8 Important Aspects of a Franchising Contract

Franchising is a popular business model world wide and over 21 million jobs in the Us are generated by franchising which is a approximately USD 2.3 trillion industry.

In any venture or business the foundation to security and success is the contract or agreement. While a franchising business will run on organizational ability, commitment and passion the peace of mind will come from having a contract that protects you legally and takes care of your interests.

A franchising contract lays down the rules and is binding for both the franchisor and the franchisee (you). It is advisable to get efficient legal counsel during the buy/sell process of a franchise. An experienced lawyer will help ensure that the contract covers all important aspects of the venture.

The most important/ crucial things are:

1. The purchase agreement must define clearly the franchising package; the services; and the price.

2. The license part must cover: the rights of the franchise; the obligations of the franchisor; the responsibilities of the franchisee; the trade restrictions; the termination conditions and so on.

3. Ensure that the agreement permits you to use patents and trade marks, any secret methods/ formulae, recipes, copyrighted materials, identified suppliers and so on.

4. Understand the franchisee promises. There will be restrictions pertaining to operations, advertising, training, insurance, corporate image, look and feel and so on. Be clear that you will be able to toe the line. If you have any questions clarify them before signing the contract.

5. The contract must define clearly what the franchise package will include. It would cover aspects like equipment, inventory, training, accounting procedures, collaterals and so on.

6. Be clear about what the initial services umbrella covers. These may include site selection assistance, marketing services, setting up on signage, look and feel of interiors and so on.

7. Arrive at an agreement about termination policies. Define the terms clearly. Understand the laws and regulations that apply. Define the minimum advance notice period. The termination clauses should be fair for both you and the franchisor.

8. Make sure the contract includes a assignment/death clause. In event of death a representative or dependant should be allowed to keep the business going.

Before signing a contract it is important to read through a draft contract with an experience lawyer. Know what clauses are negotiable. Determine clearly what your responsibilities will be and find out about what kind of "hand holding" is on offer. Many franchisors offer help until the franchisee is well settled and understands the ropes. Be sure to examine aspects like business background, litigation history, bankruptcy and insolvency information, and financial statements. Familiarize your self with franchising laws and regulations that apply to your state.

Begin a franchising business smartly and on the right foot understand the pros and cons clearly.