Which Terms of a Franchise Agreement May Be Negotiable?
UPDATED: February 8, 2020
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Many potential franchise buyers assume that a larger, well-known franchise company will have a “take it or leave it” mentality when it comes to negotiating the terms of the franchise agreement. While this may be true in some circumstances, there are some terms that may always be negotiable, depending on the size and longevity of the franchise business. Before signing the franchise agreement and making a long-term commitment to the franchise business, the buyer should make every attempt to negotiate favorable terms.
Negotiating the Terms of a Franchise Agreement
A large franchise company like McDonald’s may not be willing to negotiate details such as the type of food franchise buyers will serve, or the type of uniforms franchise employees will wear. Part of selling a franchise, especially a long-standing franchise, means selling a set of successful business processes, including equipment, prices, and customer service strategies. When you buy a franchise, you should be prepared to buy into the same rules, fees, and business methods adhered to by every other franchisee in that business.
However, depending on the franchise business in question, you may be able to negotiate on some issues. Upfront fees for a franchise business can fall between ten and sixty thousand dollars. You may be able to negotiate the upfront fee through financing methods or an overall price deduction. This may be easier during a difficult economy in which franchise business sales may have slowed. You may also be able to negotiate the royalty fee. While the franchise company may be unwilling to lower the percentage of the royalty fee, you may be able to have the fee deferred through an initial start-up period. You may also be able to negotiate the size or area of your franchise territory. Most franchise agreement terms will promise that no other company franchises will fall within a specific distance of your restaurant or store. Other negotiable issues can include the size of the road sign, or the number of people you can send to franchise company training sessions.
A Franchise Business Attorney Can Help
If you review the proposed legal contract with a lawyer, you will learn what provisions which appear to be "boiler-plate" can be changed, if it is important to you, and not significant to the franchiser. A franchise attorney can also help you anticipate problems that may arise (e.g., location, equipment, pricing, competition, new products) during the life of a contract, and perhaps solve some now, saving you time, money and headache later. Agreed modifications should be in written, not oral, form.