Description
A franchise agreement is a legal document in which the franchisor gives the franchisee the authority to run a company and to market, sell, and provide products and services that are connected to or identified by the franchisor’s trademark. In return, the franchisee pays the franchisor in accordance with the terms, conditions, and payment schedule outlined in the franchise agreement, either once or on a regular basis. The franchisee may have to make one-time, monthly, quarterly, or annual payments to the franchisor.
OVERVIEW
The rights and responsibilities of the franchisor and the franchisee should be outlined in the franchise agreement. This agreement’s primary goal is to safeguard the franchisor’s intellectual property. Additionally, it aims to ensure that every franchisee runs their business in accordance with the franchisor’s brand and expertise. Every franchisee is required to sign the franchise agreement, and the franchisor will also sign the document. A franchise agreement is a binding legal document and shall be reviewed by an attorney before being signed.
ADVANTAGES
- Defines relation: The relationship between the franchisor and the franchisee is outlined in the agreement, along with the advantages and disadvantages for each party.
- Control: The agreement guarantees the franchisor greater operational control over the business as the business owner.
- Lower failure rate: Generally speaking, franchises fail less often than one-person operations. Purchasing a franchise entitles a franchisee to support and guidance from a network of successful businesses, thereby reducing the likelihood of their business failing.
- Built-in customer base: Discovering clients is one of the most difficult tasks for any startup company. Conversely, franchises have a devoted clientele and immediate brand awareness. It’s likely that potential customers are already familiar with the brand from exposure to TV commercials or travel to other cities, even if you’re opening the first franchise location in a small town.
- Brand Management: The franchise agreement gives room to specify how the franchisee will use the company’s name and business model. The definition of the penalties for poor management and branding violations in business is to safeguard the reputation and image of the brand at all times.