Franchise Agreements: What They Look Like and What to Expect

Hearing the word “franchise agreements” might give you a clue of what it is; but for precise definition and understanding, people often ask:

“What is a franchise agreement?”

It is a document that allows the parent company to function through different branches and outlets run by other individuals working in compliance with the standards enforced by the Parent company. The parent company tends to share the trademark to gain royalty to allow the branches to use their brand name.

A franchise agreement starts with the date on which the contract is written and the place and names of the dedicated parties.

The franchisor-franchisee relationships do not just begin arbitrarily and distantly. Launching a franchise requires a lot more than just a handshake, good intention, trust, and understanding of the involved parties. In simple words, it mainly requires legally documented protections, obligations, and a clear record of everything. 

This article will thoroughly discuss what the term “franchise agreement” entails and what it includes.

Negotiation of a Franchise Agreement

Another question that people often wonder is;

“Are franchise agreements negotiable?”

The answer to this is “yes.” Franchisors often keep the right to make company-wide decisions, but you can quickly negotiate if you need to alter something in the agreement. This requires a little effort and time, but it is possible. 

Things a Franchise Agreement Has

Looking at the franchise agreement samples, we have compiled a list of things that a franchise agreement consists of. Have a look. 

Basis for Agreement

In this section, the franchisors and franchisees determine the intentions and what both the parties will get out of the agreement. The agreement vividly mentions that the franchisee wishes to launch a franchise location, and the franchisor needs to grant them that access and right to run it. 

Grant for Franchise

This section fundamentally expands based on the franchise agreement. Grant for franchise allows the franchisee the right to use the licensed methods and marks in connection with the formation and operation of the franchise. The contract also states that the franchisee cannot sell any services or products without approval from the franchisor. 

Franchise Fee

This is the upfront payment paid by the franchisee to “buy into” a franchise. It allows them to use the systems of the franchisee and name for their financial profits. 

Franchised Location and Designated Area

This section includes the exact location of the franchisee’s outlet. It also indicates that a franchisee cannot transfer the franchise rights anywhere else without written approval from the parent company. 

Training

Under this section, it is specified that a franchisee should select a representative who will handle the management responsibilities. The manager must attend a training program provided by the franchisor. This training is significant for proper handling and dealing at the franchise. 

Development Assistance

The franchisor needs to provide a list of suppliers that are approved and assigned for product delivery. This part primarily includes a prerequisite demanding the franchisor offer on-site services from an agent who helps with extra training.

Operations Manual

This section of the franchise agreement requires a franchisor to provide the operations manual like technical materials, other manuals, and written material consisting of manufacturing, stocking, processing, in-store procedures, marketing techniques, supplies, etc. 

Royalties

There needs to be a specific amount that needs to be paid by the franchisee to continue monthly royalties. This is usually calculated as a percentage of the outlet location’s monthly sales. 

Advertising

In this section, the franchisee decides to get the franchisor’s explicit and written approval for all marketing, promotional materials, and advertising beneficial for the franchise sales and revenue. 

Quality Control

The franchisee has to agree to maintain their franchise according to the specifications delimited in the operations manual. It is mentioned for a better understanding that stipulations can be altered by a franchisor whenever they want.

Bottom-line

A franchise agreement is one of the most fundamental parts of running a business. There are specific requirements necessary to form a good franchise agreement. This article has discussed all the things that need to be added to this agreement. To avoid any mishaps or loss in the future, the franchisee and the franchisor needs to agree upon the terms and conditions mentioned in the contract.

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