Whether you are an entrepreneur looking for the right opportunity, or a booming business interested in expanding your brand, knowing the ins and outs of a franchising agreement is critical. Setting out on a franchising adventure is exciting and could be very successful if everything is handled properly. However, before you can start reaping the benefits you need to have a clear understanding of what your contract will include and what it means for your new business venture. Our experts are revealing everything you need to know about franchising and the agreements that come with it.

What Is Franchising?

Franchising is a legal agreement between two businesses and is used as a way of growing a brand. A company looking to expand will look for opportunities with small businesses or individuals who want to start up a successful branch of their organisation. These agreements involve licensing the business trademark and paying franchising fees to use it. A common model for franchising can be seen in the fast food industry, where many major fast food chains use franchises to open branches all across the globe.

What Is The Difference Between A Franchiser And A Franchisee?

Before you can start looking into franchise agreements and deciding if it is the right road for your business, you need to understand the terminology. A franchisee is an individual or small business, who pays a license to use the trademark, systems, and support of another business. A franchiser is the organisation who has franchised their business to these franchisees. They receive fees and ongoing royalties in return for their brand name and support.

 Why Is Franchising Growing In Popularity?

Although franchising has been around for decades, the last couple of years has seen a real boom in this kind of business model. The reasons for this rise in popularity is a mix of various factors. Many young investors are realising the potential that franchising has to offer, and this combined with more opportunities than ever before, has seen businesses take up franchising in record numbers. What is being offered with these opportunities has also evolved and made the prospect more enticing. Many franchisers now offer training programmes and a range of investment options.

What Is A Franchise Agreement?

When you want to take up this kind of business opportunity, both parties will need to sign a legally binding franchise agreement. This is the contract between the franchiser and franchisee, and it outlines all the terms of the relationship including obligations and rights. In this documentation you will find information on provision of services and goods, payments terms, renewal details and more. This agreement is absolutely critical because it underpins the mutually beneficial relationship between two businesses.

What Should A Franchise Agreement Contain?

Knowing what to look out for in a franchise agreement can save you from issues further down the line. Before signing any contracts, make sure they specify:

  • The Agreement Duration: The length of the franchise agreement should be clearly stipulated so everyone is on the same page. Typically, these agreements have a fixed term of 5 years, but this can vary depending on the business. Contracts should also state what notice needs to be provided should you wish to renew the deal.
  • Business Sale: Franchisees should have the right to sell the business on should they want to. Most agreements state that the franchisor must approve of the new buyer, and they have the final say for all franchise sales.
  • Territories: The territory of your franchise is a very important part of the agreement. Your documents should include details of your specific areas and the size of your territory.
  • Renewals: When it comes to the end of the franchise agreement, you can consider if you want to renew. With these kinds of agreements, you generally don’t renew your existing agreement but enter into a brand new one.
  • Charges And Fees: It is crucial that all necessary fees and charges are specified within the franchise agreement. There should not be any additional or hidden charges which crop up after the contracts have been signed. In most agreements there will be royalty fees, a franchise fee, and contributions to marketing budgets.

Entering into a franchise agreement is a big commitment, and it is essential you understand all the ins and outs before signing on the dotted line. If there is anything you are not sure about, or any areas of confusion with your agreement, make sure you discuss them with an experienced commercial solicitor.