Drafting a franchise agreement: 5 top tips for franchisors to get it right
It’s a big decision, but once you have decided that franchising is right for you and your business, it’s crucial to ensure your franchise agreement works to protect your interests going forward; as well as being ethical to your franchisees.A well drafted franchise agreement could be the difference between business success and business failure. Read our top tips for franchisors to get their franchise agreements right in our latest blog: Thinking of franchising your business? Is it right for you?
It is the franchisor who is responsible for putting together the franchising agreement which is then used with all their franchisees. A well drafted franchise agreement could be the difference between business success and business failure.
Here are our top five tips:
1. Don’t try and save money by cutting and pasting a document from the internet – that would be a serious false economy! Budget for legal fees to do it properly and get a bespoke agreement which adequately covers your circumstances. Make sure you go to a specialist franchise lawyer (rather than a general commercial lawyer) who will understand exactly what to look out for and will be able to give you sound advice on your franchise agreement. This won’t necessarily be the cheapest option, but it will be a very sensible investment in the future success of your business. The best place to start to find someone suitable to help you is the British Franchise Association (bfa) website. A lawyer who is affiliated to the bfa will have specialist knowledge of franchising and will meet the bfa’s standards. An agreement drafted by them may give franchisees reassurance.
2. Make sure you understand what you are getting for the fee that you pay. Ask your lawyer to give you a detailed breakdown of what’s included and what’s not before they start to avoid any nasty surprises. For example, does the quoted fee cover only a certain number of drafts – or can you keep going until you are happy with it? Will you have to pay extra for any ancillary documents – if so, how much? Any good lawyers should be prepared to be transparent about their fees at all times so don’t feel embarrassed about asking for this and updates on costs as you go along, if you want them.
3. The person drafting your franchise agreement needs to have an in-depth knowledge of how your franchise operates to ensure they cover all eventualities in the document. Make sure they ask for a detailed briefing before they start drafting so that nothing gets overlooked. Be open and give detailed information to your lawyer about any potential issues or sticking points or anything that you are worried about – they will then be able to help you address these in the agreement.
4. Make sure that your agreement complies with the bfa code of ethics. This will give re-assurance to prospective franchisees that the agreement is fair so should make it easier to sign-up new franchisees. Even so, prospective franchisees should always be advised to get the agreement reviewed before signing it. An agreement which meets the bfa code of ethics will help you meet entry requirements, if you decide to become a member of the bfa in the future.
5. When your draft agreement is ready, make sure you talk it through in detail with the lawyer that drafted it so that you fully understand it and your rights and obligations under it. If you don’t understand something, then ask.
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