In the article “Understanding Franchise Agreements and Contracts”, we talked about the key points you need to look at when negotiating your franchise agreements and contracts. When and if you decide to proceed with entering into the franchise contracts and agreements, here are some key items you will want to cover with your future franchisor and franchise lawyer:
Get it in writing!
Check and see if you have made any verbal agreements with the participating parties that you are not seeing within the final contract, or you think have not been adequately covered. Once you’ve signed on the dotted line, it could be difficult to make the others step up and keep any promises you don’t have down on paper.
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Know your obligations
You will want to make sure it is spelled out explicitly what each individual will be responsible for when opening and running your business. Will you as an individual have to execute the contract or are you allowed to assign the business to an existing corporation you own. Also, will there be any restrictions placed upon others regarding employment, ownership, or partnerships with other highly competitive franchises?
Renewing the license
If you are relying on the fact that you will be able to renew your franchise license once your initial contract expires, you will want to look into whether any restrictions can be placed upon this renewal. If you lose a lease or fail to reach certain performance milestones, can you lose your right to continue on with your business?
Know your territory
Has a location already been selected for your business, and is it in an area you think will prove beneficial? Will you be allowed to relocate if your lease expires or your business is performing poorly in a certain area? And, is there an agreement set up so that you are restricted from expanding into certain territories because of overlap with other existing franchisees?
You will want to check and see if there is a provision within your contract that tells you when and under what circumstances you are allowed to terminate your franchising contract and move on, and what consequences you will have to face for early termination. Also, who has the ability to terminate your contract, and under what circumstances?
Can I choose my own suppliers?
With certain relationships you can also be locked in with a supplier and unable to source your own wares even though you may be able to find cheaper, higher quality options available to you. Find out what restrictions will be placed on you in terms of inventory, and if you are able to source alternate brands or types of product from various suppliers.
Can I sell?
Find out what restrictions will be placed on you should you wish to sell or transfer over ownership interests to other owners. Will your partners have the right to stop such transfers from taking place, or have a say in who you are selling your business to? Get help!
Recommended Books on Franchise Contracts and Agreements:
- Franchise Bible: How to Buy a Franchise or Franchise Your Own Business
- The Educated Franchisee: The How-To Book for Choosing a Winning Franchise, 2nd Edition
- The Franchise Fraud: How To Protect Yourself Before And After You Invest
- The Franchise Handbook: A Complete Guide to All Aspects of Buying, Selling or Investing in a Franchise
- Become a Franchise Owner!: The Start-Up Guide to Lowering Risk, Making Money, and Owning What you Do
About the Author:
Dwayne R. Nawrocki works with My Franchise Law helping individuals starting up a new franchise or even those who are currently in a franchise agreement.