As a potential franchisee, you cannot afford just to trust the franchisor to have written a contract that will work for you. You need to review it thoroughly before signing to cement your agreement.
Known as the franchise disclosure document, it outlines your future relationship. Here are three crucial areas:
The total cost to you
Different franchisors can spell out our financial commitments in different ways. They often do this intentionally to try and make their franchise sound more attractive to potential franchisees. Only by understanding the total cost, which includes initial payments, commissions and other fees, can you decide if it is the right deal for you.
Restrictions on you
Let’s say you run a small gas station and decide to sign up for a burger franchise to attract more customers and take advantage of those who want to fill their stomachs at the same time as their cars. You need to know if you will still be able to sell other types of food or whether the burger chain’s agreement will restrict you solely to their product, costing you the opportunity to sell hotdogs and sandwiches for variety.
Territorial restrictions
If the gas station a mile down the road is also allowed to sell the same product, it will take away the advantage you think you are gaining by offering it. A mom-and-pop grocery store offering the product could do the same. Defining territories, whatever those may be, is crucial.
Many problems arise because franchisees did not understand what they were signing up for. Taking legal help to review the paperwork before you sign up for a franchise will help avoid issues later and give you the security to know when you can challenge the franchisor if they don’t hold to their side of the agreement.
