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TheFranchiseAgreement

The Franchise Agreement

The franchise agreement lays out in great detail, both your rights and obligations as the franchisee and those of the franchisor

With Australia’s franchising code of conduct, franchisors must give prospective franchisees:

  • a copy of the Franchising Code
  • a disclosure document
  • a copy of the franchise agreement in its final form
  • a short information sheet outlining the risks and rewards of franchising.

These documents need to be provided to you at least 14 days before you start, renew or extend a franchise agreement or pay a non-refundable deposit.

It’s important to be aware that a franchising agreement does not give you a ‘business for life’. It only gives you the right to operate that business for the life of the franchise agreement. There is no guarantee that the agreement will be renewed, unless specifically negotiated.

Some questions to ask before you sign:

  • Does the franchise have a strategic plan and what are the plans for the future?
  • Does the sale include the use of business name, products, reputation/goodwill, site location, advertising budget or back-up assistance?
  • What are your intellectual property rights and obligations?
  • Are there any other expenditures that you may be required to make later, such as for refits?

In your agreement, you should also broadly expect details regarding:

  • Occupational health and safety obligations.
  • Operating procedures, employee responsibilities, and standards spelled out in the franchise operating manual. Ask if the franchisor changes the requirements in the operating manual at any time.
  • The retail lease. Discover if it is in your name or the franchisor's name and does the term of the franchise agreement differ from the term of the retail lease?
  • Fees you need to pay, including initial franchise purchase fees, renewal fees, royalties, advertising and training fees.
  • Brand image, including logo use, uniforms and the appearance of any premise.

There may be other more specific details, including:

  • The official opening of your franchise. Are you expected to hold a customer event? If so, will the franchisor contribute some or all of the costs involved?
  • Supplies. Some franchisors manage their total supply chain and require you to obtain supplies and equipment from the company itself. Familiarise yourself with their procurement terms and conditions.
  • Exit planning - in the event of an accident or death, can the franchise pass to your spouse, partner or heir and must the franchisor be consulted? Discover if there are any conditions under which either you or the franchisor can end the agreement before it has run its full course.

Your franchise agreement, as with any legal agreement, must be taken absolutely seriously, as it is binding and costly. Be confident in those with whom you are entering into the agreement and seek legal advice before signing.

Other articles in this series: Is Franchising For You? and How to Choosing a Franchise.



Faye Ferris

About the author

Faye Ferris is the APAC Sales & Marketing Director for BusinessesForSale.com, the world’s most popular website for buying and selling businesses attracting over 1.3 Million visitors each month. If you are interested contact faye@businessesforsale.com

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