The Franchise Agreement:
The Franchise Agreement is a legal contract that outlines the obligations of both franchisee and franchisor. It describes what the franchisor will do for the franchisee and what the franchisee will do for the franchisor. It may also contain performance criteria to be achieved and steps to be taken in the event that the criteria are not met.
It also generally describes the conditions under which the contract may be terminated and what happens after termination. It is important to get independent legal advice before signing the Agreement, ideally from a solicitor with experience dealing with Franchise Agreements.
The Franchise Operating Manual:
The Franchise Operating Manual is a detailed description of how to run the business. In addition to describing how the core activity should be carried out, it should also contain sections on getting and keeping customers, recruiting and retaining staff, managing books and accounts etc.
It is important to review the Franchise Operating Manual before signing the Agreement.
The Non-Disclosure Agreement:
In order to make a fully informed decision, a franchisee will need information about the business that the franchisor would not normally divulge to other parties.
Franchisors may ask prospective franchisees to sign a Non-Disclosure Agreement (NDA) or Confidentiality Agreement to confirm that they will only use the information in making their investment decision and will not pass the information on to any third parties.
Why should I speak to existing franchisees:
Do speak to two or more existing franchisees to find out how things are going for them. Where possible, make your own choices about who to speak with. But it is understandable if franchisees are hesitant to speak with you unless they know that you are a bono fide applicant.
Why would they share details of their business with anyone who contacted them out of the blue? Have the franchisor make the introduction for you. Be cautious if franchisors are slow to or refuse to let you talk to existing franchisors.
What happens at the end of the licence period:
It is normal to expect that your franchise licence will be renewed after the initial licence period. Check the conditions under which the licence will be renewed in advance.
Who else should I talk to?
Do look for independent business advice from your accountant or professional business advisor and independent legal advice from a solicitor with relevant experience.
Do involve your spouse or partner from an early stage in your decision to become a franchisee. They will be an important part of your business and should be involved from the earliest possible stage.The above is intended only as a general introduction to franchising. Special thanks to HJM Business development for this article.