If you are starting a franchise business, it is imperative that you pay close attention to the contract details. In fact, the best thing you can do is hire a competent business law attorney to peruse the agreement and provide professional advice.
Too many aspiring entrepreneurs trust the franchiser to give them a good deal. Then, later the franchisee realizes they do all the work while sending the profits to the home office.
To help you better understand the importance of hiring a business law specialist before singing a franchise contract, following are three important details some commercial enterprises miss and later come to regret.
Exclusive Merchandise Agreements
As the franchisee, you are probably going to be on the retail level. Your business will sell products associated with the parent company.
Quite often, your contract will require you to purchase all or a large percentage of your stock directly from wholesalers chosen by the home office. However, you may find goods bought from these sellers not best for your bottom line. Since they have a monopoly, there is little incentive to offer a competitive price.
Your business law advocate might be able to research the average cost to purchase from these companies beforehand and then negotiate a better deal for you. For example, perhaps you can change the franchise agreement terms to allow you to buy a smaller percentage than normal from the brand.
So, you see the perfect location for expansion. The plan is to open a new store and make a bundle of cash. Then, you receive a legal notice commanding you to cease and desist. What happened?
Your parent company might have a non-compete clause in the contract preventing you from operating within a certain radius of another pre-existing franchise.
Always have your business lawyer discuss with the brand the possibility of you opening a branch in an area that may fall under a non-compete clause. The home office may be willing to issue an exemption if the numbers prove you and the other business owner can co-exist profitably.
Be sure the agreement you are signing is for the type of business arrangement you desire. A franchise license, for example, only gives you the right to sell and display company products.
Customers walk into your business and see the familiar logo. However, you are not a full-fledged franchisee. The larger company will not support you in down times. They will not enforce non-compete clauses to protect you from competitors. Basically, under a license agreement, you are on your own.
So, always ensure that the contract you are signing fits your needs.
Get Business Law Advice
Fortunately, you can find an attorney experienced in interpreting franchise agreements. They can negotiate to ensure the contract details are best for your current and future situation.
For more information, check out a website like suarezpalaw.com.