Showing posts with label Master franchise agreement. Show all posts
Showing posts with label Master franchise agreement. Show all posts

Saturday, December 17, 2022

What are 5 things that may be included in a franchise agreement?

 

What are 5 things that may be included in a franchise agreement?

What is a franchise agreement?

 

    In simple terms, a franchise agreement is a legal contract signed between a franchisor and a franchisee. Through this agreement, the franchisor gives the franchisee the license to operate a particular business. The franchisor is the actual owner of the business or brand. By signing a franchise agreement the investor gets the right to sell products and provide services to people using that brand name. The contract also details all the terms and conditions that are involved in the partnership.

 

Types of franchise agreements

 

    The specificities of a franchise agreement will be different for different countries. There are three basic types of franchise agreement: Single-unit franchise agreement, multi-unit franchise agreement, and master franchise agreement. Let us take a look at each of these in detail.

 

Single-unit franchise agreement

 

   This is the most basic and traditional method of franchising. The franchisor gives the right to the franchisee to own and operate a single unit of the business. The franchisee can use the franchisor's brand name and trademark to do business in a single location. Most probably there won't be any mediators between them in this type of agreement. The franchisee will directly operate the business in the allowed location and make a profit. In most cases, the franchisee will be the manager of a single-unit franchise.

 

Multi-unit franchise agreement

 

    In this case, the franchisor will allow the franchisee to operate the business in more than one unit using the franchisor's brand name. To own a multi-unit franchise, a franchisee should be financially capable to manage the business in different locations. Here the franchisee cannot manage the business alone. Employees should be hired to maintain work efficiency in all franchise units. Even though single-unit franchises are the most common, today most business investors prefer a multi-unit franchise because it is safer to invest in multiple locations to survive any potential economic backlash.

 

Master franchise agreement

 

     This is a more sophisticated franchise agreement where the franchisor allows the franchisee to do business under the brand name in a region, state, or country. Thus, the franchisee will have the full right to sales and distribution in that particular country or area specified in the master franchise agreement. A master franchisee cannot operate the business alone and has the license to hire franchisees under them to carry out the business efficiently in all the different regions. This type of agreement is necessary to expand the business at an international level. Here the actual owner or the main franchisor will lose a huge part of control over the company, thus selection of a master franchisee should be done very cautiously, and a good franchisor-franchisee relationship should be maintained.

 

 

What information is included in a franchise agreement?

 

        The franchise agreement will contain all the specificities of the relationship between the franchisor and the franchisee. It states the name of the brand holder and the franchisee along with the business criteria or goal that the franchisee is bound to meet within a specified time.

 

         A huge part of it includes the rights and obligations of the franchisee. The agreement will have the details regarding the payment of the franchise fee, marketing fee, training fee, utility fee, transfer fee, etc.

 

         The duration of the agreement will be given in it. The franchise term can be any number of years. Once the franchise tenure is over, the franchisee should pay another amount to continue the business and maintain the position as a franchisee.

 

         The franchise agreement will also contain details regarding the region or territory where the franchisee is licensed to do the business. There are two types of territories: Exclusive territory and non-exclusive territory. Exclusive territory means that the franchisee can set up only one single franchise in a particular territory or location. Non-exclusive territory allows the franchisee to operate more than one franchise in a single area or zone.

 

        Another important detail mentioned in the franchise agreement is the provision given to the franchisee to use the franchisor's brand name and trademarks. Operation manuals, patents, etc will also be given to the franchisee.

 

       Most franchisors would want their franchisees to have a certain amount of insurance that allows them to run the franchise without failure. The minimum insurance amount required will also be specified in the franchise agreement.

 

       The agreement contains the details of training provided by the franchisor to the franchisee. The training helps the franchisee to operate the business more effectively and earn desired profit.

 

What is the importance of a franchise agreement?

 

     A franchise agreement is very important to establish the relationship between a franchisor and a franchisee. It gives the franchisee the legal power to use the particular brand name, logo, etc to sell products. It also gives a space for the franchisor to specify the terms and conditions that the franchisee should obey. If any corruption happens on the part of either of them, the franchise agreement becomes legal proof.

 

Franchise agreement word format

 

    Most people are confused about how to prepare a proper franchise agreement. It is a legal bond between the franchisor and the franchisee and thus should be written very carefully. It is always advisable to seek the guidance of business consultants rather than copying a sample because there might be additional specifications that you need to include depending on the type of business.

 

What are the things you should check before signing a franchise agreement?

 

    It is important to check every minute detail before signing a franchise agreement. Both the franchisee and franchisor should pay great attention as this agreement is the basic framework of the franchisor-franchisee relationship. The franchisor should be clear about the provisions given to the franchisee and the franchisee should check the payment obligation and the domain guidelines. The franchisee can also take a good look at the support offered by the brand owner. Franchise tenure details regarding the renewal of franchise terms should also be checked.

 

Conclusion

In this article, we have discussed the details of a franchise agreement focusing on the major things to be included in it. A franchise agreement is very crucial to a business and has to be given importance. It is advisable to consult a business professional to get your facts clear on these.  Are you seeking to choose the Best Consultant for your Business? Business consultants and experts are available on Sparkleminds, and they can assist your business in moving to the next level. Connect with us now

What are 5 things that may be included in a franchise agreement?

  What is a franchise agreement?       In simple terms, a franchise agreement is a legal contract signed between a franchisor and a fran...