Find out why the franchise agreement is the most important document between franchisor and franchisee. Franchise expert Derek Cafferata gives insight into its purpose and benefit.

What is a Franchise Agreement?
A legally binding document outlining the terms and conditions that a franchisee must abide by when running a franchise, the franchise agreement is probably the most important document a franchisee will sign.

As a franchisor, the franchise agreement protects intellectual property, ensures consistency in how each franchise unit is promoted and run and outlines the responsibilities the franchisor has to the franchisee.

As a franchisee, the franchise agreement outlines the boundaries of what can and cannot be done in running the business, identifies the obligations the franchisee has to the franchisor, as well as identifying what he or she can expect from the franchisor.

While a franchise agreement is legally binding and will usually last anywhere from 10 to 25 years, a good agreement will allow for the franchisor to adapt the business model and requirements of either or both parties for the best interest of the brand, to develop new products and services and to stay ahead of the competition.

“The franchise agreement is the most important document between the franchisor and franchisee,” says Derek Cafferata, President and CEO of franchise experts All State Franchise Finders. “As well as outlining the expectations and requirements of both parties, the franchise agreement also stipulates the fee schedule, which is usually made up of an initial payment with recurring monthly royalty fees for the term of the contract.”

How Does a Franchise Agreement Work?

The franchise agreement is an in-depth document with a significant amount of very important information. It will include details regarding the franchisee’s assigned territory, guidelines for use of all intellectual property including operating systems, insurance and liability requirements, information auditing requirements, advertising commitments, as well as information about termination, dispute resolution, transfer rights and indemnification.

“As a franchisee, you are entitled to do anything that the franchise agreement gives you permission to do,” says Derek. “If the franchise agreement doesn’t state it, you as the franchisee will not have permission to do it.”

While franchise agreements are relatively standard in what they include, they are often negotiable to some point. Location and territory, assistance with setup or development and transfer or termination of the contract are some of the points a franchisee may look to negotiate with the franchisor through the franchise agreement.

Franchise fees, including up-front costs and royalty fees and use of intellectual property are rarely open for negotiation, especially with an established franchise.

Before You Sign a Franchise Agreement

Before signing a franchise agreement as a franchisee, it is vitally important to seek legal advice as well as the advice of a franchise expert. Understand clearly all fees and financial obligations to the franchisor, the territory covered and whether it is exclusive or not, the duration of the agreement as well as any non-compete clauses that may apply during or after the termination of the agreement.

“From my experience, the relationship between franchisee and franchisor usually breaks down due to unrealistic expectations,” says Derek. “As a franchisee, you need to understand clearly what the franchisor will provide and what they may provide. There is a big difference. Ensure you are aware of this difference.”

All State Franchise Finders Your Franchise Experts

With more than 30 years’ experience in the franchising industry, Derek Cafferata enjoys providing expert franchise advice, helping guide people through the process of franchising. With a strong team of knowledgeable and experienced franchise experts based in Fort Worth, TX, All State Franchise Finders (ASFF) are ready to offer all the advice and guidance you might need. Contact All State Franchise Finders today on 1-800-544-2161 or visit allstateff.com today.