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.
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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 in franchising,
both as a franchisee and senior franchise company executive. He is
currently the CEO of FranChoice
Inc., a company that provides free consulting to consumers
looking for a franchise that best matches their needs. He can be
reached at jelgin@FranChoice.com.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.