Even in situations like the current pandemic, which affected the economies of several countries, the franchise business model managed to not just sustain but also flourish. It proved to be a resilient and adaptable model to do business.
If you are someone who’s thinking to start their own business, setting off with an already established brand is a more convenient way to go about it. Owning a franchise business is a great way to start your entrepreneurial journey since you get many added benefits compared to venturing into a business with your brand name. The franchise business model has done exceptionally well keeping in mind the ongoing pandemic situation. Following are some aspects that franchisors and franchisees need to keep in mind while making a franchise agreement:
Grant of rights – Make sure that the agreement that you make with your franchisor has information about the kind of rights you have, like the right to use the company’s trademark, logo, and systems to run during the term of the agreement. You just have the right to use these things during the tenure of your contract; you don’t own these elements of the company.
Relationship – The franchisee of a company is always defined as an independent contractor of the chain and not an employee to the owner. It’s important to keep this thing in mind while running your franchise business independently.
Fees – Discuss with your franchisee what kind of costs you will be covering for the business, like advertising and raw material for products and services. The franchise agreement should have an upfront detail of all the pay and expenses.
It is important for you to have a good understanding of all the costs that you will be responsible for. Some franchisors agree to payments in installments or financing as part of the deal. The agreement may also require you to possess some capital yourself to make them certain that you can meet the expenses.
Franchise territory – The contract with your franchisor allows you to run your business in a certain area and should contain the details about the boundaries of the area you’re going to operate in. You might have exclusive or shared rights to the area that you’re going to operate in, so understand properly what you’ve been given.
Ending the agreement – Your agreement should contain when and how you should terminate your franchise. The contract should also specify how to sell or transfer the rights of the franchise.
The contract must also contain details about whether the franchisor has the first right of refusal for the sale. There are some steps that the franchisees need to follow to separate themselves completely from the franchise after the end of the agreement.
Training – The agreement should mention the training and guidance the franchisor will provide to the franchisee and their employees to set up shop.
Quality control – The franchisor generally has the right to monitor your performance and the quality of products and services you will be providing.
Operation rules – The agreement contains very detailed descriptions of the operation of the franchise that you must follow. These rules contain things like the products that you can sell, your hours of operation, technology, or software that you must use, employee wages, etc.
Noncompete Clause – The agreement or contract might include a non-compete section, which limits you from working in other businesses during or after your term of the franchise agreement.
Breaches – The contract will define what constitutes default, or breach, of the contract and the penalties that are applicable in such a case.
Indemnification – The agreement usually contains details about indemnification that the franchisee needs to pay the franchisor in case of the business suffering losses due to the actions or negligence of the franchisee towards the business.
Applicable law and arbitration – The agreement contains details that are applicable to the business by the state law. The agreement requires the use of arbitration to settle any disputes that might arise.
Supplies – The contract contains details about where you must obtain the supplies to run your business.
Insurance – The franchisor will need you to have all kinds of necessary insurance that you need to have to run the franchise.
The aforementioned points are some of the most important things to keep in mind while making, reading, and signing a franchise agreement. Once you carefully have these aspects in place in the agreement, you’re good to go about venturing into the world of the franchise business.