A franchise agreement can jump start a business and facilitate the growth of your business. The power of an established name can help to launch a new business. The streamlined processes, simplified ordering of supplies and other characteristics of many franchise agreements can shorten the learning curve and ease the administrative burdens of running a business.
However, franchise agreements can impose significant burdens on a franchisee, too. All too often, an aspiring business owner signs on with a franchisor hoping to take advantage of the name and the simplified processes, only to discover that limitations in the franchise agreement, unduly burdensome financial obligations and other contract clauses make it difficult or impossible to operate a successful business.
Franchise Agreement Considerations for Business Owners
While it is important to have an experienced franchise attorney scrutinize every aspect of the franchise agreement, there are certain issues that every new franchisee should be on the lookout for. These include:
- Burdensome advertising requirements or obligations to contribute to advertising pools
- Limitation on the products and services your business may offer
- Geographic restrictions based on franchise territories
- Restrictions on transfer of the business or fees associated with leaving the system
- Requirements that the franchisee indemnify the franchisor for certain losses
Naturally, you will want to give your business the best possible chance for success, and so the obligation to advertise and otherwise promote the business may seem reasonable, even useful. However, it is important to be brutally honest with yourself about the risks associated with starting a new business, even if that business is associated with a successful national or regional brand. Consider not only the franchisor’s motivation for the provisions in question, but also the possibility that you may find yourself unable to comply with those terms, and the potential consequences if that should occur.
As the franchisee, you may also want to make certain requests to keep options open for the growth of his business. For example, it is often in a franchisee’s best interests to negotiate for the right of first refusal for surrounding territories, so that the business can grow naturally if it is successful and the franchisee wants to expand.
Franchise Review and Negotiation
Depending on the franchisor, the franchise agreement may be set in stone, may contain some provisions that are subject to negotiation, or may be more flexible. In some cases, the franchisor may simply be reluctant to negotiate, but in others the terms of the franchise require strict adherence to certain terms and there truly is no room for negotiation.
While it is important to understand in advance whether or not your franchise agreement is negotiable, even a non-negotiable agreement requires careful review with your business lawyer. If the agreement is not negotiable, it is all the more important that you have a solid understanding of what is required of you, what expenses may be associated with operation of your franchise, what consequences may ensue if your business fails and how you are able to extricate yourself from the operation if you so choose.
Let an Experienced Business Lawyer Negotiate on Your Behalf
When you are negotiating the terms of your franchise agreement, it is to your advantage to have an experienced attorney handle your negotiations. When the attorney reviews the standard franchise agreement, he or she will provide you with a list of concerns and recommendations for provisions you may wish to negotiate.
However, the attorney’s greater understanding of both the issues and the relevant language will put him or her in a better position to fine tune those provisions for your protection. In addition, injecting a third party into the negotiation process can help to maintain good relations between you and franchise representatives, as the attorney can take the lead in pinning down details and pressing points.
Give Your Franchise the Best Chance for Success with an Experienced Business Lawyer
When you are preparing to launch a new business, you want to give yourself every opportunity for success; means ensuring that the franchise agreement you sign is formulated in a way that supports your business and does not impose burdensome obligations, especially in the early days of the franchise.
Our experienced franchise attorneys can help, whether you need someone to review and explain the ramifications of your franchise agreement, negotiate on your behalf before you enter into the agreement, or advise you on the wisdom of entering into a particular agreement at all.
