What is the Franchise Agreement?
The Franchise Agreement is a legal contract that outlines
the obligations of both franchisee and franchisor. It describes what
the franchisor will do for the franchisee and what the franchisee will
do for the franchisor. It may also contain performance criteria to be
achieved and steps to be taken in the event that the criteria are not
met. It also generally describes the conditions under which the
contract may be terminated and what happens after termination. It is
important to get independent legal advice before signing the Agreement,
ideally from a solicitor with experience dealing with Franchise
What is the Franchise Operating Manual?
The Franchise Operating Manual is a detailed description
of how to run the business. In addition to describing how the core
activity should be carried out, it should also contain sections on
getting and keeping customers, recruiting and retaining staff, managing
books and accounts etc. It is important to review the Franchise
Operating Manual before signing the Agreement.
What is a Non-Disclosure Agreement?
In order to make a fully informed decision, a franchisee
will need information about the business that the franchisor would not
normally divulge to other parties. Franchisors may ask prospective
franchisees to sign a Non-Disclosure Agreement (NDA) or Confidentiality
Agreement to confirm that they will only use the information in making
their investment decision and will not pass the information on to any
Should I speak to existing franchisees?
Do speak to two or more existing franchisees to find out
how things are going for them. Where possible, make your own choices
about who to speak with. But it is understandable if franchisees are
hesitant to speak with you unless they know that you are a bono fide
applicant. Why would they share details of their business with anyone
who contacted them out of the blue? Have the franchisor make the
introduction for you. Be cautious if franchisors are slow to or refuse
to let you talk to existing franchisors.
What happens at the end of the licence period?
It is normal to expect that your franchise licence will be
renewed after the initial licence period. Check the conditions under
which the licence will be renewed in advance.
Who else should I talk to?
Do look for independent business advice from your
accountant or professional business advisor and independent legal
advice from a solicitor with relevant experience.
Do involve your spouse or partner from an early stage in your
decision to become a franchisee. They will be an important part of your
business and should be involved from the earliest possible stage.
The above is intended only as a general introduction to franchising.
Special thanks to HJM Business development for this article.