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Six issues to consider before signing a franchise agreement

On Behalf of | Oct 31, 2022 | small business law | 0 comments

Buying into a franchise can be a great way to satisfy your entrepreneurial streak. It can give you the well-established brand that you need to make a splash in the community while also providing you with the training, resources and equipment that you need to set yourself up for success. However, as you prepare to embark on your franchising journey, you need to be aware of some of the common issues that franchisees see, which often start with the franchise agreement itself.

Common mistakes made entering into a franchise agreement

A franchise agreement is a binding contract. As such, you need to make sure that you understand what you’re getting yourself into and what your rights and obligations are under the agreement before signing off on it. If you fail to do so, you could find yourself at a severe disadvantage as you move forward.

Therefore, before signing off on one of these agreements, you should watch out for each of the following:

  1. The level of support that will be provided: Whether in the form of marketing or training for new employees, you need to know what the franchisor is going to offer you so that you know what to expect and can plan accordingly.
  2. The extent of franchise fees and how they’re to be paid: Sometimes, the payment terms in a franchise agreement are written in a vague or otherwise confusing fashion. But you need to be crystal clear as far as what you’re going to have to pay before you enter into a franchise agreement. Otherwise, you might be left with more expenses than you can handle.
  3. Verbal promises: The franchisor might talk a good game to get you to agree to buy into the franchise, but don’t let their words sweep you off your feet unless they’re in writing. If a dispute arises further down the road, the wording in the franchise agreement is what’s going to control. So, make sure you get everything in writing.
  4. What current franchisees are saying: If you’re thinking about buying into a franchise, there’s a good chance that there are other franchisees out there. Try to figure out who they are so that you can talk to them about the process and the challenges that they’ve seen as they’ve navigated their business operations. The more franchisees you can talk to, the better.
  5. Overstretching your finances: A lot of people who buy into a franchise overextend themselves. They may pull money from their own family’s budget, which can leave them strapped for cash, or they might miscalculate franchise and other pre-opening costs, which can leave them on rocky footing. So, before you embark down this road, make sure that you have enough capital to ensure your financial stability.
  6. Improperly analyzing the market: If you want your business to be successful, you have to know your market. If there isn’t a client base for the franchise that you’re considering, you’re going to struggle for a long time to come. So, before you enter into a franchise agreement, make sure that you have a full understanding of your market, which will be a key indicator of your success.

An attorney can help you with you franchise challenges

Your franchise agreement is just one aspect of your business with which you might struggle. And by addressing these issues on your own, you might run the risk of unintentionally putting your business at risk. Therefore, if you’d like to learn more about what you can do to protect your interests, you might want to discuss your situation with an attorney who is experienced in handling franchise matters like yours.