Facebook Pixel The Importance of Understanding Your Franchise Agreement - Recipe Franchising

Recipe Franchising Blog

The Importance of Understanding Your Franchise Agreement

Mar 5, 2022 Franchise Information

Understanding all of the terms in your Franchise Agreement is a must. You need to know what you are agreeing to financially, as well as in regards to your time and energy commitment.

It makes sense to thoroughly review your Franchise Agreement in context to your personal goals and aspirations before signing. You want to ensure that the relationship is a great fit for both yourself and the franchisor.

Here are some important points to consider when reviewing your agreement. Keep in mind that a Franchise Agreement is a comprehensive document that requires intensive review and that the following is not an exhaustive list of considerations, rather a summary of key items.

Review The Franchise Disclosure Document

A Franchise Disclosure Document (FDD) is normally a summary of fees, royalties, terms, and conditions related to your franchise agreement. It is meant to provide a clear overview of the details that every potential franchisee should be aware of. Make sure to read through and understand the details. You should always be able to ask your representative for clarification on any points that need more explanation.

More information: Franchise Canada: Franchise Disclosure Document Matters

Location and Territory

Some franchises are set up to ensure that you as the franchisee are protected by what the franchisor deems as an acceptable territory within which your location can operate. In other words, the franchisor could agree not to open another franchise within your territory, to ensure you aren’t competing with one another.

You need to know specific details about location and “protected territory” to ensure that you know the boundaries of where your location is in relation to other competing franchise locations.

More information: Financial Post: There’s a reason negotiating territory in a franchise agreement remains controversial

Franchise Fees

A clear understanding of your franchise fees is integral. You need to understand the distinction between one-off and ongoing fees, and what they are for. How are the ongoing fees broken down? Are there renewal and transfer fees associated that you should be aware of? What are the details of the ongoing fees as they pertain to royalties and contributions towards national advertising funds?

Training and support

What kind of training and support will you receive from your franchise team? What is the format of the training that is offered, online, or in-person? Who will need to attend from your direct team? Where will the training take place if it’s in-person? What is the accommodation cost if you need to travel? How long does the training take, and does it affect timing before opening your location?

You should also determine how much the initial training and support covers. For example, will your training go over the creation of job listings and associate training? Will it help with setting up the location (construction, start up of equipment etc.)?

Will you be offered ongoing training and support as part of your agreement? Will you have a dedicated area manager that will support you as a business consultant? How much access will you have to this person as part of your agreement?

Renewal Rights

Terms of renewal can differ between franchise businesses. You should understand the renewal rights of your agreement because they don’t always happen automatically.

Are there any specific conditions you need to meet as a franchisee for renewal? How much notice are you given before renewal? Are there any provisions for transition to another franchise brand? What about location upgrades or renovations? What are the details in the event of an agreement transfer to a third party? These are some of the questions you should discuss with your representative.

Resale Conditions

If you want to sell your franchise, what is involved? How are these items handled? How much involvement do you have in these decisions about your location? What level of involvement are you comfortable with, and does your agreement reflect this?

More Information: Franchise Canada: What Provisions Should I Consider When Renewing My Franchise Agreement

Your franchise agreement is one of the most important documents you will sign as you start your adventure of owning a franchise restaurant. You should make sure that you understand the franchise agreement completely, and that you have access to a team that will openly assist you with any questions or concerns that arise from reading through it.

At Recipe, you will work with assigned representatives that are always accessible to answer questions and help you work through the details. It is in the interests of both parties to ensure there is a keen understanding of the agreement before starting the relationship. The key word here is “relationship” because that is what it is: a relationship that will hopefully be a long and lucrative one!

Connect with Us

Ready to talk about your next opportunity?

Get in touch with a member of our franchising team to discuss your goals and options.

Inquire Now
Close Popup Icon

Pin It on Pinterest

Skip to content