What You Need to Know About the Franchising Agreement
Franchise Agreement: What Is It? You Must Know Regarding Franchise Contracts. Contracts with strong companies are generally not negotiable or negotiable. It should be a warning to you that a company is willing to negotiate the basic terms of the franchise agreement.
Today, many people tend to have a franchise, that is, a dealer, as an alternative to the standard business depending on the corporate structure.
You ask why?
Because they are influenced by the power that this strategy represents or simply the idea of keeping control of their lives.
Acquiring a dealership can be a great approach to success, but when signing a franchise agreement, it is important to think carefully about the terms of that agreement. Because this contract contains important provisions for future activities that regulate the legal relationship between the dealership and the company that receives the dealership and include situations where this relationship does not go well.
In this context, a franchise agreement is like a marriage agreement that is not at all romantic, but unlike marriage agreements, it would be appropriate to try to understand it before signing it.
In our article, we will mention 10 critical points you should learn before signing any dealership agreement.
1- Contracts with strong companies are generally not open to bargaining or discussion.
Most companies that intend to become a franchise seek a successful system that will never doubt the satisfaction of their current dealer owners with their decision to become a dealer. This means trying to get a deal with a strong franchise company.
Strong franchise companies know that the easiest way to manage their systems with maximum benefit is to have each franchisee the same program, and they are also aware that this can only be achieved with a uniform contract. Do not be surprised if you hear from someone who has already been in this business that franchise contracts are "what it is" and if you want to buy a dealer you have to sign the same contract with all the other reseller owners.
Are there provisions in the franchise agreement that worry you? Then request a letter of explanation from the company you will be franchising that will highlight certain points or issues of concern. This method means a low level of relief even for a non-negotiable contract.
2- The willingness of a company to negotiate the basic terms of the franchise agreement should be a warning to you.
This fact may seem counterintuitive to most franchise candidates, but given that typical franchise deals are not negotiable, it means that alarm bells are ringing for you.
If every issue is open to negotiation in the dealership company, you should question the reliability of the company in question, the risk status and the validity of the brand or operating system. Are these features not strong enough? Under these conditions, how much would you get for the price you pay by participating in this system?
As part of the importance you show, you should always inquire whether the franchise company is willing to negotiate the terms of the franchise agreement. Initially, most will respond negatively, but you need to test this.
"If there was a word in the contract that literally needed to be changed, wouldn't you change it too?" etc. Asking a question will help you do this test. If the authorized persons do not know what to say in the face of this question, they translate the word or say that they can make a change of a few words, they will explain that the contract is open to negotiation - in which case you need to get help from an expert to negotiate.
3- Franchise agreements are usually one-sided.
If you read the franchise agreement, you will notice that even if you are not a lawyer, the agreement is written in favor of the dealership company. This may not seem fair or reasonable, especially given the fact that the dealership will not be able to negotiate the language of the contract or the terms of the contract, but this is always the case.
In fact, the situation is not as negative as it might seem at first glance. One of the main purposes of the franchise agreement is to protect the franchise system as a whole. This includes the integrity of the brand, the operating system, and the total business capability of the franchisee firm. Franchise companies claim that they know how best to fulfill this task and that the contract is written on the basis of this exact information. If you are not satisfied with this approach, you should find a different franchise company with a different contract that you will feel more comfortable with.
4- Dealership agreements are full of "obligations".
In order to see with your eyes that the dealership agreement contains numerous rules, it is enough to take a look at the agreement. Your contract will clearly outline what you need to do on a regular basis, as well as the information you need to run your business properly.
These guidelines will help you understand what you need to do to run your business successfully and prioritize your business accordingly. That is why the rules in the contract are explained to the finest detail. that is, they are less likely to be ignored or misunderstood.
To verify these "mandatory" contractual rules, search for existing franchisees - franchisees - and get information about these mandatory provisions. If you do not feel comfortable with any of the terms of the contract - even after discussing and discussing them with your current franchise company or other companies, the dissatisfaction has not changed, you should seek a different franchise agreement.
5- Dealership agreements are filled with the statements "You cannot do it".
These expressions express the opposite of the rules on "necessity", that is, prohibitions. The franchise agreement specifies in detail some of the things that you will not be allowed to do from the moment you take on the role of dealership and start your business.
Many of these “can't do” rules have emerged as a clear result of competition-limiting common sense. If the franchise company promises to provide you with all its trade secrets and operating techniques, it means that you cannot use this information unless you are part of the system.
Other than that, most of the "can't do" rules are applied to protect the system and all franchisees from illegal or fraudulent acts originating from another franchise. Remember, another franchisee may intend to open a new franchise opposite your business, which is exactly the same as yours. The way this person works has a considerable impact on your business operations and success.
Franchise agreements should also include sufficient activity restrictions so that another franchise opened just below the path of your dealership should be prohibited from operating in a manner that jeopardizes the value and success of your business; It would be much more logical to evaluate the "you can't" rules from this point of view.
These five points regarding franchise agreements will help you understand the impact of franchise agreements on your life.
In the second part of our article, we'll build on these five points to discuss other aspects that are less obvious but may be important for you to better make sense of franchise agreements and be successful in the franchise business.
