What Is A Franchise Agreement

Posted: Sunday June 21 2020

By: Abbie Coleman

What Is A Franchise Agreement

By Needle Partners

So you have identified the franchise that you want, got an idea of the funding that you need, spoken to the bank or other lender, and told the franchisor you are going ahead. They may require a non-refundable deposit and on payment of this you will be sent the franchise agreement that you will be required to enter into. The parties to the franchise agreement are the franchisor and the franchisee and if the franchisee is a company or incorporated partnership will also include a named individual person who will effectively guarantee the obligations of the franchisee.

The franchise agreement is typically a fairly long document which sets out the franchise relationship and the obligations of the parties. Typically a franchisor will state this agreement is non-negotiable as it sets out the franchisor’s standard terms used for all of their franchisees. This is necessary so that the Franchisor can protect it’s brand and while this may seem unfair you should take into consideration that this is the brand you will be using as a franchisee and that it is to your advantage that the standards associated with the franchisor’s brand are uniformly applied to all franchisees to protect it. You will be required to obtain independent legal advice prior to signing the franchise agreement and this advice should explain to you the obligations and restrictions you are committing to.

The franchise agreement will refer to a background document typically called the “Manual”. While the franchise agreement sets out the legal terms and relationship, the Manual will set out the operating terms of the franchise. This document may be amended from time to time as the processes and procedures are updated and the products and services the franchise offers are further developed or increased. It is effectively the “go to guide” for the franchisee.Buying a franchise should be exciting – you are starting your own business! There are some red flags however to watch out for including:

– being discouraged from talking to other franchisees
– being discouraged from obtaining legal advice
– being rushed into to signing the franchise agreement.

Bearing in mind that you are effectively investing into a business (and the initial costs can range from £15,000.000 upwards) it is important to take legal and financial advice before signing up. Once you have committed to the franchise you will typically be tied in for an initial period of 3-5 years and not able to walk away easily. As with any job you must feel financially secure in making this investment this and more importantly that you love the idea of this business concept and feel excited to work with the franchisor !

Read our latest MMB Magazine article by clicking here or visit our MMB Business club page for more information on running your business by clicking here