Understanding Your Franchise Agreement
Once you've done your basic investigations into the history and opportunities of the franchise, it's time to start picking through the agreement with a fine-toothed comb. Request a copy of the contract from the franchiser as soon as possible during the decision-making process to make an accurate and fulfilling choice.
The contract you sign to begin a franchise business is a legal binding agreement. This means that violating the terms in the document could lead to financial loss. Each franchiser can put a range of requirements and rules into their contract that must be followed to the letter. This is why it is crucial to carefully read through every part of the document before signing it. The type of business and franchiser will determine how the document is structured.
Each contract will include some combination of the standard components. You may find sections covering information like:
1. Basic operations. These lines will cover any requirements related to day-to-day operations.
2. Territory or protected area. Your geographical region may become your sole territory, ensuring other members can't start competing establishments just a few miles away from you.
3. Royalties and other related costs. Check into the upfront costs, the ongoing royalties and the renewal or redesign costs required at the end of the contract.
4. Support and training programs. You should receive training when you first sign up, but there should be more opportunities for education and improvement as you continue.
5. Marketing requirements. The franchiser should share their plans to advertise the brand nationally. Information will also outline how much marketing you must do each month or year to continue the contract.
6. Total length. At the end of the term specified in the contract, you must renew or close your business.
7. Usage rights. There will be numerous limitations and requirements for using the trademarked name and other common branding materials from the franchiser.
8. Ending the contract. Certain stipulations are outlined in the agreement to allow you or the franchiser to dissolve your partnership.
Both you and the franchiser will sign the agreement. This locks you both into a legal partnership. It's recommended that you ask an independent attorney to read through the contract and warn you of any particularly strict requirements or other issues before you sign it.