7 Facts to Include in Franchise Agreement When Franchising Your Business

What to do when franchising your business? We get this from many businesspersons when they look for expanding their brands through franchising. Anyone can franchise their businesses. It has become one of the most effective ways to expand your business across the country. According to 2023 data, the market size of the Australian franchising industry has increased by 1.5% in 2022. But that doesn’t mean that you can franchise your brand whenever you want. There’re certain things that you must fulfil before opting for franchising. One of them is creating an FA (Franchise Agreement). It’s a must before selling your franchise units to a franchisee. So, how to draft one? Well, we’ll talk about that in the below article.

What to include in a franchise agreement (FA)?

A Franchise Agreement (FA) is a legal contract between your franchisees and you (the franchisor). It’s a must to sell your franchise units to someone. And below are the facts, that you must include in the FA:

1. Use of Trademarks:

One of the reasons for creating FAs is to clarify the use of well-known trademarks. This section of the FA depicts the lists of logos, trademarks, and service marks your franchisees are entitled to use. It depicts,

a) Has the trademark been in operation for a significant amount of time?

b) Is the trademark well-known?

c) Are there any restrictions on the franchisees and franchisors to use it?

2. Terms of the Franchise:

 

This section of the FA specifies the duration of the agreement. It depicts the following,

 

a) How long does the franchise agreement last?

b) Do your franchisees have the right to renew the agreement?

c) Can they purchase the franchise before the contract expires?

3. Location of the Franchises:

This section of the FA describes the exclusive area granted to your franchisees. It depicts,

 

a) Do the franchisees have exclusive rights in a specific territory to open the franchise units?

b) What are the criteria for approving a franchise location?

4. Obligations and Duties of the Franchisor:

 

This section of the agreement concludes the responsibilities of the franchisor for the betterment of the franchisees. It defines,

 

a) Franchisee training

b) Participation in the business

c) Roles to keep and submit adequate records

5. Franchisee Fees and Other Payments:

 

This section of the FA depicts all the fees and payments franchisees need to pay to the franchisor. It includes,

a) Royalty fees including what and when to pay

b) Initial fees and what they’ll receive for that fee

6. Restrictions of Goods and Services Offered:

This section of the FA depicts if there’re any restrictions on using the goods and services offered. It includes,

a) Necessary quality standards

b) Pricing

c) Hours of operation

d) Approved advertising

e) Approved suppliers

7. Renewal, Termination, and Transfer of the Agreement:

 

This is a vital section of the FA and it includes the following,

 

a) The obligations and rights of the franchisees upon contract termination

b) Description of the renewal of the franchise agreement

c) Description of the transfer of the franchise agreement

 

Are you thinking of franchising your business? Instead of following DIY methods, consult with a pro franchise consultant. Having years of experience in franchising, they can help you the best. Yet, you must ensure that you’ve hired the right person.