Check this clause to find out how much of the franchisee`s advertising budget will be spent on promoting your business locally and nationally. How is advertising capital distributed? This should be clearly defined in the franchise agreement. Fees: The section listing the fees needs to be thoroughly examined. Most franchisors require a license fee which is a percentage of gross/net revenue or a flat fee (some franchises also have minimum requirements). It is important that you understand all the conditions relating to the minimum service and royalties on a revenue basis. In cases where the franchise ends earlier than expected due to the expiration of the lease agreement, franchisees can negotiate concessions to their franchise agreements, for example. B a proportional reimbursement of the franchise fees paid by the franchisee in advance. Apart from these three main provisions, Goldman said, the rest of the agreement may vary depending on, among other things, the type and size of the franchise. Expansion Options: Does the agreement give you opportunities to expand the business and/or buy other franchises so that you own multiple units instead of just one? While it may seem unthinkable in this stressful phase where you get your first franchise, you might want to grow beyond a single unit as soon as you have a successful business in business. Find out if it is possible and what it will cost so as not to have any surprises if you want to grow. Important finding: Franchisors and franchisees should aim to reach a fair agreement for both parties, although some elements, including pricing structures, may not be on the agenda.
The conditions for terminating franchise agreements generally favour the franchisee. In many franchise agreements, only the franchisor is allowed to initiate termination. While the reasons for the franchisee`s termination vary, you may be able to use the following circumstances to initiate the termination: “If you`re not the first or second person who ever crosses a particular business, the fees are pretty much set in stone,” Goldman said. Termination of the contract: under what conditions can the franchisee or franchisee legally terminate the contract before the expiry of the contract? Do you know your legal and financial rights in this area if the franchisor does not respect the terms of the contract and what are the financial consequences that you have if you do not respect your obligations. Don`t make assumptions about terms that appear vague in a franchise agreement. You could increase your financial risk by misinterpreting important details. Duration of the agreement: Then make sure that the duration of the franchise agreement is clearly defined. How long does it take — five, ten or twenty years? Is it renewable when the original contract expires? If the contract is renewable, how much do you have to pay? Is it the full deductible or is it reduced for an extension? By law, franchisees must provide franchisees with a franchise disclosure document for verification before exchanging money. The Federal Trade Commission requires franchisees to disclose 23 points relevant to the possibility of franchising, including: 3. Customers at some outlets may not be stable due to frequent changes in the identity of the franchisee; However, always remember that you have a very important protection in the real world – security against arbitrary or capricious behavior of the franchised company. When they are outlaws, they not only hurt you, but they hurt all franchisees.
As a collective group, franchisees have “the power of the wallet” over the franchisee, since virtually all of a franchise`s revenue comes from its franchisees. Note, however, that the foundation of the franchise industry relies on proven systems and consistency, which means that a franchisee`s willingness to bend conditions significantly may indicate some degree of instability within the system. . . .