What Does a Typical Franchise Agreement Include? A Guide For Prospective Franchisees

What does a typical franchise agreement include? Well, at its core, it’s a legally binding document that defines the relationship between a franchisor and franchisee (outlining the rights, responsibilities and boundaries associated with the business opportunity). While it’s often viewed as a formality before opening, the franchise agreement actually plays a significant role in the day-to-day operations of any business.

For prospective franchise owners, understanding what’s in the agreement and how it applies in broader real-world scenarios can help reduce costly surprises while establishing clear, consistent expectations from the start.

Why The Franchise Agreement Matters

The franchise agreement guides everything from how a brand is represented to what happens when issues pop up that need to be addressed. And, for that reason, a standard franchise agreement addresses subjects beyond just royalties and franchising fees. In fact, many of the most consequential provisions aren’t even financial: they’re operational. So, what does a typical franchise agreement include?

“Probably number one is operating inside the brand guidelines,” said Peterbrooke Chocolatier COO Jeffery Smith. “Before you step out of bounds, you might want to get it approved, because a lot of franchisors are kinder when you step outside the bounds than others.”

Key Elements In a Franchise Agreement

Here are five elements of the franchise agreement that directly affect franchise owners:

• Brand Standards and Guidelines
  These guidelines often dictate what franchisees can, and more importantly, cannot, do.
• Approval Processes
  Franchise agreements indicate when franchisor approval is required (especially if a franchise owner wants to try something outside standard brand practices).
• Operational Requirements
  Clear expectations around training, hours of operation, suppliers and systems help deliver brand consistency.
• Fees and Obligations
  Initial franchise fees, ongoing royalties and marketing contributions are clearly outlined (as well as when and how they should be paid).
• Enforcement and Remedies
  What happens if/when a franchisee violates the agreement is typically included (though it’s often overlooked).

Where Franchisees Often Underestimate The Franchise Agreement

Smith says new franchise owners tend to underestimate how restrictive brand provisions can be.

“Brand constraints,” Smith said. “What’s the approval process if I want to do something that’s not typically part of the brand? If something happens and I accidentally do something that’s outside the brand guidelines, how does your company typically handle that?”

The Takeaway

So, what does a typical franchise agreement include? It includes much more than mere legalese. The franchise agreement defines the extent of a franchise owner's flexibility. By closely assessing brand standards, approval processes and enforcement provisions, potential zees can better set expectations against reality, improving the odds of long-term franchising success.

Want to learn more about franchise opportunities on 1851 Franchise? Be sure to visit our Power Rankings to read more on brands making moves.