The first step in franchise development is to write a strong legal agreement to develop trust between the partners. Poorly formatted agreements often lead to confusion. They will ultimately fail to perform the function for which they were written. Here are the pro tips to level up your franchise agreement format.
It seems like you run a thriving business that has excelled at serving several markets. You’re probably going to move towards franchise development in the next step, right? Developing a franchise can naturally raise many questions in your mind, like “Should I trust the franchisee or not?” But you don’t need to worry anymore because we’ve done all the homework for you. Let’s begin with a basic Elements of a Franchise Agreement. An effective franchise agreement could mean the difference between a successful and unsuccessful venture. Read our best advice for finding franchisors.
What is a Franchise Agreement?
A franchise agreement is a documented legal agreement wherein an existing company or brand agrees to lend its name, business model, and technical support to another party. It allows the other party (the franchisee) to launch and operate a comparable business in return for a fixed amount of money and a portion of the profits made.
All the specific obligations and compensation that each partner is expected to meet are listed in the franchise agreement. It establishes the terms and conditions for both parties to follow and helps to build their trust in each other.
Why Do You Need a Franchise Agreement?
- The main purpose of signing a franchise agreement is to safeguard the intellectual assets of the franchisor.
- It guarantees uniformity among all franchisees and represents how each of its licensees reflects the franchisor’s brand.
- The agreement guarantees the ability of a franchisor to evolve its brand to survive competitively in the market.
- The contract also safeguards the franchisee’s ability to modify the course of its operations after deciding with the franchisor.
Elements of a Franchise Agreement
Irrespective of the type of franchise agreement, the general format remains almost the same. Some key elements that are found in every franchise agreement are:
Relationship Overview
It is an overview of some major obligations of both parties involved. For example, how the franchisor is allowed to evolve its brand and how the franchisee can make use of the brand’s confidential information.
It also includes the terms and conditions to be followed by both the franchisor and franchisee. The patent protection of the brand, the use of its trademark, and access to its intellectual property are all discussed in this part.
Assigned or Selected Territory
In most cases, franchisees are not given a protected area to expand the business franchise. The specifications of the territory, however, must be included in the contract if the franchisor has stated it.
The majority of the time, franchisees pick their own physical or online locations and then develop them in compliance with the brand’s guidelines. The franchiser must agree with the franchisee’s choice of the location before it can be used.
Payment Details
Accurate numbers must be used to describe every aspect of the payments that the franchisee must make to the franchisor. These comprise initial fees, ongoing fees, and profit-sharing, among others.
Here you can find the KFC Franchise Cost and Bata Franchise Cost for your reference
Agreement Duration
It should specify the duration for which all the terms hold true for both parties. After the contract ends, it is up to them to renew the contract if they want.
Support by Franchisor
It will be the list of services which the franchisor is obliged to provide before the opening of the franchise and when it is completely functional. These include:
- Trade secrets
- Training of labour
- Headquarters support
- Supply chain
- Research and development in the beginning
- Assurance of quality
Advertising Regulations
The amount that the franchisee must pay the franchisor for its commitment to the advertising agency will be determined by advertising regulations since the franchisor is already advertising his brand.
Insurance requirements
The franchise agreements will outline the mandatory insurance that a franchisee must have both before opening the franchise and throughout the life of its firm.
To get the franchise agreement format online, click here.
5 Tips for an Right Franchise Agreement Format
Franchise agreements that are formatted precisely ensure that both the franchisor and the franchisee comply with their commitments. You can also increase the accuracy of your franchise agreement format by following our list of professional tips here:
1. Make a Checklist of Elements
Make sure you have a checklist of all the necessary elements before you create a crude version of your franchise agreement. After that, start the formatting process by comparing each step to the checklist. It will guarantee that you don’t overlook any crucial elements that you should have included at all costs.
Especially important are the obligations and rights of both parties; SOPs stated by the franchisor; details of duration, site, and fees; safety of intellectual property; keeping and securing records, etc.
2. Keep the Format Uniform
Maintaining a consistent format for the franchise agreement enhances the credibility of your business. A uniform franchise agreement will enable all franchises to reflect the original brand image if you develop many franchises in various locations. The likelihood that clients will recognize you by your “home image” will increase when all of your franchisees are run according to the same operating procedures.
3. Format Should be Customizable
All franchise agreements should maintain the same baseline operational standards while giving some freedom to the franchisee. With a customizable and adaptable agreement, you are honouring the other party by allowing them to make some decisions on their own.
4. List Out Clauses On Your Part
It is suggested that the provisions be listed on each party’s side. When making a choice, the two sets of clauses can be combined to produce a fair contract that all parties accept. Additionally, it will improve how the partners communicate with one another.
5. Consult a legal Professional
The final and most crucial piece of advice is to hire an experienced documentation lawyer. A lawyer is well aware of the legal terms and procedures one must know to propose a franchise agreement format. By taking the facts, situations, and prerequisites into account, he or she can create the agreement with the greatest degree of precision. You would never know which clause to include in the agreement and which not to without the help of a lawyer.
Conclusion
Drafting the appropriate agreement format is crucial for your franchise business. Both parties’ rights are protected by a fair and precise contract, which also shields them from future disagreements. To design the ideal format for your franchise agreements, use our professional recommendations. If you need help of legal professionals in formatting your franchise agreement, contact Vakilsearch right away.
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