By entering into a standardized franchise contract, you may agree to terms that benefit the franchisor at your expense. A careful review of a contract may help to identify issues that you may ask the franchisor to revise before signing.
As noted by Franchise.com, agreements generally outline franchisees’ rights and conditions. These terms determine how you may use the company’s intellectual properties or products. Parties may negotiate the provisions, but many franchisees sign contracts without doing so.
Provisions to consider reviewing in a franchise contract
Franchise agreements generally last as long as 10 years and some may need periodic renewals. By forecasting your potential profits, you may discover how soon you may expect a return on investment. You may also intend to grow your franchise unit and then sell it after you reach a particular profit margin. This may lead you to request revising the contract’s length.
Many franchisees must provide franchisors with up-front fees. The franchise model includes paying royalty fees regardless of whether you make a profit. Fees cover licensing the franchise’s brand, marketing and sales model. You may have options to negotiate the number of royalties or add additional privileges such as product bulk rates or training.
Some terms that may allow opportunities for negotiation
If you purchase a unit that does not yet have an established physical presence, you may have greater input regarding the franchise agreement. Franchisors usually decide on the area and territory of each unit. With a unit still in development, you may negotiate its street address or whether to open it in a mall.
You may have experience selling products or services that differ from the franchisor’s strategies. If so, you may discuss modifying an agreement to include them. In many cases, contracts may require careful negotiation to result in more profitable opportunities.