicitor well versed in franchise terms and language.
A well written franchise agreement will clearly define the scope of the relationship, the obligations and responsibilities of both parties and protect both parties’ interests. With the help of a good solicitor, make sure you clearly understand what your rights and obligations are with regards to:
1. Initial franchise fees and ongoing royalty and marketing fees
2. The marketing materials included within the initial package
3. The initial equipment and inventory included in the fee
4. The exact responsibilities of the franchisee
5. The exact definition and boundary of the territory
6. The duration of the contract
7. The renewal terms of the agreement
8. The initial and ongoing training programmes
9. The support and how it is delivered
10. How the franchisee can exit from the business
11. What happens in the case of illness or death of the franchisee?
12. Which suppliers the franchisee must use
13. Which products the franchisee can find their own suppliers for
14. The exact opening and closing hours
15. Use of logos, brochures, artwork etc
With most franchises, you are clearly restricted in how you can operate the business. You might have to advertise in a clearly defined way, you will not have full freedom to branch out or expand as you wish, you might have to buy your products and services from designated suppliers, and you will have to adhere to maintaining your books, records and accounts in a specific manner.
Most franchisors stipulate carefully the kind of insurance cover required knowing all too well what can and does go wrong in their existing network. Even the methods you use to find and recruit new members of staff might also be covered within the franchise contract. This is to ensure that the right quality of staff are found and kept to help you manage your business more successfully.
You must also clearly understand the franchisors responsibilities. Do not be scared to highlight any problems with the franchise agreement and then try and negotiate more favourable terms. Most franchisors understand that each individual and each territory has unique and different needs that they must accommodate if the business is going to be truly successful in as many territories as possible.
This is only a very brief introduction to what is covered in the agreement so make sure you get expert advice. Once you and the franchisor have signed and witnessed the contract, you are then bound by the terms within. Hopefully if you and your solicitor have both scrutinised and negotiated the terms of the agreement properly in the first place, you will now have a contract that looks after your interests as well as the franchisor!
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