Exploring The Franchise Agreement
Franchise agreement is the “Magna Carta” that is signed between the franchisor and the franchisee. To ensure a proper relationship between them, it’s necessary that both the parties understand the agreement thoroughly. Since the franchisor is the one who makes the agreement, it’s the onus of the franchisee to understand this important legal paper. The first thing that the franchisee needs to realize is that the franchise agreement will favor the franchisor, as it’s drafted by the latter. Secondly, the UFOC is not the franchise agreement, rather a document that foreshadows the franchise agreement. Thirdly, a franchise attorney is very necessary while reviewing the agreement. It’s a legal paper and hence, the view of a legal authority is quite necessary. Lastly, he or she will get some time to review the franchise agreement.
No company that is offering the franchise business for sale will ask the prospective franchisees to sign the document then and there. This time-period is given, so that the franchisees interested in starting a franchise understand very well what they will get from the system and what they are supposed to provide. If you are one of them, the first thing that you should check out is the fees section. There will be two kinds of fees mentioned in the agreement; one-time fee like the franchise fee and periodical fees like royalty fee, advertisement fee and so on. Then the section to look out for is the support and training the franchisor is going to offer you when you buy a franchise from it. Also, make sure whether the company is offering you site selection assistance or will just refer you to a third party site selector. In that case, note who is going to pay the real-estate company that helps you in finding the best site for your business.
Training is supposed to include both on-site and classroom training. The agreement should also clearly state the on-going support system of the franchisor. Also, look at the restrictions the franchisor may impose on you. You may only use the brand-name under certain conditions and restrictions may be placed on how you display it. There may also be restrictions on what product/service you can provide from your location and where you can get them from. Moreover, you may also be instructed to color your restaurant in a specific way or remodel the floor according to certain specifications. The next thing to watch out for is whether you are getting protected territory. If yes, then you should also learn what the size of the territory is and other related things. Also examine, if there are any pre-conditions for getting this protected territory. Lastly, look into the exit policies from the franchise system along with the terms of renewal and the franchise agreement period.
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Tags: business, franchise
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