Crucial Elements of a Franchise Agreement

Breaking even in the business world nowadays is not easy particularly for business owners with brands which have a low awareness level on the market. Franchising might be the answer to enhance your chances of success. The franchise industry offers high returns with both the franchisee and franchisor reaping from each other’s success. One of the critical elements that will form part of your relationship is a franchise agreement.

This legal document is drawn out under the guidance of the commercial lawyers of the franchisee and franchisor based in Townsville. The agreement details your obligations as the franchisee and those of the franchisor and is signed before the start of your business. Here are the defining elements of a legally-binding franchise agreement.

Continuing and Initial Fees

You will need to pay an initial fee to enable you to enter the franchisor’s system. After this payment, you will have continuing charges for the continued use of the brand name. There are different fee structures for continuing fees. Your franchisor might opt for a percentage of your revenue or have a fixed fee regardless of your sales. Most will also include a brand or advertising fund for marketing and other contractual purposes.

Assigned Territory

Franchise

Not all franchise agreement will give you exclusive rights or a protected operating region for your business. Your franchise agreement should hence spell out the establishment of your territory. The assigned area defines the boundaries in which you are allowed to operate including internet sales and alternative distribution sites.

Use of the Franchisor’s Intellectual Property

The intellectual property of your franchisor includes his/her patents, trademarks, and manuals. These are the most valuable assets n your franchise arrangement. Your agreement will detail your rights to the use of the intellectual property and your rights to evolve your system through changes to your franchisor’s operating manual.

Ongoing Support

Your franchisor will provide support before your business opening in different sectors. He/she will, for instance, help you build your business site to meet the standards and design of his/her brand among other pre-opening support. After your business’ opening, the franchisor will offer continuing support including training, supply chain, headquarters, and quality control supports. The support ensures your brand lives up to the brand’s requirements.

Termination Provisions

A franchise agreement includes the duration of your contract. A franchise relationship might not however always be a success. The common reasons for franchise failure include contract breaches, weak business models, overestimated potential income and inadequate training. Your franchise agreement should outline in what circumstances and how your franchising contract should end. It will also describe your rights and those of the franchisor in this eventuality.

The above elements should be carefully considered to develop a workable franchise agreement. Before your lawyers draft the franchise agreement, you should first have a good business plan in place. A franchise agreement might seem like an ordinary business contract which any lawyer can efficiently handle. There are however various element specific to franchising agreements that only commercial lawyers will be able to handle competently.