How do you negotiate a franchise contract?

8 Things to Consider When Negotiating a Franchise Agreement

First of all, never sign any agreement without negotiating.
Negotiate extensions.
Your right to obtain waivers in the event of the franchisor’s company-wide decisions.
Make sure that all fees are disclosed.
Have as few requested changes as possible.

What is negotiable in a franchise agreement?

Franchise agreement terms that might be negotiable include: The date when the new franchisee needs to have their business open and in operation. The amount of grand opening support provided by the franchisor. The amount of ongoing franchisor support during the early days of a new franchisee business.

What is a normal franchise percentage?

Franchise royalties are usually collected by your franchisor on a monthly basis. Like marketing fees, these fees are based on a percentage of your revenue. But there’s one major difference; the percentages are higher. Franchise royalties range from 4% of your revenue all the way up to 12% or more.

How are franchise fees calculated?

Franchise marketing fees are usually based on your monthly revenue. For instance, if your average monthly revenue is $25, 000, and the franchisor charges a 2% marketing fee, you’ll have to pay your franchisor $500. (That’s $6, 000 annually.)

How do you deal with a franchise?

Rich offers these six tips for managing a franchise:

Follow the proven system.
Hire the best people and treat them right.
Delegate to your employees.
Use what your franchisor gives you.
Manage your time efficiently.
Acknowledge the fact that you will likely need franchise mentoring and assistance.

What should you negotiate in the franchise agreement?

Negotiating on the geographic territory should be conducted anyway since it would work against you if you got the lease to a single franchise while the geography remained open to other franchisees who would eventually become your competitors in that geographic area.

How long does it take to open a franchise?

It’s fair of a franchise company to not expect an opening schedule for 10 locations to take 30 years, but at least one year between new location openings is a good period to ensure a franchisee has enough time to negotiate leases and secure financing, let alone deal with zoning and permitting issues, as well as contractors.

What should I do if my franchise terms are not reasonable?

If unsuccessful, Rosen’s legal advice is simple: if the renewal terms are not reasonable to you, and the franchise company does not prove to be flexible, walk away. The alternative is to be pushed out years later, likely against your will.

How does a franchisor default on a franchise?

For example, a franchisee opens 50 fast food locations of a brand and one of those locations defaults. A cross-default provision could state that the franchisor has the right to then default on all of a franchisee’s locations and buy them all back at the “depreciated value.”

What to do if you can’t negotiate a franchise agreement?

If there are terms in the franchise agreement you materially object to, and you can’t negotiate with the franchisor, choose a different franchise opportunity that meets your needs. Another option is to go it alone and start your own independent business outside of any franchise system.

Why is it important to have a franchise agreement?

Franchising is intended to be a method of business expansion focused on consistent, sustainable replication. Because of this, franchise owners prefer consistency in their contracts with franchisees. Significant changes from one agreement to the next are uncommon.

What happens when there is ambiguity in a franchise agreement?

Where there is ambiguity in the contract, the courts will generally interpret the clause in favor of the person that did not draft the contract. Often, attorneys unfamiliar with franchising will spend hours reviewing franchise agreements detailing changes they feel are essential for their clients.

What does consistency mean in a franchise agreement?

Consistency: An agreement that your franchise agreement or certain terms of your franchise agreement will not change for each franchise location you develop over the term of your development agreement.