What you should know before signing on the dotted line
If you’re looking to jumpstart a new business by signing on with a successful franchise, congratulations! With hard work and commitment to excellence, you’ll find smashing success. But well before you reach opening day, you’ll have to sign an agreement with your franchise of choice.
A legally binding document that both parties agree to uphold, franchise agreements come in all flavors and complexity. Understanding what to expect before reviewing and signing ensures your business has the strong start and ongoing support necessary to succeed.
So what will you find in your franchise agreement? Keep reading to find out.
Territorial Matters
Having a clear picture of your available territory is vital for a franchise. Depending on the franchise you are considering, you may be granted a territory based on ZIP code, demographics, or population density.
Regardless of how your territory is determined, don’t take the agreement at face value, as terminology in franchise agreements can be misleading. Confirm whether your “exclusive” territory means that other franchisees can’t advertise in your area or that they simply can’t build in your area. Knowing this will lead to a positive relationship with your franchisor and fellow franchisees.
Money Issues
When starting a franchise, understanding the upfront costs (franchise fee and equipment/construction costs) will often determine whether you move forward or move along. However, the initial cost to buy into a franchise isn’t the only financial issue to consider.
Every month, you’ll be required to send a royalty check to the franchisor. In most agreements, this royalty is a percentage of the income. With this set up, your franchisor makes more money when you make more money. A more user-friendly option is a flat monthly fee that you pay, regardless of how much money you make.
Franchises may also require maintenance or equipment updates from a specific vendor. Understanding the cost and frequency of these is important. As is knowing whether the franchisor lends a hand in marketing effort or requires you to foot the bill in its entirety.
Training Processes
The best franchises have solid training processes that ensure franchisees are poised for success. Franchise agreements should clearly lay out training that takes place. This should include initial training, which you undergo prior to opening your franchise, as well as available training during the life of your business.
On top of planned training opportunities, the agreement should lay out what type of ongoing, in-the-moment support is available to franchisees. As you will come against new challenges regularly, training and support will make the difference between growth and stagnation.
Name & Likeness
Because the franchisor is the owner of the name and likeness (logo, etc.) of the company, the franchisor gets to determine how you use the franchise’s name and likeness.
In most franchises, this means using only official logos, slogans, and mascots on signs and advertising. You’ve likely never seen franchisees create hand-drawn signs with characters not sanctioned by the franchise. It isn’t allowed in most cases and is rarely helpful in picking up new business.
This is because customers recognize a company’s logo and mascot. Since you want the benefits of using a franchise, it only makes sense to also make use of their tried-and-true name, logo, and mascot.
Room to Flex
Every franchise is different. It was created by a unique person with a unique personality who wants to leave a unique imprint on the world. As a result, some franchises are more flexible than others.
With some franchises, every aspect of the business is laid out to be followed to the letter. With these, your contract says where to open the business, how many square feet your location will be, what decoration you must use, the hours of operation for your location, price of goods and services, and more.
Others give you freedom. Live in a town that shuts down by 8 p.m.? You don’t have to stay open until midnight. Want to lower or raise the price of one of your products? Go for it. Just remember—the franchisor is the expert. So before making big decisions that go against the company’s best practices, check with headquarters first.
Getting Out
Most franchises come with a predetermined contract duration (10 or 20 years), but they also offer a way out. Knowing the ins and outs of this may play a key role in your decision to franchise or find another option.
In some cases, terminating a relationship with a franchisor is a long, painful process that requires legal arbitration. In others, cancelling the relationship is rather simple.
With that in mind, be sure you understand what is necessary should you need to walk away from your franchise for any reason. Read the agreement carefully, including the process that must take place if you decide to sell the franchise down the road.
Staying In
Plan to keep your franchise location for decades to come? Then you’ve likely found a winner!
But don’t let your excitement cause you to make a mistake. Read through the franchise agreement to find out how long the initial agreement grants you franchise rights and what is necessary to renew those rights once the initial term comes to an end.
It may seem a bit early to consider what you’ll be doing in a decade, but thinking it through now will help you do the long-term thinking that the strongest, most successful franchise owners do.
Find Your Fit
As you read through the franchise agreement, remember—you are under no obligation until you sign on the dotted line. If something doesn’t seem right, get it clarified and noted on the contract or walk away.
You are the only one who knows what franchise is the best fit for you. So keep looking until you find the one that meets your needs and positions you for the life you want.
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