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Tips to Understand Franchise Legalese

A franchise agreement is much like Chinese written in English letters. You can read them but you won’t be able to make sense of it unless you get an expert onboard. Suppose you read ‘training clauses’ in your agreement, you will not be aware that it refers to either mandatory training or optional training for franchise. In case you stumble on the authorized services and supply cause, you will not know that it refers to authorized suppliers to maintain a constant quality of the franchise final product and for bulk discounts.

Popular Terms in Franchise Legalese

Some of the most common terms that appear in the contract are:

Fee is the initial franchise cost plus the royalty as per the terms of the contract. Royalty varies in franchisees but mostly it is from three to six percent of the gross sales. As a franchisee, check how the contract defines gross sales, see what is excluded and included and take advantage of Early Bird opportunities in franchising that are offered at Global-Ability.com, combined with the tempting takeaway of paying discounted startup fees.

Term and territory define the duration of the agreement and the location of franchise. Ensure that the term lasts for as long as the lease of the location. Renewing clauses of agreement between you and franchisor are also very significant. Territory clause gives you the exclusive trading area. Look for the first refusal clause where any new franchise opening in your territory is first optioned to you for acquisition. If you turn this down, you have a competitor in the area. With Global-Ability.com, this is much simpler as you need to just send in your request for a franchise along the request for a location of your choice.

Reporting includes the sales reports as well as quality checks of franchise. Some franchisers also ask for audited financial statements. Look if you manage to get the auditing part taken off.

The Advertising clause specifies the amount franchisees need to pay towards the advertising funds. This clause may also contain the supervision and financial assistance that the franchisers offer for advertisements.

Restrictive Covenants state the restrictions on franchisees to compete with the franchisors. Ensure that the restrictions do not extend from three to five years after the business relations ends.

One also needs to check whether all the core requirements have been mapped onto the contract or not.

The fact that you are willing to say, "I do not understand, and it is fine," is the greatest understanding you could exhibit. (Wayne Dyer)