A Good Franchise Agreement Can Be Your Best Friend

If you are about to become a new franchisee, you may have some anxiety when it comes time to sign the franchise agreement. You will probably wonder what part of the franchise agreement is negotiable and how you can be certain you’re getting a fair deal.

Every franchise company has a standard franchise agreement that outlines what the franchisor expects from you and what is allowed; it's one of the several advantages of investing in a franchise. The better and stronger the company, the longer the agreement — and the less likely they are to negotiate its terms. This is only fair. Why should a better negotiator get a better "deal" on their franchise than someone else?

There are also legal implications. Franchise companies must disclose any special deals or negotiated terms to remain compliant with laws. Having many different agreements can also be difficult to manage internally.

Assuming you’ve chosen a strong and reputable franchise, you don’t need to fear the agreement. In fact, it should give you peace of mind. A solid contract in franchising serves several purposes:

• Describes the costs associated with being awarded a franchise
• Explains property and location requirements (building, equipment, supplies)
• Defines operating practices that protect the franchise system
• Identifies your protected territory
• Safeguards the network from individuals who might damage the brand

An Example: The Mighty Cold Ice Cream Franchise

Let’s say you’ve purchased a Mighty Cold Ice Cream franchise. The agreement says you must buy your equipment and ingredients from the franchisor at a discounted rate. That clause protects you (with fixed costs) and the brand (ensuring product consistency).

This consistency is the hallmark of franchising. Susan in Sacramento and Bernie in Boston both serve the same vanilla swirl — same recipe, same quality, same pricing. Customers know what to expect, wherever they go.

In addition to maintaining brand standards, the franchise agreement clearly defines rules:

• Susan can’t sell her Aunt Lena’s krumkake
• Bernie can’t advertise the local microbrewery

This protects the uniformity of the customer experience and gives all franchisees an equal shot at success.

What About Territory?

The agreement also defines your protected territory, which ensures you’re not competing with another location nearby. This is one of the few items that can sometimes be negotiated, so if it matters to you — ask.

Common Items Covered in a Franchise Agreement

• What is covered in the initial franchise fee
• Whether the fee includes initial inventory
• If the franchisor provides continuing inventory
• The franchisor’s control over identity and product quality
• Availability of ongoing training and support
• Advertising: local vs. national, and who pays
• Royalty calculation and payment
• Bookkeeping, accounting, and reporting expectations

Read Every Word — But Don’t Be Afraid

Just because a franchise agreement is comprehensive doesn’t mean you should sign it blindly. Read every provision. Understand its purpose and how it affects you. A reputable franchisor will take the time to walk you through it.

And finally — don’t let a lengthy contract steal the joy from your decision to become a business owner. A good franchise agreement is not your enemy. It’s your assurance of a fair shot at success.