Franchising and the Provisions of a Franchise Agreement
One of the best ways to become a business owner and make your own hours is to open a franchise. It's the easiest and quickest way to start your own business. Franchising allows you to bypass most of the legwork of starting a brand new business from the ground up. Plus, a franchise has the distinct advantage of using proven business model towards success.
One of the first things you'll learn about franchising is the importance of the franchise agreement. This is the legal document which governs the franchisee and franchisor relationship. No two are alike and there is no mandated format since most terms, conditions and operations are quite different from franchise to franchise and industry to industry. However, franchise agreements do cover the following basic provisions:
Training and support provided by the franchisor - Each franchisor develops their own specific training program for their franchisees and staff. This includes all training done at the offsite location or at the corporate headquarters. All offer ongoing support ranging from administrative to technical and marketing.
Assigned territory - Your franchise agreement designate a set territory in which you will operate and whether or not you are guaranteed exclusivity rights.
Duration of the franchise agreement - This duration states the length of the agreement.
Franchise fee and total investment - Franchisees are required to pay an initial franchise fee. This grants them the right to use all trademarks and operating systems.
Trademark, patent, and signage use - This part of the franchise agreements explains how a franchisee can use the franchisor's trademark, patent and signage
Royalties and fees - Most franchisors require franchisees to pay an ongoing royalty, on a monthly basis. It is usually four to eight percent.
Renewal rights and franchisee termination/cancellation policies – This stipulates how the franchise can either be renewed or terminated. Some have an Arbitration Clause within the franchise agreement, meaning if legal action on either side is warranted, an arbitrator will review the case instead of going to court.
Resale rights - Some franchisors allow individual franchisees to sell their business for whatever reason. Some agreements have buy back or right of first refusal clauses written in them, allowing the franchisor to purchase the franchise back at a rate determined by them.
There is no clear formula for finding the right fitting franchise. It is as much about your instincts as it is about dollars and cents. Of course, you want to shop around for the very best deal and find a franchise that will deliver an excellent return on your investment.
