1. Agreements with strong franchise companies are typically non-negotiable. Most prospective franchisees are looking for a proven, successful system, where current franchisees are happy with their decision to go into the franchise. This is what I call a strong franchise company.
Strong franchise companies have learned that the easiest way to administer their system with maximum benefit is to have each franchisee on the same program; this begins with a uniform contract. Don’t be surprised if you’re told the franchise agreement “is what it is,†and that you have to sign the same contract as every other franchisee if you want to become one yourself.
If there are provisions of the franchise agreement that prompt questions or concerns, ask the franchise company to provide you with a letter of clarification, addressing the specific point or points you have an issue with. This technique allows a level of comfort to be created, even with a non-negotiable contract.
2. A franchise company’s willingness to negotiate substantive provisions of its franchise agreement should be a warning sign. This fact seems counterintuitive to most prospective franchisees, but this is a red flag when typical franchise agreements are non-negotiable.
If everything is open for negotiation, you have to question the company’s confidence and level of certainty concerning the validity of its brand and operating system. If those aren’t strong, what is the value you’ll receive in exchange for the fees you’ll pay as a franchisee in this system?
As part of your due diligence, always ask if a franchise company is willing to negotiate the terms of the franchise contract. Initially, most will answer negatively, but you need to test this. Ask something along the lines of “Do you mean that if I literally found only one word in the entire agreement that needed to be changed, you wouldn’t even consider it?†If officials waffle, and say they’d consider changing a single word, they are really saying, yes, the contract is negotiable, and you should get expert assistance to negotiate accordingly. Get to know more.
Also read: Things You Need to Know About Franchise Contracts – Part II.
