Understanding Your Franchise Agreement

Understanding Your Franchise Agreement

Understanding Your Franchise Agreement

Starting a new business from scratch can be an exciting but overwhelming process. It can be difficult to develop a functional business model and competitive marketing strategy. Another option is to open a franchise of a well-established business. Franchising allows the franchisee to step into the existing framework of a successful business. An important part of opening a franchise is entering into a franchise agreement. If you are planning on opening a franchise, it’s important to understand how this essential document works. Here is more on understanding your franchise agreement:

What is a Franchise Agreement?

As the name implies, a franchise agreement is a legal contract between the franchisor and franchisee that sets out how the franchising relationship will operate. Often, the franchise agreement will give the franchisee the right to open one or more franchise locations. This agreement is the foundation of the franchisee/franchisor relationship, and it’s crucial that the right terms are included. 

What is Included in a Franchise Agreement?

Identification and Service

Franchise agreements will vary by industry and parties, and franchisors and franchisees can negotiate terms that apply to their unique circumstances. A typical agreement will identify the parties and location as well as the business’s legal structure and designated agent.

Geographic Location and Fees

Franchisees usually want the exclusive right to have their franchise location in a certain area. Therefore, the contract will most likely have terms related to the geographic area where the franchisee will operate. Additionally, the franchisee will ordinarily pay the franchisor a specific fee. The amount and terms of the fee and payment will be indicated in the agreement.

Support and Training

The agreement will also probably include terms pertaining to the franchisee’s support and training. Franchisees will usually agree to provide the franchisor with specialized training and access to resources that will help them in operating the franchise location.

Duration, Renewal, and Termination

The franchise agreement will state how long it will be in effect and provide extension and renewal details. It will also state how the agreement can be terminated.

Location, Décor, and Signs

Franchisors will usually retain the right to approve the franchisor’s location, décor, signs, and other brand-specific features.

Operating Procedures and Vendors

One of the most critical parts of the franchise agreement will be the section that details the operating policies and procedures. Franchisors usually have a specific way they want their locations to run. The franchisee will be expected to use the franchisor’s designated procedures, policies, and processes. In addition, the franchisee may be required to use certain vendors and service providers as part of the business structure.

Intellectual Property and Other Matters

Franchisors will also often include terms about the businesses’ intellectual property. This will typically include their training methods, operational practices, brand specifics, and other proprietary information. Franchising agreements also usually contain information about royalties, transferability, insurance, advertising and marketing, and non-compete agreements. 

These are just some of the crucial terms a franchisor and franchisee may include in their franchising agreement. You may also need to include several other detailed provisions in your contract.

If you are considering entering into a franchising agreement, you will want to work with an experienced Florida business attorney. Your counsel can help you evaluate your potential investment and develop an agreement that protects your interests now and in the future.

Contact a Florida Business Attorney Today

Attorney Richard Sierra at the Florida Small Business Center assists clients like you with commercial leasing, business, and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.

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