Protecting Yourself Within Your Franchise

Getting Started with a Franchise

There are many advantages to buying into an established franchise. Oftentimes, they are an established company with a well-known name and brand, and they have established best practices and a network of consistent business with a steady customer base. In other words, much of the legwork that starting a business from scratch entails has already been done, which can be very appealing for someone who wants more of a turnkey business to call their own. Before starting with any franchise, however, it’s crucial to ensure there are safeguards to protect you as a franchisee and ensure long-term success.

Negotiating a Favorable Franchise Agreement

Negotiating favorable terms within a franchise agreement requires careful preparation and strategic communication. First, identify your top priorities and any non-negotiable terms. Determine what aspects of the agreement are most important to you, such as fees, territory rights, and marketing support. Additionally, it’s important to research and gather information about prevailing industry standards and typical terms offered by other franchisors in the same industry. After this research, you’ll be in a better position to develop a well-reasoned proposal outlining the specific changes or additions you are seeking in the franchise agreement, which are supported by relevant data and the industry standards you discovered.

Keep in mind that there are many typical, non-negotiable terms that franchisees should be aware of when entering into a franchise agreement, as you don’t want to waste your credibility capital negotiating these terms. Some of these common terms are brand and trademark usage, operating standards for the business once it’s open, duration and termination of the agreement, and training and support provided by the franchise. Many of these terms are in place to ensure consistency by the franchise among its franchisees, so franchises are hesitant to negotiate these terms.

Ensuring Compliance by the Franchisor

Ensuring compliance with a franchise agreement is crucial for both the franchisor and the franchisee, and just a few simple steps can assist you as you move forward with the franchise. First, make sure you thoroughly read and fully understand your franchise agreement, specifically the rights, obligations, and restrictions of both the franchisees and the franchisor. Make sure you, as the franchisee, are strictly following any operational guidelines, so that if the franchisor is not in compliance with the franchise agreement, you are in a strong position to identify their non-compliance, rather than being accused of non-compliance yourself.

Ensure the franchisor is providing the necessary training and support as outlined in the franchise agreement. Franchisors should provide ongoing training and support to its franchisees so that they have the necessary knowledge and skills to operate a successful business. Also, franchisees should maintain accurate records of all transactions, financial statements, and correspondence related to the franchise operation. This can serve as evidence of compliance or non-compliance if any disputes arise. Finally, make sure you understand the dispute resolution process outlined in your franchise agreement, so that if a dispute arises, you are prepared to take the properly outlined steps to resolve it, and defend yourself should the franchisor initiate adverse steps against you.

Protecting Yourself as the Franchisee

It’s important to ensure the franchisor is operating in a manner that will help you succeed as a franchisee. One of the most important things you can ensure is occurring within your franchise is standardized product offerings, recipes, ingredients, and quality. All franchisees should be following standards that provide for consistency across locations, and the franchisor should ensure this standardization is occurring. Additionally, the franchisor should provide necessary, consistent training and certification to its franchisees. This should include initial training and ongoing refresher courses to maintain consistency.

One of the best advantages of entering into a franchise is centralized supply chain management, which many franchisors have in place in order to maintain consistency in ingredient and product sourcing and distribution. Make sure your franchisor is providing this and work closely with them in order to take advantage of this perk. Finally—and most importantly—ensure your franchise is complying with any financial reporting and auditing on at least a yearly basis, specifically of any group marketing funds that you contribute towards. You want to ensure the franchise is financially sound and that any monies you are contributing to any marketing campaigns, service providers, or contractors are being utilized in the manner in which the franchisor has represented.

Conclusion

Many people feel that when they are considering entering into a franchise agreement, they are at the mercy of the franchise and have no real ability to negotiate terms of their agreement. Furthermore, after entering into a franchise, it’s common to feel the franchisor wields all of the power, and the franchisee must go along to get along. These two sentiments—while common—are simply not true. If you’re considering entering into a franchise, or if you are having issues with your current franchisor, the litigation attorneys at Jimerson Birr can assist you in navigating the franchise agreement and advise you as to what your rights and responsibilities are as a franchisee.