Franchise Agreements: Essential Considerations Before Signing
Franchise agreements are legally binding contracts entered into when establishing a franchise business relationship. Franchising a business is a common growth strategy, but it requires careful planning and experience. The franchise relationship involves two key parties: the franchisor, who owns the business and sets the rules, and the franchisee, who operates the business according to those rules.
To ensure clarity and minimize disputes, a comprehensive franchise agreement is essential. This document outlines the rights and responsibilities of both the franchisor and the franchisee. It is signed by both parties before the business commences, demonstrating their commitment to the agreed-upon terms.
Before signing a franchise agreement, it’s crucial to ask pertinent questions to clarify any uncertainties. Recommended questions include:
- Financial Accuracy:
- Are the business earnings records provided accurate and verifiable?
- Cash Flow Stability:
- Is the cash flow susceptible to seasonal or other market fluctuations?
- Supply Commitments:
- What are the contractual commitments regarding supplies from the franchisor, and how are they affected by market variations?
- Agreement Amendments:
- How frequently are adjustments made to the franchise agreement?
These are just a few examples of important inquiries. It’s advisable to ask all necessary questions to ensure a thorough understanding of the agreement. Once signed, the franchise agreement becomes legally binding, and making changes can be challenging for both the franchisor and the franchisee.