Our proverb "early bird gets ahead" will help you in this process as you try to understand some basic facts about the franchise agreement. Because this word means that you will be aware of the risks early and you can take your measures without delay.
In this part of our article, we will mention some points that will clarify the basic features of the franchise agreement.
Let's examine the franchise agreements in more detail by taking into consideration the more subtle issues that need attention but can be overlooked.
6- Dealership agreements may contain additional or restrictions that are not directly related to the subject of the contract.
These restrictions or additions tend to come from two separate external sources that will help you make a much better assessment of your dealership business activities.
The first resource is the franchise company itself. The franchise company may add phrases to the contract addressing planning strategies or ideas for the upcoming period. The second source is - franchise company lawyers. Lawyers, on the other hand, can add clauses to the contract that can change the distribution channels of products or services designed to protect the company's future rights.
These terms can give you some important clues about a company's potential future plans, so if you come across such clauses in a franchise agreement, be sure to ask why they were included in the agreement.
7- Franchise agreements may contain clauses that restrict your freedom to sell your business.
Such obligations will surely affect your exit strategy from the franchise system, so carefully review the contract before undertaking this business. Usually, potential franchisees will see this as the least important part of the contract, but don't fall into this trap. In reality, most franchise agreements cover a long period of 10 to 20 years, but most franchisees decide to leave the franchise before that period is up.
The most common of these withdrawal provisions is the requirement that the person to whom you will sell or transfer your business meets the same requirements as any other franchise candidates entering the system at that time. Another provision may require you to grant your franchise company the right to refuse to purchase your business on the same terms and conditions you agree with a third-party purchaser. There are also some transfer fees that you will have to pay to the dealership company. You should carefully examine all items related to leaving the franchise system so that you are aware of the rules you must follow in case of a break-up.
8-Have a lawyer to examine the dealership agreement in detail on your behalf.
Why not let a lawyer review the contract beforehand instead of accepting it hastily? It would be a good practice to review all the contracts that are important to you, not only for franchise agreements, but also for the normal course of business life. Always consider cost, advantages, and disadvantages when deciding whether to sign a contract or not.
It is a reality of business that most people try to sign a contract without bothering to read the contract, let alone have lawyers review it. Other contracts can be about much more important issues - think of insurance policies to protect your property and family, or the single biggest deal most people have signed: home loan mortgages. Anyone who buys a house and gets a loan has signed this mortgage agreement, which is almost the thickness of a book.
As we mentioned in the first part of our article, most franchise agreements with strong franchise companies are not negotiable. If you can negotiate, you should hire an experienced franchise attorney and focus on getting the best deal possible. If your franchise contract is not negotiable, you should ask yourself whether the potential benefit of having the deal reviewed by an expert is worth the expense. Remember, the end of the job will come to the point of whether you really want this job, and if your answer is positive, it will be easier for you to accept the contract as it is.
9- Almost all franchise agreements have a phrase that allows the franchisee company to change the terms of the agreement - the franchisee has no power to change the process.
This happens by incorporating contract contents that are changed from time to time as a reference in franchise agreements. Even more interesting, most of these types of referenced documents are proprietary, meaning you cannot obtain a valid copy or review them before signing the franchise agreement.
But the situation is not as grim as it may seem, you just need to be aware of the power of the franchise company. The most frequently referenced document is the franchise business manual that explains in detail all the rules and requirements required to put your business into operation. This handbook outlines all the qualities needed to set up and operate your business. These qualifications can change over time, and when such a change is made in the reference document, the dealership must strictly comply with the terms of the dealership agreement.
This could also mean that a much larger investment must be made in the physical assets associated with the unit: the computer system required to provide a new product or service, materials to meet the new décor need, or additional equipment, etc. You should be aware of all these possibilities, but before you start brooding on this issue, you should also consider this last point.
10- The franchisees form a very strong group - in numerical terms - but there is no contractual provision that protects this power.
Do you want your franchised company to make decisions in your favor in the coming days? Then you need to trust your company blindly. Unfortunately, with franchise agreements, you may not be able to protect your rights as you imagine, which will make you extremely uncomfortable.
However, keep in mind that you also have real-world protection that promises security against the franchise company's arbitrariness or even whimsical decisions and behaviors.
What is this protection?
We mean all franchise owners around the world!
When dealership companies cross the line somehow, they not only hurt you, but also hurt all dealer owners. As a collective group, you have “budget rights” over franchisees, because almost all of a franchise company's income comes from the franchisees.
Most franchise companies are aware of this separation of powers (supervising and balancing) factor, and companies that know how to act wisely actively seek support from their franchises for important and potentially expensive decisions such as elected advisory councils, regional meetings, and national contracts. Those who are new to this business may not feel that they have such a great power to exaggerate, but much more experienced dealer owners can protect their interests (indirectly yours too), so try to learn from them and let them lead you when the circumstances require it.
Your preparations before the franchise agreement are now complete. Now you can proceed to the process of choosing the right dealership for you. In this process, you should be as careful as possible, and you should not make a decision without thoroughly measuring the conditions. An important part of this process is understanding the content of the franchise agreement and its advantages or disadvantages. Next, you need to determine how to make your franchise business successful.
Come on, what are you waiting for?
Start writing your franchise success story as soon as possible.