Negotiating Your Franchise Agreement
UPDATED: February 8, 2020
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While a franchise company may make you feel that the business agreement is non-negotiable, this is not always the case. The agreement you sign with the franchise company will dictate all of the terms of your business relationship for as long as you own the franchise. As a result, you should make sure you’re satisfied with the agreement. While there are some terms in the franchise agreement that are determined by state law, many other terms may be negotiable, depending on the franchise business in question.
Negotiating a Franchise Agreement
When you buy into a franchise business, you are buying into an already proven, successful business model. That being said, some of the terms of the franchise agreement will not be negotiable because they relate to the trademark of the business or specific business processes. If the success of the franchise business is linked to the checkered tiles on the floor, then you are probably stuck with these tiles in the terms of your contract.
Other terms that do not relate to the business model may be easier to negotiate. The upfront fees or royalty payments, for example, may be negotiable. Generally, you will pay thousands of dollars as an initial investment into the franchise business and you will need to continue making royalty payments on your gross revenue. However, depending on the area and the state of the economy, the owners of the franchise company may accommodate you, especially if they think they might lose your business if they don’t. Much depends on the relative bargaining posiiton of the franchiser and you as a prospective franchisee, and how astute your lawyer is.
Flexible Terms in a Franchise Agreement
Some terms that may be negotiable include the exclusivity of your franchise territory, the timing of payments, price, and the duration of the franchise business. There are certain terms that you may want to add to the franchise agreement as well. For example, you may want to clarify your rights in the event of a merger or acquisition. While the franchise company may tell you that they have no intention of going out of business or merging with another franchise company, remember that the contract you sign will be valid for five years or more and many things may change during that time.
To help you navigate your franchise agreement with a franchise business, it is advisable to have a business attorney by your side who predominately represents franchisees. A knowledgeable attorney will be able to review the franchise agreement, make suggestions for negotiations, and point out terms that are missing. Buying into a franchise company can be a serious investment so you will want to understand every detail before you sign a franchise agreement.