Your franchise agreement is the key to understanding your new business. It will tell you everything from how much control the franchiser has over your store to what area you can operate in. When it comes to the area you operate in, it is essential to understand what your agreement says about your territory.

Territory is the area in which your business can make sales. Ideally, it needs to be large enough to fuel your business with enough customers to help you turn a healthy profit. Forbes cautions that a territory that is too small will really restrict your business and could lead to serious issues down the road.

Beyond size

Size should not be the only concern. More important is the protection that the franchiser offers you for your territory. This is the area in which your franchise serves customers and where you can drum up business. There are three general options:

  1. Protected

A protected territory means that the franchiser will help you maintain control over your area by limiting the ability of other franchisees to move into the area. However, it may still allow them to sell in your territory through various means.

  1. Exclusive

Exclusive protection for your territory means that the franchiser protects your area completely. Nobody else will open a franchise within your area. They also cannot sell in any way within your area. This provides solid protection, allowing you to capitalize on your territory and become the go-to franchise for customers in that area.

  1. No protection

In some cases, a franchise agreement will offer no protection at all for your territory. It may not even define your territory. This is dangerous because with no defined territory or protection for your sales area, other franchisees can move into your space. You can lose customers, and your profits may suffer. It will quickly hurt your business.