Facts About Franchise Agreements

If you’re considering opening a franchise, congratulations! It’s one of the best and most rewarding investments you’ll ever make. But with that said, it’s important to make sure you understand what you’re getting into first. Step one: you need facts about franchise agreements.

There’s a lot to understand about your franchise agreement, and there will be plenty of information in there that we don’t cover here. But our goal is to give you a glimpse into the complicated and intricate contract you might find yourself signing in short order.

As Entrepreneur put it, “a franchise contract is like a prenuptial agreement – not very romantic, but you’d better understand it before you sign it.”

And with that, here are a few facts about franchise agreements to know before diving into your investment.

There Probably Won’t Be Much Negotiation

It’s true that franchising is an excellent alternative to starting your own business. You get all the same autonomy and creativity you’re craving, but with the terrific support that comes from an established company. The roadblocks on the way to success are at the very least different ones, if not altogether easier than the ones you’d face by going it alone.

But with that established, it’s important to know that there won’t be much, if any, wiggle room when it comes to negotiating your franchise contract. Why? Because consistency in a franchise breeds the best, and the easiest, decision making.

Think about it: the franchisor has worked hard to create a proven, repeatable business model that is successful. They’ve established their brand, which is well-known and respected in their industry. And if a change comes in any nature that they want to or think they need to make, they can’t have hundreds or even thousands of different individual franchisee contracts to worry about negotiating with. If there is variety among each of these documents, the franchisor is more or less rendered powerless.

The Franchisor Gets the Final Say

You’ll likely find language in your contract that says it can be terminated by the franchisor, without notice, at any time, if you’ve violated any of the rules of the contract. There will be very specific notes of things you can’t and have to do. Violating those terms will result in termination.

Simultaneously, there’s probably an early termination punishment or fee if you decide to opt out early. And while that’s extremely one-sided, it should be that way, especially when it comes to protecting the brand.

If one franchise violates their contract and tarnishes the reputation of their business, it isn’t just their store that will be hurt – yours will be too. The franchisor needs to be able to step in and take swift and decisive action in order to protect the company they’ve built.

It’s all about maintaining consistency and protecting the franchise’s image and brand.

There Will Be Fees and Royalties

And you should welcome them. Seriously!

There will be a franchise fee that likely isn’t cheap. There will be a minimum net worth requirement, and your liquid assets will have to equal a certain number. And if that seems like an overwhelming or unfair number, consider the opposite: Why would a franchisor allow you to try to open a unit only to fail because you don’t have the funds or can’t get financed? Seeing a unit open and close so quickly is bad for business. The success of your unit and the company are mutually beneficial. So “barriers” like those are what’s best for business.

In addition to the franchise fee, there will be monthly fees and royalties. At Senior Helpers, for example, the ongoing monthly royalty is a modest 5% of gross sales.

And while these ongoing payments are frustrating on the surface, they’re something to appreciate. The support and training teams you’re provided – resources you’ve likely leaned on before and will again in the future – need to be paid and funded.

Plus, this company is allowing you to profit on the business that they built and established, with far less work and discovery than if you had done it alone.

Whatever the fees, it’s a fair price to pay in exchange for what they’re giving you.

For more information on franchising with Senior Helpers, contact us today and speak with a representative.