Getting your head around the ins and outs of the franchise agreement is vital if you and your franchisor are to work well together
A successful franchise system demands that the franchisor and the franchisee work together to make their business a success. Trust, respect and a shared vision all help to create a bond between the two parties. However, to ensure such mutuality you need to base it – from the beginning – on the clear knowledge and understanding of each party’s specific responsibilities.
This is where the franchise agreement comes in. It sets out in detail the contractual terms, conditions and obligations of both the franchisor and the franchisee, sets down the rules of the game and it is also the basis of the formal relationship between the two parties. In essence, a franchise agreement has three fundamental objectives: to accurately set out the terms and conditions of the arrangement between franchisor and franchisee, protect the franchisor’s intellectual-property rights and specify the ground rules for operating the franchise units. Both sides need to follow the franchise agreement: if they do so then it will be a happy and successful relationship. Problems only arise when people break the rules.
Franchises work because everybody rows the boat in the same direction and every franchisee has identical opportunities, rights and obligations. Every franchisee should sign exactly the same franchise agreement and you should be cautious of franchisors who are willing to change theirs simply to suit the needs of prospective franchisees. If you and your solicitor – who must be experienced in franchising matters – cannot accept the franchisor’s standard agreement then you should look elsewhere.
The franchise agreement is often quite lengthy and will cover a whole plethora of conditions surrounding the running of the franchise – including the length of the contract period. Of course, as with most contracts, in a good franchise system people seldom refer to the franchise agreement until this period is coming to an end. As a franchisee, you need to ensure that you have both enough time to reap adequate reward for your efforts and to enable you to sell on a valuable capital asset. But your only option isn’t just to cut and run: often current franchise agreements will provide an option to renew – and certainly with The Bardon Group companies we provide an option with no additional franchise fee payable.
Utlimately, the magic of franchising is that it combines local knowledge, drive, ambition and individual skills with a proven business system, ongoing corporate support and professional guidance to hopefully create a successful business venture for both parties. Essentially, the franchise agreement sums up the elements required to make this magic work. But for all that the franchise agreement can lay down the rules, provide the parameters and document the means of working together, it cannot detail the most important attributes of a successful relationship – attitude, honesty and integrity.