Growing a Franchise
Franchise agreements aren't always set in stone. Knowing which terms may be negotiable and how to approach the conversation can help prospective owners protect their interests.
Can you negotiate a franchise agreement before signing it? In some cases, yes. It depends on the franchisor and what you're asking to change.
"The biggest misconception is that the agreement is either fully negotiable or entirely non-negotiable," said Derek Colvin, a partner at Waldrop & Colvin PLLC. "The reality is that flexibility varies drastically from one franchisor to the next."
Franchisees looking to negotiate with a franchisor should first identify the provisions that could have the greatest impact on their business. According to Colvin, territory rights are among the more common areas for discussion.
"On the business side, the most negotiable items include the size of the territory, the scope of territorial protection, the ability to service customers in unoccupied or open areas, initial fee deferrals or payment timing, and occasionally latitude in the use of suppliers or materials," Colvin said.
Other provisions can sometimes be adjusted as well, particularly those addressing personal financial liability, renewal protections and the amount of notice an owner receives before a default or termination.
Ongoing royalties and advertising contributions are generally difficult to negotiate because they are part of the franchisor's standard financial structure.
"The least negotiable legal items are the core system controls and the operating provisions designed to protect the system and keep the system uniform across all franchisees," Colvin said.
Rather than spending time challenging these provisions, franchisees should concentrate on terms that could affect their financial exposure or ability to operate successfully.
Knowing how to negotiate with a franchisor involves more than identifying terms you'd like to change. The way requests are presented can influence the conversation and the relationship that follows. Colvin recommends approaching negotiations with a short, organized list of concerns instead of submitting extensive revisions to the entire agreement.
"As part of my review process for franchisees, I prepare a simple table setting out each issue, the rationale behind it, and their proposed solution, with a column left open for the franchisor to respond," Colvin said. “That format keeps the conversation organized and collaborative rather than adversarial. I also tell clients to focus their efforts by picking the five to 10 issues that matter most rather than marking up the entire agreement.”
This approach gives the franchisor an opportunity to consider specific requests without becoming overwhelmed by dozens of proposed changes. It also helps prospective franchisees distinguish between provisions that present meaningful business risks and minor issues that are unlikely to affect their operations.
A franchise brand's size and stage of development can influence its willingness to consider changes. Colvin said newer franchisors may have more flexibility, particularly when working with experienced operators who can bring multiple locations into the system.
"Franchisors are often more negotiable early in a brand's development and with larger, more experienced operators who bring scale and credibility," Colvin said. "I always temper expectations, because a franchisor's willingness to negotiate depends heavily on the particular brand's philosophy and where it is in its growth. At the same time, there is little to lose from asking."
Prospective owners preparing to negotiate with a franchisor should take a few practical steps before requesting changes:
Colvin recommends going into negotiations with a clear idea of which changes are worth requesting. Franchisees may not get everything they ask for, but raising their most important concerns before signing can help them avoid problems once they're operating the business.
For more on franchise agreements, check out the following articles on 1851 Franchise:
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