A comprehensive business strategy is required. You cannot launch a franchise without a strategy. The strategy must include how you will operate, recruit new franchisees, and advertise your company. A 1% error on a franchise royalty might potentially cost you millions. It’s not a huge deal when you just have one franchisee. It simply means the franchisor loses $5,000 in royalties. When it comes to franchising, however, this error may be magnified by 100 or more.

• Advertising costs
• Technology fees
• Product margins
• Type of franchise offered (individual, area development, area representative, etc.)
• Territorial rights granted to franchisees
• Reservations of rights for the franchisor

Communication issues with the first franchise sale might lead to subsequent franchise disputes. Even a minor franchise lawsuit may be expensive to defend. A “minor” franchise litigation action may easily cost $100,000 to $200,000 or more to prosecute.

You need a strong Franchise Disclosure Document. An integrated Franchise Compliance Program that sets norms and expectations, administers Franchise Disclosure Documents and regulates information publication is critical. A franchise corporation will never make a better investment.

Understanding The Franchise Agreement

A franchise agreement specifies the rights and obligations of both parties, the duration of the agreement, the area (if any) assigned to the franchisee, and the associated fees.

Your company is built on a Franchise Agreement. Before you start building on it, be sure you fully grasp it.

Every Franchise Agreement should be thoroughly studied, so have your attorney go through it with you word by clause to ensure you understand all of its provisions. Franchisees should also be aware that although entering into a Franchise Agreement is very straightforward, exiting one may be significantly more complicated.

A typical franchise agreement is a long-term commitment (often of six to ten years in length). The Agreement will have strict conditions that must be met for the whole duration. In many cases, non-compliance allows the franchisor to terminate the Agreement. Go Franchise provides experienced franchise legal guidance to its clients.

While Franchise Agreements are designed to safeguard the interests of all parties, including the franchise system, they may sometimes contain or remove terms designed to protect the franchisor.

• A clause requiring the franchisee to pay any expenses incurred in defending the trademark usage
• An immediate right to terminate without warning if the franchisee fails to pay royalties.
• Absence of franchisee support, training, and development agreements
• Even if the franchisor violates their obligations to the franchisee, the franchisor’s culpability is limited.
• Widely designed provisions weakening a franchisee’s “exclusive” zone.

All franchise agreements have these terms. An expert franchise lawyer can help you identify them. Some franchisors are unwilling to amend their agreements, particularly if other franchisees are already operating.

Even if you detest certain aspects in a Franchise Agreement, it is critical that you completely comprehend the contract and the obligations it puts on you as a franchisee. In addition, additional papers may include conditions that, if violated, constitute a violation of the Franchise Agreement.

Ensure that any pre-contractual comments about revenue or other characteristics of the company that drew you to the franchise are included in the Franchise Agreement or other documented form. If you would like more information, please click to find out more.