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Nonnegotiable Franchise Agreements

Franchise agreements set in stone are often the best kind.

Q: I've found a franchise I really like, but the company seems unwilling to negotiate the terms of the franchise agreement. Is this standard, or have I found a company that's proving its rigidity before we even get started together?

A: This is a wonderful question that gets asked all the time. The answer is that the best franchise companies usually won't negotiate the terms of their franchise agreements. The only real exception to this statement relates to the definition of the protected territory with those franchises that offer one.

The purpose of a franchise agreement is to define the rules of the relationship and to protect the entire franchise system from any operator conducting its business in a manner that might be injurious to another operator or the system as a whole. If you think this through, you'll see the advantage of this methodology.

Suppose you had a fellow franchisee (Frank) located four miles from you, and you each operated a franchise under the banner of "Supreme Quality Haircuts." Whatever Frank does in the operation of his business will have a direct effect on your business. To the public, you're both the same business because all it cares about is that "Supreme" stands for a dependable quality haircut at a reasonable price.

Frank turns out to be a real character. His first idea is that the business would be much more profitable if he just sold discount haircut coupons good only for redemption at your location. His cash register rings, and your employees do the work for free. It's a great idea for Frank, but you'd better hope you have a strong franchise agreement that prohibits this type of marketing activity.

Frank decides next that sweeping up the mess after each customer is just a waste of time and decides to eliminate all the other health-code busy work while he's at it. There goes that pristine image and the quality standards that should be associated with the brand.

Strong and successful franchisors have carefully crafted franchise agreements that anticipate all the things a "Frank" could decide to do and forbid all such activity. Though the agreements may seem arbitrary and full of lists of things the franchisee wouldn't think of doing, they actually provide protection from franchisees like Frank.

The secret is to understand why every provision is in the document. Most franchisors are very willing to spend whatever time is needed to explain any provision in their contracts, and many will even issue letters of clarification to you if that will help you feel comfortable. Be sure to ask for an explanation of any clause you don't understand.

You will probably find that the stronger and more successful a franchise system is, the more rules it will have, and the less likely it will be to amend its agreement. Keep in mind, you're not going to get very far with McDonald's if you want to color your arches green, but there's a good reason it has that rule.

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.

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