Do’s and Don’ts of Franchise Agreements
Franchising agreements allow a business (a franchisee) to effectively copy of a model for doing business under the brand of another (a franchisor). In exchange for payment, a franchisee will legally operate their business in line with the franchisor’s system, enabling them to sell their products and services for a set period of time.
Before seeking to enter into a franchise agreement, franchisees should consider the following issues:
Do’s:
- Read your disclosure document.
- Speak to current and former franchisees.
- Check what expenses the franchisor will be keeping.
- Ensure you are aware of any supply restrictions
- Know the purchase price of the franchise.
- Ensure you have independent legal, accounting and business advice about your franchise.
Don’ts:
- Rush into signing a franchise agreement.
- Rely on what a franchisor has told you without ensuring it is in the franchise agreement.
Important Points to Remember:
As a franchisee, you are able to change your mind within the first seven days of signing or paying under a franchise agreement. This means you will be able to get your money back within 14 days so long as the money is not for reasonable expenses or was included in the franchise agreement. This right only applies to new franchise agreements so renewals, transfers or extensions of a current franchise agreement will not be covered by this rule.
Franchisors are obligated to act in good faith and provide various disclosure documents under the Franchising Code of Conduct, before franchisees sign any agreement or make a non-refundable payment.
It is up to the franchisee to ascertain whether the franchise agreement is a good deal, as there is no legal protection for those who do not do independent research to determine whether they have signed up to a bad deal.