What To Look For In A Franchise Purchase Agreement

Franchise AgreementAlso called the Grant of Franchise, the Franchise Agreement outlines the terms of the franchise. The agreement should work for both the franchisor and the franchisee. Be sure that you review the document with a financial advisor and an attorney so that you personally understand all of the terms. Then, make sure all of the terms are necessary and that the definitions are clear.

Trademarks and Identity

Make sure that you have full use of the franchise trademarks and logos. Also, inquire if anyone else in your neighborhood had prior use of the franchise.

Relationship of Parties

Be certain that the relationships between the franchisor, franchisee, and suppliers are clearly defined. In addition, determine if you are considered an independent contractor, an employee or a subsidiary of the franchise.

Training

Determine to what extent training is provided for you and your employees. Find out if the training is through a manual or a training program and if travel is included in your total cost.

Operations

Know to what extent you are obligated to protect trade secrets and if you are liable for employees who may not protect trade secrets. In addition, find out if you and your employees need to sign a confidentiality agreement. Also, understand the terms of your agreement. For example, be clear about what’s covered in your insurance coverage and if you are prevented from engaging in any other form of business while acting as a franchisee.

Locations and Leases

Determine if the franchisor will help you secure a location, negotiate a lease. Also inquire if the franchisor dictates the terms of the lease.

Advertising and Marketing

Pay close attention to the details royalty fees. Make sure you know whether or not the amount can be increased without notice or your consent.

Financial Audits and Reports

Devise an accurate and organized bookkeeping system. This way, you’ll be ready if you’re audited. Find out from your franchisor if they can audit your books without notice. If you get audited, find out if you have the right to contest the auditor’s report. In addition, ask your franchisor if their records are available for your inspection.

Renewal

Understand the details of the renewal of your franchise agreement. If there is a set time frame, make sure that it is manageable. In addition, understand your heirs’ ownership rights. Determine if they will lose ownership rights if you die or when you can assign the franchise to someone else.