5 Ways to Protect Yourself When Signing a Franchise Agreement

From Oliver Kew, Hewetts Solicitors in Reading.

When you’re looking to start your own business, it’s often tempting to try and save money by buying into an existing franchise or business model. While this can be advantageous, there are potential drawbacks that you should be aware of before making the leap. Here are five ways to protect yourself when signing a franchise agreement that will help ensure that your investment is as safe as possible.

Understand Franchising Terms

There are lots of different types of franchising agreements, so it’s important that you read your franchise agreement thoroughly and understand its terms before signing on. An experienced franchising lawyer can help answer any questions you have about your business model or clarify aspects of an agreement that don’t make sense to you. In addition, reviewing legal documents is better left to professionals—if there are any mistakes in your contract, it could cost you later on. And if things go well, which they often do when starting a franchise, it could affect how much money you get paid by your franchisor down the road.

Do your due diligence

Before you sign anything, you should have a solicitor read your franchise agreement thoroughly. Once you have that done, there are several things you can do to protect yourself. First, take time to educate yourself about franchising by attending free webinars and seminars hosted by franchise companies and other organizations in your area. This way, when questions arise during due diligence about how fees will be calculated or how much revenue can be expected from certain locations, for example, you’ll already know what range of answers is reasonable and what isn’t.

Don't commit until you're sure

Once you've identified that franchise opportunity that seems too good to be true, it's time to vet it thoroughly. No matter how excited you are about an idea, remember that it's easy for franchise companies to play on your emotions. It's important not only to ask questions but also do research on both similar businesses and franchises in general. For instance, don't just look at one location; find out what happened with previous locations. Also look into other similar businesses and talk with people who have worked for franchises before—find out what they liked or didn't like about their experience.

Always take legal advice

You may be in for a lot of money if your new franchise takes off, but many things can go wrong when buying into an established business. That’s why you should always take legal advice when signing up to be part of any franchise. If there are problems, they’ll show up in legal documents before you’ve given away thousands of pounds.

Find out what happens if you want to sell your franchise

It's a nice thought that you will be a huge success, but what happens if you want to sell your franchise? If your legal document is too vague about whether or not you can sell or transfer your franchise (or simply neglects to mention it), then legally, you may be prevented from doing so. This could cause all sorts of problems down the road for both yourself and potential buyers, and could end up making your franchise more valuable as scrap metal than as a profitable business.

It’s just one of many reasons why it's important for you (and any other future franchisees) to do thorough research before signing on that dotted line.

Oliver Kew at Hewetts Solicitors in Reading is an experienced solicitor who specialises in Franchise Law and Franchise Agreements.

For a free chat about your plans please call him on 0118 957 5337

Published on 06/12/2021

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