Starting a franchise takes a lot of hard work on the part of both franchisor and franchisee. Since both parties are taking risks and putting both their money and reputation on the line, it’s crucial that a franchise agreement should be created to protect the needs of everyone involved. A franchise agreement isn’t just a document showing that you’re in business together. It serves to set up guidelines for business and provide clear lines of communication for franchisor and franchisee. It also makes sure no one gets taken advantage of in the process of striking a deal. While it might seem tempting to sign along the dotted line without reading the contents of your franchise agreement, a smart business owner knows that keeping the fine print in mind is always important. If you’re looking to buy a franchise, here are some things to be aware of when it comes to drawing up your franchise agreement.
It Sets Up Regulations
When a franchisor negotiates with a franchisee, they have everything to gain from the arrangement. In most cases, the law favors the franchisor in the case of a dispute or disagreement, and the franchisor is in a position to create demands and expectations that the franchisee must follow. A franchise agreement allows for both parties to set up a standard of communication that can be consistently followed thereafter. That means that the terms of the agreement can’t change in a year or so when business is booming, and the terms of negotiation also have to stay consistent. While the franchise agreement exists mostly to make sure everything is taking place legally, it can also set the stage for how things are going to work between both parties. Ideally, a negotiation session (or several) will take place before the agreement is created, and both franchisor and franchisee will have had time to voice their complaints, concerns, and questions before putting anything on paper. This creates the space for an open dialogue between both parties before anything is signed.
It Creates Boundaries
The relationship between franchisor and franchisee can be difficult to navigate. While there’s nothing in writing that says the two have to communicate consistently, it’s ideal to have a situation where both parties are in constant communication and agreement over any and all changes to the business plan or strategy. Putting a few things in writing and signing it to create a binding legal agreement gives both franchisor and franchisee something concrete to reference later on. Whether any kind of dispute comes up or a legal complication arises, a franchise agreement shows that both parties created a set of expectations and requirements from the beginning. If one party deviates from those expectations, solving the problem becomes much easier to deal with in court, and boundaries become less blurred.
It’s Clear About Expectations and Protocol
A franchise agreement doesn’t just represent a normal business contract. It can detail any number of aspects of the business itself, from managerial requirements and standards to service changes to company-wide dress protocol. When franchises form, many franchisors start to fear that their original business model will become diluted and that the quality of service or goods provided will be inconsistent on such a large scale. Having an agreement allows a franchisor to put certain guarantees in place and help create a structure that allows for large-scale growth without inconsistency of service or compromise. For instance, if having a company uniform is important to a franchisor, they can put that into the agreement to make sure that each location is contractually bound to follow the rules. If there are any issues the franchisee has with the business’s private political leanings or associations, the agreement can include a moral clause section or a something that allows for a broader set of alliances. The franchise agreement allows for both franchisor and franchisee to create the vision that they want for the company, and be held to it.
It Protects Everyone
Most importantly, the franchise agreement makes sure no one gets taken advantage of in the long run. It protects the franchisee from having to pay too much for their own materials and uniforms, and it protects the franchisor from having their business turned into something completely different from the original vision. By putting everything down in writing, the integrity of the franchise is protected before it even gets off the ground, and both parties are protected from having their rights to the brand taken away or reduced at a moment’s notice.