The decision to buy a franchise is a big decision. Once you have convince yourself that your character suits with franchising and business aspirations, the right franchise have identified, done your sums, attended the beginning training and may be make the first payment, then you will be represented with Franchise Agreement to sign .
Usually this agreement could run until 40 or 50 pages and can be daunting read by people who does not familiar with the commercial contracts. The nature of a franchise business structure means that the agreement will be quite complex. Remember that this document is the framework for Your Business life over during the next seven years or so.
Franchisors, particular established one, rarely change or negotiate the terms of their standard Franchise Agreement as they would want to maintain uniformity in all franchises. Therefore, it is very important that you understand what you are being asked to sign. Once you have signed the agreement as a business person (without the cotton wool treatment given to consumers), you will survive to persuade the court later to verify that the terms are not fair or unreasonable to be void. You can be stuck with it! I recommend you seek a legal advice from a business lawyer familiar with franchising.
Important things including the identification of the actual cost of the franchise including ongoing royalties, advertising costs, minimum stock purchases. Have location and territorial rights been granted? Are these also exclusive to you? What kind of property and equipment is required? What are the obligatio for each party-you and the franchisor- related to the ongoing operation of the franchise?
Often the most difficult part is to renewal and termination of the franchise. Are you granted an automatic right to renew the franchise for five or seven years? Is renewal fee is required? Can you sell the franchise on? Normally, you need to give the franchisor a first choice and / or a right of veto in relation to the acceptance of any proposed transferee, often coupled with a percentage cost. What are the consequences of early termination by you if you want or need to get out prematurely? Usually, there is a minimum period with forfeiture of the franchise fee, stock and other financial penalties and compensation. What if you are in breach? What decicions would lead to an automatic termination? Are you given a period in that can to remedy your breach?
Ask yourself many “What if?” questions. What if you died or were ill? What if you unsuccess to achieve your sales target? What if you want to sell products out from your territory? What if your customer sued you for products that wrong? If you can not answer all your “What if” you need to seek ask for more advice. Feel free to ask this question to the franchisor. But do not expect an impartial answer. The franchise agreement will usually have an express term preventing any reliance upon representation or claim made by the franchisor in the beginning presentation or documents. Much disappointment of many clients about running an unsuccessful franchise, this applies especially to claims of how much money can be earned … Buyer Beware!