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Franchise Contracts For Buying a Franchise
Becoming the owner of a franchise is now more popular than ever.  One reason is due to the state of the economy, where former employees want to strike out on their own.  Another is the wide selection of franchises available for sale – everything from traditional fast-food restaurants and convenience stores to less conventional dog-walking services and mobile computer repair operations. 

Franchise contracts, also known as franchise agreements, are the legal documents you sign as a franchisee.  When buying into a franchise you will have certain rules to follow – a whole bunch of rules, actually – and obligations that must be met.  In return, the parent company agrees to perform a number of tasks on your behalf.  The franchise contract is the most important part of any franchise transaction – well, other than the money you pay to acquire it, of course.  Here are some things you should know before entering into a franchise agreement:

• Franchise agreements contain non-negotiable terms
  Strong, successful franchisors rarely allow you to negotiate the terms of franchise contracts.  They have invested heavily in making their operation a success across the board, and the best way to accomplish this is by making sure every franchisee has the same rights and requirements.
• A franchise contract is a one-way document
  A franchisor wants to protect the brand and retain the integrity of the operational aspects of the parent company, at all costs.  Every franchise agreement is written with the corporation’s best interests at heart, but this is not necessarily a bad thing.  As a franchisee, your success often depends upon the financial health of the corporation.
• You “must do” this and “can never” do that
  Buying a franchise always involves following a lot of rules.  The breaking of those rules is taken very seriously – in some instances, it can mean the revocation of your franchise.  Some examples of “must do” elements include a list of approved vendors for supplies, methods for keeping track of inventory, sales and marketing efforts, and hiring policies.  Some examples from the “can never” side of the ledger include non-compete clauses and a guarantee that you will not divulge any trade secrets – like the contents and amounts of those famous ”Eleven Secret Herbs and Spices.”
• A franchise agreement is a model for the future
  Because franchisees expect to run their business over the course of many years, there will be items included in the franchise contract that may not apply to the present day.  You may see provisions for a method of doing business that is not currently part of the company’s existing model.  Here’s why: If the franchisor decides to do something different five years down the road, they will already have protection built into all existing contracts.
• Let the seller beware
  An important element of running your own company requires you to have an intelligent exit strategy firmly in mind.  This could involve leaving the business to your heirs, but most of the time it means selling out.  Various provisions in your franchise agreement could likely affect your ability to sell the franchise.  In most cases, the corporation demands that a new buyer accede to all requirements any outside franchisee must meet.  The home office may also retain something called “first right of refusal,” which means you cannot sell to an outside party unless and until the parent company declines the opportunity.  Even in those situations, you may be asked to pay a franchise transfer fee as part of the sale.

Basic Elements of Franchise Contracts
Every franchise contract includes some basic components, regardless of the type of business you are buying.  Here is a brief listing of the main sections of a franchise contract:

• Rights and uses of the company’s brand and trademarks
• Responsibilities for each party entering into the agreement
• Pricing guidelines, plus non-compete and confidentiality clauses
• Fees, royalties, and other payments
• Marketing plans and options, as well as who pays for each
• Length of contract, various conditions under which it can be ended and renewed, rules for the transfer of ownership, and a listing of penalties for violating any portion of the contract.

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