Are Franchise Agreements Non-Negotiable?

31/01/2018 08:00 | Start a business

Are franchise agreements non-negotiable?

When you become a franchisee, you buy into the franchisorís business model. Although this undoubtedly has many benefits, it also means you must observe the same processes, rules and procedures as other franchisees in the network. This consistency is key to the success of the franchise and why the franchise agreement is so important Ė and why they also tend to be non-negotiable.

What is the purpose of the franchise agreement?

A franchise contract protects both the brand and the franchisee by providing clarity and transparency. Elements of the agreement cover the length of the franchise term, fees and the responsibilities of the franchisor towards the franchisee. It also details the process for the franchisee wishing to leave the business Ė for whatever reason Ė specifying the conditions that must be obeyed after the franchiseeís departure, like not competing in the same market for a given length of time.

Although the franchise contract can seem daunting and complicated at first, they tend to be clear and easy to understand. What it canít be though, is individual to each franchisee. Amendments made to the agreement based on the wants and needs of each franchisee jeopardises the overall consistency of franchise brands. If youíre reviewing a franchise contract and identify some changes you'd like to make, then the franchise opportunity probably isn't the right one for you.

Why are they so inflexible?

From a franchisorís perspective offering the same terms and conditions for franchisees demonstrates that fairness and equality at play throughout the franchise. Also, from a self-interested viewpoint, maintaining the same contract for all franchisees, reduces the amount of administration and paperwork for the franchisor.

So, what should you do when you receive a franchise contract to review?

Read the small print.

Well, there shouldn't be any small print, but you get the idea. You need to read everything carefully. Itís recommended that you consult a solicitor that specialises in franchising to help you understand all the terms and clauses before you sign on the dotted line.

At first glance, the agreement can seem pretty one-sided, benefiting the franchisor rather than the franchisee. It must be remembered though that this is the case to protect the franchise as a whole, including you when you become a franchisee. Youíre buying into an existing business with an established reputation, brand awareness and customer base.

Franchise brands build a reputable name by offering a quality and consistent service to customers who then associate the franchise with a certain standard. The agreement purely acts as a safeguard for this reputation. This is why it clarifies the rules and expectations that are required of all franchisees. Individual bad practice from just one franchisee can impact the entire business and therefore the success and profitability of all other franchisees.

Ensure you review all the clauses contained in the agreement with your solicitor, and check that existing franchisees are maintaining the reputation that youíre happy to be associated with.

There may be room for manoeuvre.

Yes, franchise agreements tend to be non-negotiable, but this doesnít mean that there isnít room for compromise. Many of the clauses within the contract will be written very broadly. If it makes you more comfortable that some aspects of the agreement are written more transparently, then you should ask.

This doesnít mean youíd be given preferential terms over other franchisees, but having unambiguous clauses benefits both you and the franchisor.

An insight into the franchisor

Discussions about the franchise contract will enable you to view how your franchisor interacts in a business situation. The way the franchisor reacts to any requests about amending the franchise agreement will tell you a lot about whether this is a good business to invest in or not.

If they're prepared to be open to discussions about tweaking specific clauses for clarity, then this demonstrates that they take their franchisees' view and opinions on board. However, if they are too keen to change the contract significantly, then this should act as a warning sign that they do not take the protection of their brand seriously enough. If they are prepared to change the agreement for you, then you may be left exposed to other franchisees requesting amendments that you don't agree with in the future.

This is an excellent time to request to meet with existing franchisees within the business. They should be able to give you an honest account of what the franchise is like and what level of support the franchisor provides. If the franchisor receives good feedback and has a track record of retaining satisfied franchisees, then you can take comfort that this is a good opportunity to invest in.

Don't be afraid to shop around.

Not all franchisors are the same, and while they tend to follow a standard format, every franchise agreement is different too. If youíve reviewed one contract that wasnít for you, this doesnít mean that agreements prepared by other franchise brands wonít be more suited to the opportunity youíre looking for. Consider a couple of different franchises before you decide that the industry isnít right for you.

Just remember, before you request that the terms of your franchise contract are changed, you should take a step back. Is it reasonable to expect existing franchisees to accept the fact that you have different terms to theirs? And how would you react if a future franchisee amended the terms to suit their individual needs? Investing in a franchise is not the same as setting up your own business. You're joining someone elseís business model and ensuring the consistency you need to make compromises, as well as enjoying the benefits on offer.

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