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What Do You Need to Know Before Signing a Franchise Agreement?

So you think you’ve found the perfect franchise opportunity to achieve your personal and financial goals. You’ve done your research, had several conversations with the franchise representative and franchisees, reviewed the FDD, visited the home office and decided this is the opportunity for you. Just as your excitement in making a significant life change reaches its peak, the franchisor presents you with a franchise agreement and your excitement begins to dissipate as fear and anxiety take hold.

At first glance, looking over the franchise agreement feels daunting. There is a lot of onerous language that feels a little one-sided. There is an extensive list of things you must and can’t do and the legal remedies that could be taken should you not comply. You suddenly feel at the mercy of the franchisor who had already told you that the agreement is non-negotiable.

Instead of packing your bags and running for the hills, take deep breath and consider the purpose of the franchise agreement. Could it be that the concise verbiage of the agreement actually serves to protect your investment?

Protecting Your Investment

It’s absolutely true, there is a collective benefit to this intimidating list of do’s and don’ts. Think of it as if you were buying a house and the franchise agreement is the homeowner’s agreement (HOA). You found the perfect house in the perfect neighborhood that fits your lifestyle.  You look over the HOA rules and feel it’s a little nitpicky. “I have to bring in my trash cans the same day, or else?! I can’t park on the street overnight?!”, and so on….

However, picture this: Your neighbor decides to install a series of upcycled toilets, spray painted pink, as planters in their front yard. While your neighbors take pride in their artistic vision, you are beyond annoyed and concerned that it could have a negative impact on resale value. Who wants to live next to a toilet art installation, right? So, you call the HOA and they make the tacky decorator fall into compliance with the architectural guidelines of the neighborhood. Problem solved; property value salvaged.

In the same way the HOA protects your home investment, the franchise agreement protects your business investment.  Much of a franchise’s customer loyalty comes the level of consistency they can expect from the brand. Compliance of the franchise agreement throughout the system protects the brand’s reputation, and in turn, your investment.

Things to Consider

When investing in a franchise, look closely at whether the franchisor will be a good steward of the franchise agreement. Here are a few things to consider:

  1. Franchising is about uniformity and consistency.
    • The franchisor is not unwilling to negotiate terms of the franchise agreement because they don’t like you.
    • The franchisor is unwilling to negotiate terms because it wouldn’t be fair to the other franchisees who have already signed the standard agreement.
  2. Franchising is about relationships. Here are a few questions to ask in your due diligence and discussions with other franchisees:
    • Does the franchisor maintain an overall positive and productive relationship with its franchisees?
    • Is the franchisor fair and reasonable in their dealings with franchisees?
    • Is the franchisor committed to franchisee success?
    • Does the franchisor follow through with the support they claim?
  3. Franchising is about alignment. When you meet with the leadership team, consider the following:
    • Does the franchisor live by a set of core values and do they align with yours?
    • What is the culture of the brand and is it based on living out those core values?
    • Is this group of people a group that I can see myself doing business with for the next ten, twenty or thirty years?

Best Interests in Mind

Remember, the franchise agreement not only protects the brand reputation and image, it safeguards your investment. The language may seem one-sided and a bit overwhelming but at the end of the day it is in the best interest of the brand, the franchisees, and ultimately, you.

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