This lesson is part of our free Franchise 101 course.

When the time comes to set up your franchise, you’ll need to sign a franchise agreement. But what exactly does that mean?

The Contract That Dictates Your Business

The franchise agreement is a legally binding contract, in which the terms of your franchise are set out.

On the one hand, it tells you what you’re going to get out of the deal. It commits the franchise to provide you with access to its brand, and with certain forms of support to make your business work.

On the other hand, it sets out what you have to do in return. This includes rules for how you can run your business and things that you’re obliged to do as part of it. Perhaps most importantly, it sets out what you have to pay to the franchise, how, and when.

The agreement is usually signed by you and a representative of the parent corporation. It might sometimes be a master license owner instead of the corporation, but either way, you should be sure that you know who you’re making an agreement with.

All the Important Details

The franchise agreement should include all the important details. If something you expected isn’t in there, then you may not get it.

Before signing the agreement, compare it with the franchise disclosure document (FDD) to check that the agreement matches what was promised. Anything else that’s been offered to you, whether in writing or verbally, should also be included, so check for those details, and if they’re missing, ask why. Remember, if they’re not in the agreement, then the franchise is under no obligation to stand by them.

Details covered in the agreement should include the duration of the contract, all the payments and fees, advertising obligations, details of how supplies will be provided and priced, branding, and operating hours. It should also include specifications for how the agreement can be ended or the franchise sold on.

Defining Your Relationship

The franchise agreement defines your relationship with the franchising corporation, and so it’s a document you will come back to over and again during your time running a franchise. Any time there’s a dispute or an issue to be resolved, it’ll be done based on the agreement.

This isn’t something you can sign and forget about. It defines so much about your franchise, from uniforms to how you relate to the wider chain. Take the time to read it carefully, to get the details right, and to keep it somewhere accessible once it’s signed. Sooner or later, you’ll be coming back to it.

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