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The franchise agreement is likely to be the most important document of any franchise relationship. The agreement is a legally binding contract that establishes the franchisor-franchisee relationship along with the rights and duties of both parties. Many prospective franchisees seek to negotiate the terms of the agreement to make them more favourable for themselves. This article will explain how prospective franchisees can negotiate the agreement and several key points to consider before negotiating.
1. Read the Franchise Agreement
The first step to negotiating is to ensure that you fully understand the franchise agreement. Take your time to read and digest the contract and any further documents the franchisor has provided you with.
During this time, you should also research the opportunity and the brand. Find as much information as you can. You may also speak to existing franchisees within the network about their experience and the viability of your prospective business.
2. Seek Legal Advice
Legal advice can be invaluable to prospective franchisees. A lawyer can assess the franchise opportunity and raise any issues they identify. Their assessment can also help you decide whether the opportunity is right for you. They can also help you to negotiate the terms of the franchise agreement.
Seeking legal advice early can help you:
- create a strong foundation for your future business;
- mitigate legal risks; and
- help you identify and negotiate unfavourable contractual terms.
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3. Establish the Points You Want to Negotiate
The specific terms you may want to negotiate will depend on the franchise opportunity and your specific circumstances. However, particular points that are commonly brought to negotiation by franchisees include:
- their need for more training and support while setting up the franchise and for the duration of the agreement;
- territorial exclusivity;
- payment amounts and terms; and
- non-compete clauses.
Once you have read and understood the agreement, figure out precisely what you want to discuss when you approach the franchisor for your negotiation. Use your research to establish whether your requests will be reasonable and feasible.
4. Understand the Franchise and the Franchisor
There is no guarantee that you will get what you want from the negotiation. Some agreements are more set in stone than others, and some franchisors will be less willing to negotiate.
Several factors may influence how you approach the negotiation and how likely it is that the franchisor will satisfy your wishes. These factors include:
- the age of the business;
- the size of the franchise network; and
- how many units you agree to set up and operate.
Use your understanding of the brand to pick which terms you want to negotiate with the franchisor. Be sparing and try only to pick those which you think are most feasible.
5. Begin to Negotiate
The franchisor is somebody you will likely share a long-term business relationship with, so bear this in mind for the duration of your negotiations. You want to begin your relationship in the best way possible, and seeking an overhaul of the agreement and their business is unlikely to be the ideal first step. Plan to enter the negotiation with a select few key points and keep the discussion respectful.
6. After You Negotiate, Sign the Agreement
If you have successfully understood and negotiated the terms of the agreement, you may choose to sign it. Remember that you can walk away at any time before you sign the agreement. There are many franchise opportunities available. Therefore, if something does not feel right to you, do not hesitate to ask more questions, negotiate further, or walk away.
Once you have signed the agreement, you are a franchisee. The franchisor will take the initial fee, begin to train you, and help you set up your business.
This handbook covers all the essential topics you need to know about franchising your business.
Negotiations can help prospective franchisees encourage the franchisor to make changes to the franchise agreement. Before negotiating, the first step is to read and understand the franchise agreement. You should note that there is no guarantee that the franchisor will satisfy your requests. Some franchisors will be more willing to adjust the agreement than others. Factors influencing the likelihood of successful negotiations include the franchise network’s size and age. During negotiations, it is essential to remain respectful and observe a two-way discussion. After all, the franchisor is someone you will potentially share a long-term relationship with.
If you need help negotiating a franchise agreement and joining a franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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