What Items Are Negotiable When Buying a Franchise

While compromise and negotiation may be the cornerstones of a good business, that doesn’t always necessarily translate to the world of franchising.

Franchisees may walk into a deal hoping to negotiate certain items, and they just might get lucky in some cases, but they may need to tread carefully and not expect too much, especially if they are working with an established brand, according to experts.

Scott Thompson is the chief development officer at Level 5 Capital Partners.

Most franchisees, he said, will try to negotiate things such as royalties and the initial franchise fee, but good franchise brands will not cave into such requests.

“A lot of that stuff is non-negotiable,” he said. “It is what it is.” He added that franchisors “want to keep that stuff consistent across all franchisees.”  

Some brands are negotiable, Thompson said.

“The younger the franchisor is, the more negotiable they are usually on the territory stuff,” Thompson said. “The more mature the franchisor is, most likely they’re not as negotiable on the territory.”

In terms of a development schedule, that can also depend on the age of the brand.

“They’re going to give you a development schedule and obviously the younger the brand is the more flexible they’ll be on the development schedule, meaning they’ll give you more time,” Thompson said. “The more mature the brand is the less likely they are to give you an extension. You’ll probably have to buy an extension if you need an extension.”

So why are younger brands sometimes more flexible?

“I think a lot of young brands don’t have all their systems down,” Thompson said.

Thompson noted that when younger brands are more flexible with franchisees, that flexibility will often come back to haunt them.

“It just always does,” Thompson said, adding that franchisors will make an exception here and there with a franchisee and won’t be consistent and then other franchisees find out and then the brand’s “got an issue on their hands.”

This, he said, is why a new franchisor should listen to their franchise attorney - and make sure to hire a good franchise attorney.

Nancy Williams, owner of the franchise consulting firm NValuable, noted that legally, the only part of the franchise disclosure document (FDD) that is negotiable is the franchise agreement.

She also believes that franchisees should have an experienced franchise attorney on their side.

“Candidates should always have an experienced Business Attorney, preferably one experienced in Franchise Agreements, review the document before signing,” Williams said in an email. “During that review, a candidate should discuss with their attorney the things that they would like to be included, excluded, or changed. I’ve had clients request a longer period of time before Royalty payments kick in, additional local marketing dollars, larger territories that are typically granted, first right of refusal on new territories, additional equipment at discounted rates, and increased discounts on multi-territory discounts.”

New franchisees will likely have less bargaining power and should just focus on what truly matters to them.

“The truth is, you can ask for just about anything, but don’t go overboard,” Williams said in an email. “Focus on the things that are most important to you, and building a successful business. The Franchisor wants their owners to be successful, but giving away the farm for one new owner that is unproven, just doesn’t make sense for the franchise network.”

Jennifer Jackson, the vice president of development for Hungry Howie’s, said that one item that is typically negotiable for the company’s franchisees is the territory in which a franchisee will search for their location.

“We are always willing to consider concerns of our franchise candidates, however, we find that we seldom need to significantly alter the terms of our franchise agreements to address concerns,” Jackson said in an email. “If you are signing an area developer multiple-unit agreement and depending on the number of units you are purchasing, we may negotiate the initial franchise fee, development area, and time frame to open each unit.”

As with anything, communication is always key.

“Generally, the terms of our agreements are not negotiable, however, we are always open to constructive conversation with our franchise candidates to address any specific questions or concerns,” Jackson said in an email. “We review and update our franchise agreement on a regular basis and strive to drafts documents within industry standards.