The essential franchise agreement checklist
You’ve completed your due diligence. You’ve read through company brochures and pored all over their websites. You’ve visited some franchisors and franchisees, and finally decided which opportunity is right for you. You’re ready to go ahead.
Now it becomes real. You’re about to enter into a legally-binding contract. And one that’s somewhat more consequential than that issued by your mobile phone provider. Because we all read the T&C’s in those contracts, right? A franchise is a life-changing decision. It’s a partnership not unlike a marriage. Something you can’t freely walk away from.
So, this is the time to put together your franchise agreement checklist. This is the time to park the dreams and aspirations for a moment. To remember why you’re doing this, but also to be aware of what you’re signing up to.
One thing you shouldn’t put in your franchise agreement checklist
The first thing to be aware of is that you won’t be able to negotiate. A strong franchisor will have a strong franchise agreement, and they won’t budge an inch. And that, you should know, is a good thing.
If you’re investing your hard earned money – and your family’s future – into a franchise, you’ll want to be reassured that other franchisees in the network can’t spoil it for you. You don’t want a franchisor who allows franchisees to do what they like.
Investing in a franchise means you’re joining an established brand. One that has a proven methodology. Why on earth would you, or other franchisees, want to deviate from that? And why would a confident franchisor let that happen?
You want to know you are joining a franchisor who takes their intellectual property and their brand seriously. One who expects franchisees to operate on a level playing field. A franchisor that treats you in the same manner they treat all of their franchisees. So have your franchise agreement checklist ready. Expect clarification on clauses and ask all the questions you like. Just don’t expect your franchisor to move on any part of it.
What should I be worried about?
Most of the punitive clauses in a franchise agreement are designed to weed out the disruptive, or downright dangerous, franchisees. Not dangerous in a physical sense (although they’d be kicked out in an instant) but franchisees that threaten the brand. Once again, that’s a good thing.
Any franchisee who’s prepared to rip off customers, fiddle the books or ignore territorial boundaries could damage the brand. And if they do that, it could damage your business too. So, of course, the franchisor should be able to deal with them by the letter of the law.
It might be stating the obvious, but a legitimate franchise agreement really isn’t anything to be worried about if you don’t do anything wrong. If you enter into a franchise agreement with the best of intentions – and stick to them – you’ll be fine.
But before dwelling too long on the legal ramifications, you can undertake a very quick self-assessment. In effect, your own character-related franchise agreement checklist:
- Will I work hard and follow the franchisor’s model?
- Will I steal from the franchisor, fellow franchisees or customers?
- If you answered yes to the first question and no to the second, then you’re unlikely to have any cause for concern.
Should I take professional advice?
A franchise agreement, written properly, is nothing to be afraid of. But the key caveat to that is ‘written properly’. There are franchise agreements written on a few sides of A4 paper, and others that would put Tolstoy to shame. One of the most important items on your franchise agreement checklist is to know who wrote the contract. Was it written by a franchise lawyer? Has it adhered to the British Franchise Association’s (bfa) code of ethics? And then you need to employ a translator!
Official contracts aren’t the easiest documents to read. Legalese often sacrifices commonplace grammar and punctuation, leaving most of us reaching for the dictionary or some Aspirin. So, even though the agreement can’t be negotiated or amended, it’s important you ask someone in the know to explain its content.
But, that’s going to cost you. At least a few hundred pounds. Because, while lots of things in life are free, sadly legal advice isn’t one of them!
The good news, though, is that it shouldn’t cost you more than that. Not if you choose a specialist franchise law firm, and ideally one affiliated to the bfa. £400-£600 is a realistic budget you should set aside to tick off everything on your franchise agreement checklist.
Bfa affiliate solicitors are familiar with franchise agreements. They know what is expected and what is acceptable. They’ll explain (hopefully in layman’s terms) what you are signing up to. And they won’t waste your money arguing over clauses that can’t be changed.
The one place to get free legal advice
Ok, so we’re contradicting ourselves here. But you can get some legal advice for free. That doesn’t mean you’ll get all of the advice you’ll ever need. But it’s a start. Visit one of the many franchise exhibitions held nationwide, and you’ll be able to sit through seminars from franchise industry veterans. Many of those are lawyers who will talk through the key components in a franchise agreement.
Lawyers aren’t stupid. And they’re not going to talk themselves out of work. But, at least you can start compiling your franchise agreement checklist for free.
The top ten items on a franchise agreement checklist
Every franchise you look at has its own operational systems and processes. No two franchise agreements are going to be the same. But there are some generic principles of ethical franchising to which most abide.
Here are the top ten questions you should put onto your franchise agreement checklist:
- How long is the franchise agreement for?
- What happens at renewal stage?
- Can you sell your franchise, and how is that process managed?
- How is your franchise territory defined?
- How is the franchisor paid (a fixed monthly sum or a percentage of your sales)?
- What do you have to purchase from the franchisor?
- What is included in the franchise package?
- Are there any contracted promotional activities?
- Are there performance targets (and what happens if you don’t achieve them)?
- How can the agreement be terminated by either party?
It’s not a definitive franchise agreement checklist. For that, you’ll need to take professional advice. And that’s where the free advice ends.
But it’s money well spent for a venture as serious as a franchise. After all, this is a commercial agreement; a business partnership. You need to know what to do to get things right, and what’s going to happen if things go badly wrong.
You can also read more about what goes into a franchise contract here>>