How to Negotiate in Franchise Agreements
A franchise is a form of a business structure in which the owner of a business licenses its right to a third party. The agreement provides a person the opportunity of selling and distributing goods and services to the public under the company’s name. The agreement grants these rights in exchange for a fee. The fees can include and upfront fee and fees once the franchise location is operating. A percentage of the revenue generated also goes to the company.
What is included in a franchise agreement?
A franchise agreement is an agreement that carefully outlines the terms and conditions for a franchisee to operate a location. The entity also discusses obligations and discusses what it will provide to the franchisee. The agreement entitles a person to the complete franchise system’s training, processes, vendors and protocol once the agreement is signed.
What’s not negotiable in franchise agreement?
If you are considering buying a franchise opportunity. There are some things that are non-negotiable in terms of running a franchise. The franchise may negotiate with individuals in some areas but they are unwilling to permit the change of business processes. They are particularly cautious about how their brand is portrayed. They will typically not budge on the continuing revenue arrangements. Vendors for products and services are also restricted in franchise agreements.
Negotiating tips and franchises
If not negotiating with a franchise attorney, you should consider adopting these negotiating tips to ensure success when negotiating terms. You have wiggle room where the upfront fee is concerned. Your rate can be reduced, and you may be able to finance some of the startup costs. Some of these companies offer in-house financing to facilitate the process. Royalties may even be another option for reducing your ongoing costs. They may even permit a deferral for the fee. Your assigned territory may also be negotiated. The distance could be increased for your territory. You can also negotiate the length of your renewal period.
A non-compete clause could be one of the most restrictive clauses in a franchise agreement. You may want to conduct business near your home at a later time; this should be discussed when negotiating the terms of your agreement. There may be a way to get assistance with funding for events like the grand opening for your franchise location. In this case, they may even be willing to contribute to the advertising and other costs that come with preparation for a new location. You may have a clause to consider where the defaults are concerned in operating a franchise. You may be able to extend the time allotted to cure the default. A personal guarantee can be waived if you are able to demonstrate your ability to cover any costs should the location fail.
Considering Buying a Franchise?
If you are considering buying a franchise, you should consider evaluating the franchise agreement. There is substantial room for negotiating terms in the areas of fees in most franchise agreements as the initial steps. You may also be able to solicit support for grand openings and pursue in-house financing in some franchise agreements.