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5 Key Things You Need to Know About a Franchise Agreement


Opening up a franchise can be a great way to make a foray into the world of running your own business.

Today, South Africans are running over 40,000 franchises in fields as diverse as fast food and healthcare. The key to making it a profitable success for both parties is understanding the franchise agreement.

We've boiled this tricky topic down to 5 key areas you need to understand, so read on for our hand guide:

1. Expect a Standard Contract

You'll have noticed how, for example, one franchised restaurant tends to look exactly like another. That's because the company has developed a tried and true formula they want to replicate time and time again.

The same is true when you get down to the nitty-gritty of the franchise agreement.

Don't expect a lot of personalization or custom tweaking. An established brand will have a boilerplate contract and you should expect to run with that.

2. Expect a Ten-Year Initial Term

Go into negotiations expecting the company will require a long-term commitment from you as the franchisee.

A typical franchise agreement will normally run for ten years. This is not a quick way to a big payday.

However, there can be many benefits to running a franchise. You can build on the automatic goodwill that the brand provides. You may receive guidance and great product,

Done well, it can prove a stable, long-term way to run your own successful business.

3. Understand Your Obligations

The company giving you to the franchise is allowing you to represent their brand - and that comes with expectations and obligations.

Franchise contracts typically include long lists of things that you have to do, and also things that you cannot do. It is important that you fully understand these before signing. Make sure you are comfortable with all of them.

If you have specific questions relating to your franchise, put these in writing to the company. Make sure any agreements made are down in writing before signing the contract.

4. Understand the Upfront Costs

As you're buying into an existing brand, there will be upfront costs, depending on the nature of the business. These could include inventory, shopfitting and merchandising.

The franchise agreement will set out exactly what the franchisee will need to pay upfront to the franchisor. It will also set out a schedule for any ongoing payments that will need to be made. This will likely include royalty fees.

5. Agree on Training Expectations

For you to make a success of your franchise, it is vital that you and your staff are properly trained.

Ensure that this key expectation is outlined clearly in the franchise agreement. Once the initial training has been delivered, you may have to go it alone. Therefore, getting that training right is of paramount importance.

The Takeaway: 5 Key Things to Know About a Franchise Agreement

Franchising can be a great way to have your own business, with the backing of a trusted brand. Follow our 5 tips and do your homework, and you'll be set up to make a success of your new business.

If you think you're ready to take the plunge, make sure you speak to South Africa's franchising experts first.

Click here to learn more about franchising from today.