Franchise agreements can be complex and challenging. As a franchisee, understanding your rights and obligations is critical to prevent costly legal disputes.
Here are some common mistakes and how to avoid them.
Ignoring the franchise disclosure document (FDD)
The FDD is a vital document that provides critical information about the franchise system. It includes financial disclosures, franchisee obligations and the franchisor’s legal history. Failing to review this document carefully can lead to unexpected costs and issues later. Thoroughly read the FDD and consider seeking legal counsel to fully understand its terms.
Overlooking the franchise agreement
Your franchise agreement outlines your rights and responsibilities. One of the common mistakes to avoid with a franchise agreement is failing to understand its terms, which can result in legal disputes. Pay close attention to clauses about fees, territory and termination. An attorney specializing in franchise law can help clarify these terms and offer insights into their implications for your business.
Not understanding territorial rights
Many franchisees overlook the importance of territorial rights. If the franchisor opens new locations too close to yours, it could hurt your business. It is crucial that you understand your exclusivity rights in the franchise agreement. Should you have any concerns about your territory, it may be beneficial to consult with a legal professional experienced in a situation like yours.
Mismanaging franchise fees
Franchisees sometimes underestimate the impact of ongoing fees such as royalties, advertising contributions and initial investments. Failing to plan for these expenses can expose your business to financial risks. It may be wise to carefully budget for these costs before signing a franchise agreement and continue to track them as your business grows.
Failing to address disputes early
Small issues can grow into large legal disputes if you do not handle them promptly. Whether it is a disagreement over fees or a breach of contract, addressing franchise legal issues early can save time and money. Opting for mediation before resorting to legal action may also be more practical.
Taking a proactive approach is always better than facing legal problems. If you have concerns about your franchise or franchise agreement, consider reaching out to Zarco Einhorn Salkowski, P.A. Call 305-882-9738 (phone) or 877-545-1607 (toll-free) to get your free consultation.