When you purchase a franchise, you&#;re buying an established business model that has been successful for other operators in the past. While it&#;s great to have a pre-designed business structure and marketing strategy, your location and target market may require some adjustments to make it work optimally. Whether you are buying or selling a franchise, the legal documentation is essential for protecting yourself as well as your business partner. Understanding the importance of a well-written document from the onset will help you negotiate with more confidence and avoid costly pitfalls down the road. Both parties should have their own attorney review the final documents before signing anything. A strong contract leaves little room for interpretation; both parties should understand exactly what they are getting into with each clause and condition. Here are five reasons why a proper Franchise Agreement is important to your business&#;s success:
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Franchise Agreement Define All The Rules
Franchisees and franchise owners are subject to numerous rules, some of which may not be explicitly stated in the franchise contract. While a few of these may be legally required, most are simply best practices that the franchisor hopes all franchisees will abide by. If there is a dispute between you and the franchisor, it is best if you have written rules to refer back to. A simple rule like, &#;All franchisees must commit to a minimum of 20 hours per week working in their store&#; can help you avoid a lot of headache down the road.
Franchise Agreement Ensure You Know Exactly What You&#;re Buying
As a buyer, you need to understand what you&#;re getting into. The franchise contract is the best way to understand the risks, ongoing investment, and projected profits for your new franchise. Before you sign on the dotted line, be sure to ask the franchisor for specific details pertaining to the following: &#; Capital investment: How much money do I need to invest when starting the business? What are the ongoing capital requirements? &#; Expected sales/profits: What is the average net sales growth for the past 3 years? What is the average EBITDA margin for the past 3 years? What is the expected growth rate for the next 5 years? &#; Expected growth: How many new units do you plan to open in the next 5 years? &#; Competition: What are the main competitors in the market?
Franchise Agreement Protect Against Branding Mistakes
While it&#;s a good idea to include a section in your contract that discusses ways to protect the franchisor&#;s trademark, you should also include a section that outlines how to protect your brand. As a franchisee, you are typically responsible for every aspect of the business, including branding, website, and visual identity. The last thing you want to do is find yourself in a legal battle with your franchisor over these areas.
Franchise Agreement Help With Ongoing Operational Support
The franchise contract is a great place to outline the ongoing support you will receive from the franchisor, especially in the early years of operation. There are numerous tools and resources that the franchisor has developed and continues to refine over time. By including these in your contract, you can lock in access to training, marketing support, and even marketing funds up to a certain dollar amount. If there is a specific support area that you feel you may struggle with, now is the time to negotiate an option to get extra support. For example, if you know you need help with food safety training, now is the time to ask the franchisor if they can provide some assistance.
Franchise Agreement Protect Your IP And Confidential Information
Franchise contracts are full of sensitive information and intellectual property (IP) that can be problematic if it ends up in the wrong hands. If someone steals your trade secrets, you could suffer significant financial losses. The best way to protect against this is to include a non-disclosure provision in your contract. This will state that both parties must maintain confidentiality and refrain from sharing sensitive information with anyone else. You can also request that the franchisor provide you with a non-disclosure agreement before sharing any sensitive information. This way, you can protect yourself from receiving confidential information and breaching their trust.
Conclusion
Regardless of whether you&#;re buying or selling a franchise, the legal documentation is essential for protecting yourself as well as your business partner. Understanding the importance of a well-written document from the onset will help you negotiate with more confidence and avoid costly pitfalls down the road. When you purchase a franchise, you&#;re buying an established business model that has been successful for other operators in the past. While it&#;s great to have a pre-designed business structure and marketing strategy, your location and target market may require some adjustments to make it work optimally. If there is a dispute between you and the franchisor, it is best if you have written rules to refer back to. A simple rule like, &#;All franchisees must commit to a minimum of 20 hours per week working in their store&#; can help you avoid a lot of headache down the road.
Become a Spartans Boxing Club Franchisee
With a proven business model that has returned incredible profits year-over-year for our franchisees and an offering of all that you need to succeed in the operation of your franchise, there&#;s no better opportunity than the one here at Spartans Boxing Club.
If you&#;re interested in becoming a Spartans Boxing Club franchise owner, or you simply want to learn more about the business and its offerings, be sure to contact us at . We look forward to hearing from you!
Think of your favorite fast-food restaurant &#; are there multiple locations? Is it even available in different countries?
If you answered yes to both, this is likely because it&#;s a franchise. There is an original business owner, but independent parties have bought into the business and opened their own locations. So rather than one person managing hundreds and maybe thousands of sites, each store may have a different manager, but they all follow the same rules.
People choose to take part in this type of business model because they want to develop business experience without the risk of starting a small business from scratch.
Franchise Startup Checklist
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-
Researching opportunities
-
Evaluating personal readiness
-
Securing financing
-
And more!
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If you&#;re considering this option for yourself, it&#;s essential to be aware of the pros and cons before deciding. In this post, we&#;ll lay out the advantages and disadvantages of owning your first franchise that you can use to make your choice.
What are the advantages and disadvantages of franchising?
As a refresher, a franchise is a business where an independent party (a franchisee) buys into an existing business venture from a franchisor and opens their own location. Let&#;s discuss the pros and cons of making this decision.
Advantages of Franchising
1. Little to no industry experience is necessary.
While it&#;s essential to have business acumen, no specific industry experience is required to purchase a franchise. You&#;re buying into an established business, and the franchisor will provide you with industry-relevant training that will help you develop the necessary skills to succeed at the job.
