Franchise Checklist Focus Reading »

Franchise contract 

The most essential element of a franchise business is its contract.  It is full of legal jargon studded with ‘whereas’ and ‘wherefore.’ Being the core of a franchise business, it must be scanned with a keen eye on details.You can read them but you won’t be able to make sense of it unless you get an expert onboard for clarifying franchise contract.

The Checklist: Franchise Contract

Once signed, the contract binds both the parties. For the same reason, it needs to be carefully read. Typically, the contract must achieve three fundamental objectives, which aim to:

• Contractually bind both (franchisor and the franchisee) parties and reflect the terms accurately.
• Protect the benefits of both the franchisor and the franchisee along with the brand, intellectual property and reputation.
• Set out the rules to be observed by the parties and remains constant for all franchisees. 

The contract’s length should be long enough for the franchisee to recover the initial investment. The contract should be renewable and highlight this ‘right’ along with its cost.

The cost of the franchise and the fees/royalties to be paid along with its time, amount and the process must be specified in the contract as well.

Remember, a franchise contract also contains a ‘performance clause.’ This clause specifies the total amount of sales, either in terms of percentage or in numbers, to be achieved annually. Before signing, assess whether the figures are realistic or not. Check what kind of operational support will be given in helping you to achieve the numbers.

Franchisors Obligation

Franchisers’ obligations must be clearly mentioned in the contract. Details should be precise and extensive enough to protect the interest of the franchisees. A franchisee needs a franchiser to offer operational assistance. For specific clauses, the following points must also be covered:

• Training and assistance to the franchisee’s staff.
• Good and service supply/supervision.
• Responsibility for advertising, promotion and marketing of franchisees (to a certain limit).
• Assistance to the franchisee in locating and converting a property into an outlet.
• Changes in the business system to enhance and improve the franchise profits.
• Support functions like accounting, bulk buying and management services.

Besides, look for the franchisee right to sell the business in order to gain profits on your investments.

“Errors, like straws, upon the surface flow; he who would search for pearls must dive below.” - John Dryden