6. The franchise agreement can contain additions or restrictions that don’t seem relevant. These tend to originate from two sources, both of which help to evaluate the company better.
The first source–the franchise company itself. It can insert clauses which address future planning strategies and ideas. The second source–the franchise company’s attorney. Attorneys can insert clauses designed to protect the future rights of a company, like alternate channel distribution of products or services.
These provisions can give you some big clues to a company’s potential future plans, so whenever you see them in an agreement, make sure you ask why they’re being included.
7. The franchise agreement can contain clauses that restrict your ability to sell your business. These requirements will affect whatever exit strategy you may have in place, so review carefully. Often, prospective franchisees consider this the least important consideration, but don’t be fooled. In actuality, most franchise agreements are for an initial term of 10 to 20 years, and most franchisees leave before that term is completed.
The most common of these provisions explains that the person you sell your business to must meet the same requirements as all other franchisees that entered the system at that time. Another provision might require you to offer the franchise company a first right of refusal to purchase your business on the same terms and conditions you reach with a third party buyer. There are also usually some transfer fees you will have to pay the franchisor. You should carefully examine any clauses associated with leaving the system so you’re aware in advance of the rules you’ll have to follow in that event.
Also read: Things You Need To Know About Franchise Contracts – Part I.
