A recent article in Franchise Times featured an interview with Mark Dady, managing partner at Dady & Gardner, detailed the pros and cons of franchise negotiations.
The purchase of a franchise provides the franchisee with many built-in benefits. The work necessary to build a brand is usually established long before interest is shown by prospective entrepreneurs. However, with name recognition comes uniformity in all aspects of the franchise, down to the smallest detail.
Franchises that are high profile and long-established have achieved success because of the rigidity that franchisees must accept. Conversely, start-up franchisors who want to grow may be open to flexibility during contract talks. Sometimes, the risk of being on the “ground floor” has rewards, but not always.
No contract is non-negotiable, and franchisors have been known to make certain concessions, particularly if the arrangement involves more than one location. However, franchise pacts are unique in that there is little if any wiggle room. Truthfully, if a franchisor is open to changes both large and small, those inconsistencies may represent a “red flag.”
Inflexibility is mostly universal when it comes to the products and services offered by the franchise. Budding franchisees should be wary of any changes in those areas. They are likely not the only ones who received those concessions that can negatively impact brand consistency.
In the piece, Mark Dady provides his top five negotiable provisions:
- Territorial protection
- Renewal rights
- Transfer rights
- Franchisor termination rights
- A franchisee’s rights to exit agreement should the franchise fail
Launching a business creates uncertainty and unpredictability. Selecting the right franchise is the ultimate “risk vs. reward” scenario. Minimizing risks while maximizing rewards starts with legal help in negotiating contracts that will involve high-stakes investments.