Top 10 Things That Can Go Wrong When Entering into a Franchise Agreement:
23 MARCH 2021
You have not reviewed your disclosure document and obtained legal advice. The disclosure document gives key information about how the franchise works and your rights and obligations.
You have not co-ordinated the lease of your premises with the term of your franchise agreement.
Not knowing the full extent of restraints placed on you once your franchise agreement ends. Often franchise agreements will include restraint of trade clauses which prevent franchisees from running businesses, or even working in particular industries for a set period.
Not fully understanding your rights to sell the franchise, including the right of the franchisor to refuse a sale to a third party.
Excessive ongoing training costs and software, including mandatory training sessions for staff.
“Exclusive Territories” which are not that exclusive. Exclusive territories that are ambiguous, too small or subject to change by the franchisor can all make such clauses less effective.
Requirements to only buy supplies from particular suppliers such as the franchisor at inflated prices.
Franchisor control of franchisee prices. There have been recent instances where franchisors have forced franchisees to sell products at a loss.
Competition from other franchisees. Maintaining a loyal client base is important to the long term success of a business. Some franchise agreements do not address competition from other franchisees with the same franchise system, including the taking of existing clients.
Ensuring all other documents are in order. Key documents such as shareholder documents and financing documents are overseen because of the focus on the franchise agreement.