June 17, 2024

10 Things You Must Know About Franchise Contracts

While taking up a franchise, you are asked to sign a contract called a franchise agreement in which there are rules and regulations that the franchise owner wants you to agree and follow. It’s a kind of legal contract that both parties abide by; thus, it is necessary to know the basics of this contract before signing it. 10 important things that you must know about franchise contracts are as follows:

  1. The franchise location is one thing that a franchisor is concerned about, and each franchise owner has a particular set of limits or boundaries, which is mentioned j the agreement. Another franchise outlet within a given boundary is not permitted by the franchise owner. The franchisees are not allowed to locate within a certain number of miles which should be checked in the contract.

  2. On a franchisor’s part, it is important to provide proper training to the new franchisee. It is their responsibility to help and support the franchisees to understand what they are expected to do and what they should avoid doing. In the form of continuing training, availing discounts on the required equipment and supplies and providing a subsidiary on the advertisement.

  3. The contract spells the duration for which a franchise owner is providing a franchise to the franchisee. In most of the agreements, it’s 10-20 years, but it varies as per the franchisor’s conditions or terms. Sometimes, there is even a right given to the franchisee by which he could buy the franchise back rather than having it sold to someone else. This is usually referred to as a refusal clause, which is mentioned in the contract.

  4. The agreement includes each and every detail, about a single penny that a franchisee is supposed to pay to a franchisor. Along with the initial purchase fee, the agreement includes costs involved in owning a franchise, monthly royalties, advertising by-ins, etc. Also, franchisors even ask and verify how much cash is available with the franchisee to make sure that they will be able to cover everything. From payroll to repairs, there are things that a franchisor wants the franchisee to satisfy.

  5. The trademarks, signages and various patents associated with a particular franchise are protected by the franchisor. The franchisor never forgets to mention in the contract about the specific ways in which the franchisees are permitted to use those entities as well as the ways they are not permitted too.

  6. There is a set of rules given to the franchisees by the franchise owner that they are expected to follow and run their units. Payscale of employees, working hours, items or services sold, etc. are some of the things they have to follow as per mentioned in the contract under rules of operation.

  7. There is also a mention of the renewal rights and termination policies in the franchise agreement. There is also a place for an arbitration clause in the agreement, in case the franchisor and the franchisee are in conflict with each other than the arbitrator reviews the case and makes the recommendation. This is a way by which both parties can avoid seeing each other in court.

  8. If there are defaults in operation, then a franchisor could ask for discontinuation of the franchise. In this case, it is better for the franchisee to apply for a time extension to avoid losing the franchise. The extended time should be used to cure the defaults in operation.

  9. A franchisee should do proper research taking appropriate time in order to make sure that the franchise they are investing in is worth it. They should prevent rushing and signing the contract; rather, they should ask around, i.e. to other franchisees and get as much information as possible about the franchise.

  10. A Franchise Disclosure Document contains detailed information about the franchise’s financials and lawsuits that are filed against it. If there is something worrying or troublesome mentioned in it, then a franchisee must ask the franchisor for explanation and decide accordingly.

Choosing a franchise for a business startup is a great responsibility, and it is essential for a franchisee to check everything mentioned above while signing the agreement. There is franchise for sale in Gujarat that could make you earn more and must look for opening up a franchise in cities. You must check franchise for sale in Ahmedabad, especially of those items that are in demand. Also, searching for franchise for sale in Mumbai could be beneficial as cities like Mumbai are big and would definitely need outlets of a popular brand.

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