Your lawyer and accountant are the best familiar with your individual situation, so ask for their opinion on the terms of the franchise agreement that you should amend to make them more favourable to you. Make sure you understand all the effects of the agreement before you sign it. Territory: Is your franchise an exclusive territory or does the franchisor reserve the right to open other sites nearby? How is your territory determined? Is it the population? Is it based on a map and, if so, to what extent is it detailed? The franchise agreement is a legally binding contract that accurately defines the responsibilities and expectations of the franchisor and franchisee. Before signing, compare the franchise agreement with the FDD to ensure that the franchise offer, as described in the FDD, complies with the terms of the agreement. Even if oral promises have been made to you, be sure that they are written in the agreement. Note, however, that the creation of the franchise industry is based on proven systems and consistency, which means that a franchisor`s willingness to clearly bend the conditions may indicate a level of instability within the system. Operating Manual: As a franchisee, you need instructions on the management processes and procedures of the business. These should be described in the operating manual, which is actually your Business Management Bible. Find out if you need to get a printed copy or download it, which is becoming more common.
How many times is it updated? Is there a surcharge or down payment for receiving the operating manual? Check this clause so you know how much the franchisor`s advertising budget will be spent on promoting your business locally and nationally. How is advertising capital distributed? This should be clearly defined in the franchise agreement. Sale or transfer of your franchise: How much control does the franchisor have over the sale or transfer of your individual franchise business? Does the franchisor have a right of approval or veto over potential buyers? What percentage of the sale is the franchisor entitled to and when should it be paid? Operating hours: what opening hours do you plan to open? Do not commit to operating hours requirements unless you are certain that you can meet this obligation. If you do not respect the time, the contract may be considered infringing and your reputation as a franchise owner in jeopardy. Fees: The royalty section must be thoroughly reviewed. Most franchisors require a royalty representing a percentage of turnover or gross/net revenue or a flat fee (some franchises also have minimum rates). It is important that you understand all the conditions of the minimum benefit and royalties on the basis of income. Training: This is another factor that can affect your success and can be costly.
Here too, logistics, duration and location should be described in detail in the franchise agreement. As a general rule, franchisees must pay their own cost of living during their training; And these can be prohibitive if the duration of the training is extended. As a result, McDonald`s needs a training period of 9 to 18 months for new franchisees. Duration of agreement: Then, make sure that the duration of the franchise agreement is clearly defined. How long is it – five, ten or twenty years? Is it renewable if the original contract expires? If the contract is renewable, how much do you have to pay? Is it the full fee deductible or is it enhanced for a renewal? Termination of contract: under what conditions can the franchisor or franchisee legally terminate the contract before the contract expires? Know your legal and financial rights in this area if the franchisor does not respect the agreements and financial consequences you will have if you do not meet your obligations.