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Important things to consider in a franchise contract

Owning a franchise can be incredibly rewarding, but it can also be incredibly risky. The first risk that franchise owners will encounter comes in the form of their franchise contract. Signing a contract that is not to your benefit can be perilous to your financial success. And many franchise contracts are skewed in favor of the franchise company, not the owner.

Would-be franchisees should be cautious before signing a contract. Before signing your name on the dotted line, there are several important things about franchising contracts that you should know.

Some details are non-negotiable

Many franchise companies are successful because they have found a time-tested formula that works for them. They know that the key to their continued success is to have each franchise location follow t he same formula. As a result, they may use a uniform contract for every franchise owner. Often, these contracts are non-negotiable. Be sure that you are prepared to play by many of the franchise company’s rules when it comes to running the business.

Negotiate where you can

Still, there is often some wiggle room for you to play by your own rules. To the extent that a franchise contract is negotiable, you and your attorney should negotiate the contract to your advantage. Beware that some franchises that are willing to concede too much ground may actually be a warning sign. It may signal that the company is not confident in the system that they have built for their franchises.

Beware certain clauses

It is common for franchise contracts to include a clause that allows the franchise company to change significant aspects of the deal without any input from you. This sounds ominous, but it is standard procedure for many franchise companies, particularly large and powerful ones. While your lawyer may be able to weaken or even remove some of these clauses, the franchise company will probably not budge on others. You will have to weigh whether you are okay with signing a contract that gives them this power.

Making it difficult to sell

Most franchise agreements are for terms of 10 to 20 years. If you wish to sell your franchise before your term is up, your contract might make it very difficult. Franchise contracts often set strict standards on when you may sell your franchise and to whom.

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