A franchise agreement is just like any contract that you have ever entered into. It defines the rights and obligations of the parties involved. A franchise agreement in particular defines the relationship between the franchisor (the one awarding the franchise) and the franchisee (the one buying the franchise).
There are legal, practical and operational issues that need to be negotiated in a franchise deal. The franchise agreement sums up the terms of the negotiations between the franchisor and the franchisee. The signatures at the bottom of the agreement signify that the agreement has been accepted and understood by all involved parties.
Most established companies who are open for franchise have a standard franchise agreement that leaves little room for negotiation and special terms. This is actually good for a franchisee. This ensures fairness because negotiation skills do not have much impact on the final contract. Thus, if you buy a franchise of an established business, you are sure that you are getting exactly what the other franchisees like you got in their own franchise agreements.
A franchise agreement is very important. Herein is stated in black and white what your monetary obligations to the franchisor are and what you can expect from the franchisor in return. It should state in no uncertain terms the scope of territory to which your franchise gives you exclusive rights to.
A franchise agreement enumerates all the business operating practices that are allowed, encouraged and absolutely prohibited. The franchise agreement makes sure that you conform to the methods that were already proven to be effective so that you can be assured of your own success.
A franchise agreement protects your interests. If your franchise agreement says that inventory can be purchased through the franchisor at a 20% discount, then you can be sure that you will get this discount. If the franchise agreement prohibits franchisees to purchase ingredients from any other source except the franchisor, then you can be sure that the quality of your products will be at par with what the customers of the company expect from that particular company.
The franchise agreement is not there to confuse you but to guarantee that you will be getting your money’s worth. Treat it with respect by reading it thoroughly and asking questions if necessary. Only after you are satisfied with its stipulations should you sign it. And then, be sure to stick with it.
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