Franchise Contract Time Bombs

 Contract
photo credit: Gunnar Wrobel

It makes sense to buy a franchise with proven methods, marketing, and product rather than start your own from scratch right? But when getting ready to sign that contract, how do you know that the contract is completely truthful? Below are some franchise contract time bombs to look out for.

  • Do the numbers smell a little fishy to you? It is almost unheard of to have a franchise contract that supplies a full income statement. Watch out for exceptionally high and “pretty” looking expected income numbers.
  • Take a look at what they want you to pay up front. Some franchisors make money right off the bat with a one time franchise fee. However, if the contract seems to show that you have a lot of costs up front then you should run in the opposite direction. This may mean trouble for you later when your having a tough time and they have already made their money off of you earlier on, recently stated on Forbes.com.
  • Make sure your royalty payments are not going to cost you an arm and a leg. Not all franchises charge these but if they do they shouldn’t break the bank to the point where it’s impossible for you to turn a profit.
  • How Easy Is It To Get Out Of Your Contract? Franchise agreements can last for 10 years, and many franchisers make it difficult for franchisees to cut and run. Breach the contract and you’ll pay “liquidation damages.” Every UFOC contains (or should contain) a section devoted to rules governing termination, renewal and transfer of contracts. Read it–closely.

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