Service to Clients in the Washington /
Baltimore Metropolitan Areas
Helping Business in the Local Community for Over 20 Years
Buying a franchise is an exciting opportunity for an entrepreneur. It gives you the chance to partner with a proven, successful business without having to start from scratch.
The franchisor will help you get off the ground, and provide you with profitable marketing opportunities right from the start.
Still, it’s a mistake to think you the franchisor has complete control over how your franchise operates.
Although it is a commonly held belief that franchises do not allow negotiation this is simply not true. There is plenty of room for negotiation – and that’s where the franchise agreement comes in.
The franchising agreement is the single most important document you’ll sign just before opening a franchise. It will affect every aspect of your business, from mundane detail like the hours of operation to the most critical details, including the investment terms, marketing budgets, employee hiring and training policies, trademarks, support, tax issues, and of course, royalties and fees.
Many first time franchisees think franchising agreements are standard. But this is a false assumption. Franchise agreements can differ dramatically depending on the type of business you’re opening. And while it’s true there are certain requirements that franchisors won’t budge on; (for example, most franchises require you to use corporate approved vendors) there are plenty of areas where you actually have room to negotiate and make the terms more favorable to you.
For example, upfront fees and royalty payments are never set in stone. In fact, they can vary greatly depending on your geographic area and the economic conditions in your marketing territory.
The bottom line is that the franchise agreement you sign will ultimately have a significant impact on your success. That’s why before signing anything you should have a knowledgeable and experienced franchise attorney review your franchise agreement and negotiate the best terms on your behalf. Your attorney can help you realize greater profits while minimizing trouble in the future.
Here are a few of the critical aspects of a franchise agreement that you and your attorney should discuss:
Obviously as a franchisee you’ll be required to pay the franchisor fees and royalties. You’ll be paying for the right to market the franchise’s name, product, trademarks, and business plans. You typically will have to pay a fee for all of these things. However, each one can be negotiated by an experienced franchise agreement attorney.
Moreover, the franchise agreement as reviewed and crafted by your attorney should protect you against potential lawsuits that might effect the franchise in general, such as trademark issues.
You also need to protect yourself against possible “hidden” franchise fees and costs that come up from time to time including leasing fees, accounting fees and consulting fees.
Your allowable geographic location is crucial to the success of your franchise. First, you want to be sure the location that is offered to you has a viable commercial opportunity for you to succeed. Second, you want to be sure you are given the opportunity to expand in your geographic location without infringing on others franchisees with the same product. And third, you want to be aware of potential zoning, leasing and tax laws within your geographic area do not impinge on your ability to succeed.
The term is the amount of years you agree to in your contract with the franchisor. It is crucial that you are given enough time to make the business succeed and recover your costs. How many years will that take? What is the average for the franchise as a whole? Since you will be paying a substantial up-front fee, is vitally important that you agree to a term that gives you enough time to recover your costs, and make a profit. You will also want to discuss contract renewal procedures.
This part of your Franchise Agreement covers other variables such as services the franchiser will provide during your term, including marketing materials, advertisements, and arrangements and deals with wholesale product suppliers.
Make no mistake: Franchise agreements can be extremely complex as explained above. The issues listed here are not exhaustive but are a sampling of some important aspects of negotiating a franchise agreement. You must know what to negotiate and how to negotiate these terms. The law offices of Joseph H. Ostad have been helping business owners negotiate franchise agreements for more than 20 years. We’ll handle each step of the process professionally and with complete focus on you and your desired results.