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WHAT SHOULD I GET FROM A FRANCHISE?
The cost of a franchise is made up of a number of components and these should be detailed for you by the franchisor.
There will always be a licence fee – the fee you are paying the franchisor for the right to use their proven business system – together with the right to use the brand and to take advantage of all the investment that has gone into developing the process, methodologies and tools that are intrinsic to the business.
The cost of the licence will vary from one franchisor to another but it would be reasonable for that fee to be 25% to 40% of the total cost of the franchise.
If the fee is a much higher percentage of the total cost then you should ask why! There may well be a good reason – but it is always nice to know.
In addition to the licence fee there will be a range of other costs – not all of which are applicable to all franchises – but may include:
Shop fit – equipment – training – marketing launch programme – finance package – contact management system etc.
It is sometimes difficult for prospective franchisees to determine if the package is ‘value for money’ – my advice is to question both the franchisor and other franchisees.
At Recognition Express, The ZipYard and ComputerXplorers we list out exactly what a prospective Franchise Owner gets for their investment and they can evaluate this list against market rates.
Additionally we insist that everybody visit existing Franchise Owners at which time they can discuss – amongst other things – the value of the package.
IS ANY PART OF THE FRANCHISE AGREEMENT NEGOTIABLE?
The short answer is NO! Franchise Agreements - contrary to some peoples belief - are put together primarily for the benefit of Franchise Owners - in that they are designed essentially to protect the brand.
Franchise Agreements should not be unfair, unlawful nor difficult to understand (if you read them carefully) but what they can't be is random or ad-hoc nor re-written to suit the personal tastes of individual Franchise Owners.
The Franchisor will have specified in the Franchise Agreement those terms that they feel encapsulate their franchise system and best serve the growth of the franchise.
The only reason the Franchisor would seek to change these is if new terms better reflected the business and better served to help the business grow.
Of course not all Franchise Agreements are the same and not all lawyers will write the same type of agreement.
So if you as a prospective franchisee are looking at a number of Franchise Agreements then don't read one and assume all the rest are the same - they won't be.
For example as a Franchisor I favour a 10 year agreement - my own lawyer actually would like our agreements to be five years - and some Franchisors will go for longer than 10.
Two final points:
1) remember if you ask a Franchisor to change the agreement for you that is being unfair on their other Franchise Owners - and further changes for future Franchise Owners willbe unfair on YOU.
2) always refer the agreement to a bfa affiliated lawyer and get them to explain the key points."