Operating a business as a franchisee can be beneficial for your financial growth. Unlike building a company from the ground up, you will be using the identity of an already established corporation. Therefore, when you begin your operations, you will already have customers who trust the brand. Also, you will have direct access to the franchiser's processes and proprietary knowledge. However, the exact benefits that you will gain by becoming a franchisee will depend of your agreement with the other party. Here are some critical considerations to help you negotiate a favourable contract.
You should inquire about the franchisor's policies on territorial exclusivity before signing the agreement. If you have the complete rights to sell the pertinent franchise products or services in your region, you will have high chances of financial growth without the interference of the franchisor. Unfortunately, if you are dealing with a large corporation, they are unlikely to offer exclusivity in case the brand becomes popular in your area. If the other party does agree to grant you territorial brand rights, you should check the caveats and limitations imposed.
Non-competition and Other Covenants
Franchise agreements often have some restrictive covenants which are designed to protect the franchisor. You should be attentive to these clauses in the contract to avoid unforeseen problems. For instance, most contracts will include a non-compete agreement. In general, this clause is written to ensure that you do not run or participate in a competing business after leaving the franchise for a specified period of time. You should carefully review the restrictions imposed if the relationship is terminated or it expires.
There are some transfer conditions which might be included in your franchise agreement. These clauses can limit your ability to resell the business in the future if you decide to not be involved anymore. For example, some contracts will require you to personally guarantee that the ongoing obligations will continue to be fulfilled by the purchaser. You should make certain the requirements for transfer are not too restrictive before proceeding.
Finally, you should note that your negotiation power will depend on the reputation of the franchisor and the perceived risks. If the franchise system is large and established, the risk of failure will be low. So, there will be little room for negotiation. Smaller systems and start-up brands will have more room for negotiation because of the higher risks. Regardless of the nature of your selected franchise, you should consider hiring a franchise lawyer for guidance during negotiations.Share