In the same vein, an additional advantage to purchasing a franchise is that it allows you to explore a career in an industry that you&#;re curious about without committing to it with your own business.
2. Existing customer base and brand awareness.
One reason people choose to purchase a franchise is that it comes along with an existing customer base and brand awareness that is often tough to quickly develop for a new, small business.
With a franchise, the target audience is already established and active, and since they know what to expect, the decision to do business with you takes less time. As a result, it also takes less time to begin generating profits.
Existing brand recognition also makes it easier for you to attract employees and talent.
3. Lower risk than starting an entirely new business
Purchasing a franchise comes with a lower risk than starting a new business, as the trial and errors of new ventures have already been worked through. With a franchise, you&#;re working with proven strategies and implementing a process that works.
4. Support from the franchise owner.
Franchisors provide support and training to franchisees to ensure you understand their business model and how the stores operate. In addition, their years of experience will help you build business acumen under their guidance, something not often available if you start your own business.
5. Ample opportunities for expanding your business to different franchise locations.
Another benefit to buying into a franchise is that you have ample opportunities for growth and expansion within the same franchise.
If you&#;ve found success and enjoyed the process, you can open new locations while still benefiting from the franchisor&#;s support. You&#;ll likely also have demand and brand awareness in all the different locations you choose to expand to as well.
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Disadvantages of Franchising
6. Limited creative opportunities.
When you start your own business, you have the creative freedom that is not available when purchasing a franchise. You&#;ll likely have to adhere to the company&#;s existing rules, so creating a unique marketing mix or designing a unique logo are not options in this business model.
7. Financial information is shared with the franchisor
Financial information is always shared with and available to the franchisor.
If you&#;re looking for more freedom with finances, this wouldn&#;t be as possible as it would if you were running your own business. However, this may be an advantage to some, as the franchisor can provide guidance and financial advice if there are issues, again helping you learn from an experienced owner.
8. Varied levels of support.
Franchisors will likely provide support, but some may not. Some may be there every step of the way, while others may give you the essentials and send you on your way.
If you&#;re purchasing a franchise to learn from an experienced leader, but they don&#;t provide much, you may struggle more than you&#;d hoped. Given this, it&#;s essential to review the contract before signing and understand the level of assistance you&#;ll get.
9. Initial investments and start-up costs can be expensive
Depending on the business, initial investments can be high. For example, fast-food chain McDonald&#;s requires a minimum investment of $500,000 USD of non-borrowed personal resources to be considered. This means they expect you to have that much cash on hand that is not from a loan. To some, this kind of investment is not possible.
In addition to initial investments, some franchisors may charge rent if you&#;re purchasing an existing storefront, require you to handle marketing costs, pay management fees, recruitment costs, service fees, royalties, etc. It can be a significant investment, which can be a drawback to those beginning their business career.
10. Contracts aren&#;t permanent
When you purchase a franchise, you&#;ll be required to sign a contract that stipulates a time frame for your ownership. When it ends, the franchisor may decide not to renew your contract. While it likely wouldn&#;t come as a last-minute surprise, it would require you to spend more time looking for the next venture.
For some, a temporary contract may be an advantage. When the contract ends, you can use your experience with the franchise as a springboard to starting your business.
11. You&#;re your own boss, but you have less individual control
As mentioned above, you don&#;t have as much creative freedom with a franchise.
You also don&#;t have individual control of any other aspects of the business, like opening hours, products, holidays, or even storefront layout. Franchisors have these rules in place to promote consistency in all their businesses, which is why many regulations are strict and not open for interpretation.
So, while you are your boss as you would be for your own business, you&#;re expected to comply with existing standards.
Franchise Startup Checklist
A step-by-step roadmap for launching a franchise, including sections for:
-
Researching opportunities
-
Evaluating personal readiness
-
Securing financing
-
And more!
Learn more
Download Now for Free
Download Free
All fields are required.
You're all set!
Click this link to access this resource at any time.
Download Now
Benefits and Cons of Franchising: A Summary
If you&#;re hoping to generate knowledge and build your skills while supported by experienced mentors, buying into a franchise is a valuable option.
If you&#;re looking to embark on your own journey with more control, it may be best to start your own business. The table below displays the most salient benefits and cons to consider when making your decision.
Advantages of buying a franchise
DISADVANTAGES OF BUYING A FRANCHISE
No prior industry experience is necessary, so it is good for career exploration if you&#;re unsure.
You own the franchise and are your boss, but creativity and independence are limited because you must adhere to franchise rules and regulations.
Brand awareness already exists for the business, making it easier to draw in an audience and generate profits.
Initial investments can be high, and some companies require payment with non-borrowed money.
You&#;re buying into an established brand with operations, systems, and processes in place to help you succeed.
Costs can add up if you&#;re required to pay rent, royalties, service fees, etc. If you don&#;t have access to capital, this can become a burden.
Ample opportunity to purchase multiple franchise locations and expand your operation.
All financial information is shared with and available to the franchisor.
Franchisors provide hands-on support and guidance.
Not all franchisors provide the same levels of hands-on support. If you lack any sort of business experience, it can be challenging.
Lower risk than starting a business from scratch.
Opening a Franchise Should Depend on Your Business Goals
Purchasing your first franchise should come as a result of your own business goals. Consider the benefits and drawbacks outlined in this piece, and make a decision that will allow you to meet your goals.
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