How Do You Negotiate When Buying a Franchise?
A “Take It Or Leave It” Culture?
Companies that franchise their retail operations have a set way of doing business. In many cases they have created a successful system over the course of many years, and in dealings with hundreds if not thousands of . Let’s say that you want to . There are certain documents that the parent company must provide, including a highly detailed listing of how much you pay in fees and royalties, and exactly what you will receive for those payments. In preparation for , your biggest question may well be, “What can I negotiate, if anything?” The corporation may want you to assume there is no wiggle room, but that is not always the case.
Corporations Expect to Stand Firm
Franchisors have some very good reasons why they do not like to negotiate terms with prospective . The whole idea of rests on the premise that every location is just like every other location. Some judicious digging around will disprove this, but the basic idea that every owner is treated the same within a particular system is sacrosanct to the franchisor’s modus operandi. To means that you are buying into a predetermined set of rules, regulations, and fees. Knowing that it’s human nature to compare one deal with another, franchisors may be concerned that someone who does not get the benefit of an alteration in process or procedure may resent a change made in your favor. Also, every change in the franchise document requires legal oversight, and the fees a parent company collects for selling a franchise are not usually generous enough to absorb those extra costs.
Buy a Franchise – Negotiate a Good Deal
If certain terminology is included in a printed, bound document, it’s essentially written in stone, right? Of course, that’s what a franchisor wants you to think. The rules on how to don’t often include expectations of negotiating specific elements of the agreement, but it can’t hurt to ask. Here are some areas where a franchisor is most likely to show some flexibility in order to get you to :
- Fee Changes
The upfront franchise fee is the price you pay for , and it usually goes toward such things as initial training, site selection (if you’re opening a retail location), and Grand Opening advertising – while the balance is pure profit to the corporation. Franchise fees can start in the $15,000 – $25,000 range, running as high as 50 or 60 grand. A royalty is the ongoing percentage of gross sales every pays; it is typically from four to six percent, or a bit higher for more popular . You will have greater success in negotiating a lower upfront fee than you will in convincing the parent company that a lower royalty is preferable.
When you , you are also buying a specific area of operation. Many corporations promise not to open another location within so many square miles of your place of business, or perhaps they are selling you a master franchise – this gives you the ability to open multiple locations within a prearranged geographic area, such as a city, county or state. Along with this defined territory, you also receive certain rights and obligations within that jurisdiction. A franchisor is more likely to negotiate the size and scope of your protected territory than it is to change any of the rules within that territory.
- Timing Versus Termination
involves certain obligations, such as guaranteeing that you will be open for business by a certain date. Much of the latter half of most franchise agreements are full of rules that must not be violated – the penalty for doing so can often involve termination of your franchise. You have almost no hope of changing any of those provisions, but a franchisor may be willing to give you some leeway on a grand opening date, where missing it can itself be a reason for termination.