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Learn to Evaluate a Franchise Agreement

It's one of the most important tools you'll get when buying a franchise . . . and the foundation of your relationship with the franchisor.

It's an unfortunate fact that many franchisees don't read their franchise agreements carefully and completely before signing on the dotted line. There's a reason for this: The agreements are long and complex documents written in the language of the law that tends to put the average reader to sleep. Worse still, many prospective franchisees, after reading the disclosure portion of the franchisors' Uniform Franchise Offering Circulars (UFOC), think they understand the deal and only scan the franchise agreement. Their comprehension of the deal may be partially right, but often it's tragically wrong.

It's important to understand that the purpose of the UFOC is to describe the relationship between the franchisor and franchisee. It's the franchise agreement, however-the written contract-that governs that relationship.

Looking back, a well-intentioned change in franchise disclosure-requiring them to be written in "plain English"-probably hurt more than helped prospective franchisees. The new standard often leads prospective franchisees to believe they understand the relationship as described in the disclosure document. Consequently, some franchisees, in trying to save money, forgo hiring attorneys to help them. Many franchisors recognize this frailty in the change to "plain English" and encourage-or even require-their franchise candidates to seek outside legal assistance.

By the time you begin your review of a franchise agreement, you've probably already met with the franchisor and toured its offices and some of its locations. Hopefully, you've also spoken to other franchisees in the system, evaluated the financial aspects of the relationship and conducted other steps in a proper examination. At this point, you're probably sold on the opportunity. Now you need to hire a franchise advisor.

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