Franchise agreements: rules to maintaining post-nuptial bliss

Perhaps the most important piece of paperwork in your business, the franchise agreement is the keystone that keeps everything else in place

Franchise agreements: rules to maintaining post-nuptial bliss

A successful franchise system depends on the franchisor and the franchisee working together as one with a common objective of business success. The only way to establish such mutuality is for each party to understand their specific responsibilities from the beginning. This is where the franchise agreement comes in.

Spelling out in detail the contractual terms, conditions and obligations of both the franchisor and the franchisee, a franchise agreement sets out the rules of the game and forms the basis of the formal relationship between the two parties. I’ve often said that franchising is a marriage and both sides need to follow the rules to maintain their post-nuptial bliss. If they do so then it will be a happy and successful relationship; problems only arise when people break the rules.

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.

The franchise agreement is often quite lengthy and will cover a plethora of conditions running the franchise – including the length of the contract period. As a franchisee, you need to ensure that you have enough time to reap adequate reward for your efforts and have the opportunity to sell on a valuable capital asset. In a good franchise system, people seldom refer to the franchise agreement until it’s time to sign an option to renew but it should also contain provisions that will allow you to renew when the term ends.

Consistency in a franchise agreement is absolutely vital: every franchisee should be signing exactly the same agreement. Be very cautious if the franchisor is willing to change their franchise agreement simply to suit the needs of prospective franchisees. Franchises work because everybody rows the boat in the same direction, with every franchisee having the same opportunities, rights and obligations. If you, as a prospective franchisee, cannot accept the franchisor’s standard agreement then you should look elsewhere.

The magic of franchising is that it combines local knowledge, drive, ambition and individual skills with a proven business system, on-going corporate support and professional guidance to hopefully create a successful business venture for both parties. Essentially, the franchise agreement contains all the elements required to make this franchising magic work.

However, this is not to say that the franchise agreement is the be all and end all. 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, integrity. They need to come from you.

Nigel Toplis
Nigel Toplis