There are many ways to negotiate a fair franchise agreement. The ability to negotiate franchise agreement changes is determined by several factors including franchisor maturity, system size, and target markets. Additionally, your area’s brand visibility and the number of franchises you’ll be obtaining impact your negotiating ability as well. As an entrepreneur, the rationality of your requests affects a franchisor’s willingness to accommodate them. Read on to discover how to negotiate fair franchise agreements.
Become Acquainted With FDD
Reading and understanding your franchise disclosure document (FDD) is the first step in negotiating a fair agreement. Several states, such as California, require franchisors to submit their FDD’s to local governments before operating franchises. FDD’s contain important information regarding liability, litigation, fees, franchise investments, and franchise agreements. Therefore, the thorough reading of this document is crucial for knowing which aspects of your franchise agreement to negotiate. Since FDD’s are often registered with local governments, many franchisors may refuse to change terms within. However, many states allow franchisees to negotiate certain terms. Surely, a thorough understanding of your FDD provides you with agreement aspects to negotiate.
Make Sure It’s Negotiable
The second step to negotiating a fair franchise agreement is to make sure it’s negotiable. Often, franchisor salespeople will claim their agreements are non-negotiable. This is a tactic they use to pressure you into immediately signing. Even if an agreement is “non-negotiable,” legal experts often find negotiable provisions within. Therefore, claiming non-negotiable agreements is a somewhat disingenuous and illegitimate tactic used by shady franchisors. Such franchisors are less likely to provide you with a fair agreement. Avoid these kinds of franchisors by ensuring negotiable agreements. Absolutely, making sure your agreement is open to negotiation allows you to establish your franchisor’s trust and credibility.
Understand Which Terms to Negotiate
Understanding which terms franchisors can negotiate and which terms they can’t is a third step in reaching a fair agreement. Good becoming franchisors shouldn’t be willing to negotiate with you on terms such as franchise fee, royalties, brand development funds, as well as products and services. They would be giving you a better deal than other franchisees by doing so. Treating franchisees disparately like this is a red flag to the integrity of the franchisor. However, you can negotiate several provisions related to your individual rights as a franchisee. These include territory, personal liability, and remedies for curing defaults. Certainly, understanding the provisions reputable franchisors should and shouldn’t be willing to negotiate ensures the integrity of your franchisor.
Enforce Franchisor Promises In Writing
The next step in negotiating fair franchise agreements is to enforce franchisor promises by getting them in writing. Promises crucial to meeting financial goals such as sales volume, new customers, and revenues are important to get in writing. By requesting these promises in a text format, you hold your franchisor accountable for them. Often, the best way of doing so is to ensure you demonstrate such promises in your franchise agreement. This way, you enable concessions such as more time or reduced payments when promised financial milestones are missed. Definitely, enforcing promises in writing ensures your ability to hold your franchisor accountable.
Understanding that franchisors reserve the right to make company-wide decisions is the final step for how to negotiate a fair franchise agreement. In fact, agreements often include clauses stating the franchisor makes decisions in the best interests of their company. When franchisors make decisions directly affecting your franchise, you have certain rights. These rights include access to certain waivers and extended time periods to make any required changes. This way, you ensure continued operations when such changes are made. Indubitably, understanding franchise-wide decisions and your rights when they are made reduces the costs of accommodating the changes.
There are many methods to negotiate a fair franchise agreement. One such method involves a deep understanding of your franchise disclosure document. Next, test your franchisor’s credibility and integrity by determining their openness to negotiation. However, you must understand certain terms are non-negotiable with reputable franchisors. Additionally, hold your franchisor accountable by requesting and enforcing various provisions in writing. Finally, keep your rights in mind when franchisors make company-wide changes. When wondering how to negotiate a fair franchise agreement, consider the steps described above.