Franchise Agreement: 5 Things to Check Off Before Signing
The Federal Trade Commission, under the Franchise Rule, sets out the requirements for offering a franchise for sale in the U.S. One of the obligations under that rule is for a franchisor to provide a prospective owner with a franchise disclosure document (FDD) at least 14 days before signing the franchise agreement. While the FDD is a detailed explanation of the franchise operation in conversational terms, the franchise agreement is a legally binding document.
When you get to the point of receiving this information, you are seriously considering the franchise opportunity. This is always an exciting time for us at Floor Coverings International (FCI), and we accompany future franchisees and entrepreneurs through this process. However, we always recommend that you review these documents with an advisor who is fluent in franchising to make sure you’re comfortable with the business relationship you’re entering into with us.
5 Things to Look for in Your Franchise Agreement
While franchising is highly regulated, there is no single template for explaining the franchise business. Every franchise offer will be different, but there are some common terms of a franchise agreement that you should pay close attention to and make sure you fully understand.
1. Your Rights
Understand what you’re agreeing to own. Licensing terms will be different for each type of franchise: single-unit franchise, multi-unit franchise, or master franchise.
2. The Territory
A key element of the agreement is your designated territory. Will you have an exclusive territory or will other franchisees be able to pull business from your designated area? Remember this as you peruse the rest of the agreement because you may have obligations to advertise in your designated territory, and without an exclusive territory, fellow franchisees may be benefitting at your expense.
3. Franchise Terms
The terms of your franchise agreement address several things, including how many years you’ll commit to the franchise initially — typically 5 to 10 years. The agreement should also contain the process for transferring the franchise to someone else as well as how any violations of the agreement or termination will be handled.
Finally, check to see if there’s a section about non-compete obligations. What this means is that during the term of your agreement, and perhaps for some time after you have terminated your agreement, you are not permitted to operate a competing business. Make sure you’re very clear on what this section requires as it could impact your future investment opportunities.
4. The Fees
The agreement will explain two types of fees: your initial franchise fee and ongoing fees such as royalties or marketing contributions. You need to understand the fees you’re responsible for and when those fees are due. There could also be details in the agreement on the accounting responsibilities the franchisee is required to provide regularly.
5. Franchisor and Franchisee Obligations
This section of the franchise agreement defines the relationship between both parties.
The franchisor’s obligations may include things such as the training offered, securing supplier relationships, the advertising they provide, and the delivery of the operations manual.
The franchisee’s obligations can involve how to use the proprietary marks of the franchise, the commitment to advertising in the designated territory, the location of the office, standards for performance, insurance requirements, operating systems, and confidentiality provisions.
Be Confident in the Floor Coverings International Agreement
Floor Coverings International has been in the franchising business for more than 30 years. When you build a brand over three decades, you learn how to tweak and adjust the business model so that it continues to benefit the people who join us as franchisees. Today, we are the No. 1 flooring franchise in the Entrepreneur Franchise 500 rankings with a growth rate of 40.6% in the past three years (which includes the onset of the pandemic.)
We offer exclusive territories to our franchisees. There are so many prime territories throughout the U.S. that we don’t need to force head-to-head competition between franchisees. Exclusive territories help us build a stronger franchise network.
Get Our Franchise Information Report
Complete the online form to receive our franchise information report. We’ll share information about our competitive advantages, outline the startup costs contained in the FDD, and give you an introduction to the FCI management team.
We’ll email you the report and then follow up with a short conversation to answer any questions.