Key Business Franchising Contract Terms
Business franchising agreements are commonplace, and tens of thousands of these contracts are signed every single day around the world. More often that not, the agreements underpinning business franchising arrangements are written by qualified and skilled commercial lawyers experienced in this kind of arrangement. However, that’s not always the case, and many business owners choosing the franchising route consider a DIY approach to contract formation, which carries with it it’s own risks and pitfalls. Whichever route you choose, there are a number of key contract terms you should look out for in franchising agreements that are of importance to both the franchisee and franchisor.
A crucial set of terms included within the typical business franchising agreement are those relating to payment. Business franchising is a worthwhile agreement for both sides, but the payment terms stipulated are of critical importance in determining whether or not it’s good value all round. Normally, business franchising agreements are comprised of an initial upfront payment along with a periodical payment of royalties, although this varies to a greater or lesser extent. Understanding the exact nature of the payment terms of the agreement will enable you to determine how much you will be required to pay as a franchisee, and will allow you as a franchisor to calculate how much income can be generated from the franchising business model.
Another critical term to look out for, particularly as a franchisee, are those relating to the resale of your franchise, which can determine whether or not a business franchising agreement is. Some franchising models prevent resale without the permission of the franchisor, whilst others requiring strict interviewing of new prospective franchisees or even prevent resale altogether. This can obviously have an impact on whether or not the deal turns out to be good long term value, and it may have an impact on whether or not you should opt for that particular franchise package. Read more.
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Another important aspect to consider in these contracts is the level of support provided by the franchisor. Make sure details are spelled out as much as possible and not left to interpretation. For example, it is not uncommon for franchisors to specify contributions to a “marketing fund” that you have absolutely no influence or control over. They may use it on a national scale and the effect on your business will be minimal at best. So in actuality, you are building the franchisor’s business!