The franchise agreement

The franchise agreement lays out in great detail, both your rights and obligations as the franchisee and those of the franchisor

When you agree to take on a franchise, the first - and the most important - step that you will be expected to take is to oversee the creation of your franchise agreement.

This is the contract which lays out, in great detail, both your rights and obligations as the franchisee and those of the franchisor. 

Before the agreement has been drawn up

As you would expect, a franchisor will often have a standard agreement waiting for use upon your decision to become involved in the business. However, in your pre-decision discussions, you will probably have been given a number of assurances verbally and it is very important that you keep track of these, record them and insist that they are included in the final document. 

Once you have signed an agreement, any promises made prior to that signature will be superseded by the written contract and it will be too late to add something new.

What can you expect to find in the agreement?

There are a number of factors that may be common to most legal contracts and some that are generally found in franchise agreements but not in others, but on the whole you should expect details regarding:

  • Fees, including the Management Service Fee, which is usually calculated as a percentage of your profit, but may include a stipulation of a minimum fee.
  • Training of staff to uphold the standards and practices associated with the brand, including whose responsibility it is to arrange and pay for such training.
  • The length of time covered by the agreement and whether it will be renewable under current terms or will require renegotiation in the future.
  • Brand image, including such factors as logo use, uniforms and the appearance of any premises. This is one of those concerns that is particular to franchise agreements.
  • Company policies, such as opening times, which you must investigate thoroughly, since you will be bound to adhere to the timetable expected by those familiar with the brand. Another policy which will need to be laid out in full is the staffing policy; what are the rules regarding holidays, sick pay, recruitment and professional development, for example?

Opening the new franchise

You may be expected to hold an event to mark the opening of the business and, if so, you need to establish what is expected of you and whether the franchisor will contribute anything in the way of funding, resources or a corporate presence. Similarly, you may need to commit to a certain budget for advertising, which you would have to factor into any calculations.

Obtaining supplies

Many franchises have specifications for products which require you to obtain supplies and equipment from the company itself. The terms and conditions of such procurement will be included in this agreement. In some instances, a separate guideline on business practices within the franchise may be available, whether as part of the agreement or at an additional cost. If this guide, or 'operations manual', is available electronically, it is important to ascertain how often it will be updated.

Moving on

Even as you take on a new franchise, it is important to plan an exit strategy, as well as knowing what would happen in the event of your death. You will need to know whether the franchise passes to your spouse, partner or heir if you die, whether the franchisor must be consulted if you want to pass the business on and whether there are any conditions under which either you or the franchisor can end the agreement before it has run its full course.

Any legal agreement must be taken absolutely seriously, as it is binding and - usually - very costly. Make sure you have complete confidence in those with whom you are entering into the agreement and ask your solicitor to read the document, explain it to you and draw your attention to any concerns they may have. With proper attention to detail, the purchase of a franchise can be the beginning of a highly successful enterprise. 

Next essential read: Is franchising for you?

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