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The contract: what new franchisees should consider

On Behalf of | Sep 21, 2017 | Franchise Law |

When you become a franchisee, you sign a legally-binding contact with the company. Once you sign the contact, you are bound by its requirements, and are stripped of your autonomy. This does not mean that you should not sign a franchise contract, it just means that you need to carefully consider the offered contract before signing.

In general, franchise contracts are lengthy, complex documents that can be difficult to wade through and comprehend. What should you consider before you sign?

Length of your agreement

Typically, franchise agreements last approximately 10 or 20 years. Signing a franchise contract is a long-term commitment. If you choose to sell the franchise before this period of time expires, the contract will usually detail how you are allowed to sell the franchise. The company might include the right to refuse a potential buyer, and the ability to buy the franchise back instead of having you sell it to a third-party.

Health of the franchise

Before you enter into a business relationship with a franchise, make sure that it is a business that you want to be connected with. Check the company’s financial status – this is an easier process if the company is publically traded, but you can still request this information from the franchise if it is a private company. If the company is financially stable, you can expect a more reliable return on your investment. The company has a higher chance of having an established customer base, good name recognition and the ability to provide its franchisees with ongoing support.

Happiness of current franchisees

A good indicator of your potential satisfaction as a franchisee is the happiness of current franchisees. The franchise should provide you with the names and contact information of current franchises. Take some time to call the franchise owners, or visit them in person if they are relatively close to your current location. Ask them to describe their relationship with the franchise, their ability to turn a profit, pain points in running their franchise and what they like about working with the parent company. Speak with a range of individuals and look for trends in their experiences.

Speak with an advisor before you sign

Franchise contracts are complex and can be difficult to understand. They will affect your business relationship with the franchise, and have long-lasting repercussions on your financial future.

Before you sign anything, speak with an attorney who can review the contract with you, point out areas of concern and possibly help you negotiate a more favorable contact. Despite your best efforts to research the franchise before you sign, it behooves you to consult with a lawyer who has reviewed a number of contacts and can provide you an honest evaluation of its merits and downfalls.