Details of a franchise contract
- Tuesday, May 1, 2012
A franchise agreement lays out every detail of how a new franchise owner's business should operate. The document can be a lot to read through, but it's important that new owners go through the contract with a fine-toothed comb to make sure they understand every facet of their new franchise opportunity. This can not only help owners run operations more smoothly by enlightening them to what they can and can't do, but it can also help them avoid potential legal issues and added costs.
One of the first details new owners should peruse is the term of the contract. The duration of the contract can range anywhere from five to 20 years, and will stipulate whether it is renewable. In addition, owners may pay a variety of fees to the franchisor, including renewal fees and royalties. This may also include minimum sales performance requirements, from which royalties will be calculated.
Franchise contracts will also include a provision known as "trade dress" that outlines the decor and other brand images associated with the franchisor. This section will touch upon how business owners may use the company's logo and store name. In addition, some franchisors may also impose uniformity when it comes to employee uniforms and the layout of the store. Lastly, the contract will also spell out who must pay for certain retail features associated with trade usage, such as fixtures, and how often they must be replaced. Business owners must also abide by business hours outlined by the franchisor.
Having a reliable supplier is crucial to keeping business operations running smoothly and avoiding service disruptions. The contract should detail the suppliers business owners may order from, and whether they are legally bound to order products directly from the franchisor.
Franchise contracts will clearly outline the terms relating to expanding a company, selling it or terminating the agreement altogether. However, one overlooked aspect some new business owners may fail to examine is the succession plan of the company in the event of a death. For example, if the business owner passes away, the contract should explain whether the company will go to a spouse or beneficiaries or other contingencies. Further, franchises that are held jointly by spouses should also have a provision that explains how the company will be managed in the event of a divorce.
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