skip to content
blog home General What Should You Negotiate in Your Franchise Agreement (Part 1)?

Negotiating Your Franchise Agreement

So we have previously discussed that franchise agreements are negotiable – they absolutely are. Knowing this though raises the next question which is what terms and provisions should you focus on negotiating before signing a franchise agreement? Alot will depend on your persoanl circumstances and the specifics about the franchise that you are about to purchase‚ however there are certain “universal” negoitiating points that you should be considering.

Some “Universal” Franchise Agreement Negotiating Points to Consider

  • Your Protected Territory – Your goal before signing a franchise agreement will be for you to fully understand whether or not you will be granted a protected territory. If you are granted such a territory then you must ensure that the scope of the protected territory meets your expectations and understandings. Evaluate the exceptions to your protected territory‚ the size of your protected territory‚ whether or not your protected territory is contingent on certain sales quotas or requirements and whether or not (especially when dealing with smaller start-up franchises) you can negotiate an increase in the size of your territory.
  • Your Individual Liability – Whether you establish a corporate entity or not‚ 99.9% of the time you will be required to “personally” guarantee the terms of your franchise agreement. While it is absolutely reasonable for franchisors to expect you to personally guarantee your franchise agreement‚ you must nevertheless put some limits on your personal guarantee.

For example‚ what happens if you sign a 10 year franchise agreement and if after two years (after much effort and capital) you decide to close your doors? Technically you are in breach of your franchise agreement and technically the franchisor (depending on the terms of your franchise agreement) may claim lost future royalties (i.e.‚ royalties that they would have received if you did not shut down). In such case one franchise agreement modification that you will want to consider will be to limit your personal liability to “past due” obligations but not future obligations should you elect to close down.

There are other “universal” negotiating points to consider and we will discuss them in future posts. If you would like to learn more about buying a franchise contact us.

Related Articles:

By Charles Internicola March 4, 2014

Franchising Guides

The Ultimate Guide to Franchising Your Business

New to franchising? Do you want to learn more about franchising your business, where to start, the steps, and how to know if you are doing it right?

Learn More

Is Your Business Franchisable and Should You Franchise?

Franchising may be the next big step for your business and represents an opportunity to grow your brand. So, how do you know if franchising is right for you? How do you know if your business is franchisable and, if it is, whether or not you should franchise your business? To answer these questions you must evaluate whether or not your business is franchisable and, if it is, whether or not your individual goals and your business goals align with franchising and establishing a franchise organization responsible for on-boarding, training, and supporting franchisees.

Learn More

Licensing Vs. Franchising

When considering expanding a business both franchising and licensing are possible options. Each option however comes with different rules and regulations. Prior to moving forward with franchising a business or licensing a business it is important to understand the differences and how each may have an affect on you.

Franchise Lawyer Charles N. Internicola wrote “Licensing versus Franchising” for the very purpose of allowing successful business owners to understand the difference between licensing a business and franchising a business.

Learn More

Guide to Selecting a Franchise Lawyer

If you have questions about franchise lawyers, what they do, how they can help, the cost, and how to select the right franchise lawyer for you, then this guide will help.

Franchise lawyers advise and represent individuals and businesses on legal issues that involve franchising a business, preparing an FDD, filing and renewing FDD registrations, buying a franchise, and litigation involving the franchisor and franchisee relationship. The role of a franchise lawyer varies depending on whether he or she represents the franchisor or the franchisee.

Learn More

Item 19 Financial Performance Representations

Check out our guide where we discuss how to plan and properly disclose Financial Performance Representations in your FDD.

Learn More

Franchise Sales Compliance Guide

Are you a franchisor or a part of a franchise sales team? Do you want to learn more about franchise sale compliance and ensure that your sales practices comply with franchise laws and are consistent with best practices? Then this guide is for you.

In this guide you’ll learn the fundamentals of franchise sales compliance including the franchise laws, regulations, and best practices that your team should have in place for every franchise sale.

Learn More
Close Overlay

Let’s Talk

With services to make your growth strategy simple, cost effective, and with a team excited to help you, let’s talk about how we can help grow your business.

Fill out the following form and we’ll contact you as soon as possible. To reach our team directly, give us a call at (800) 976-4904.