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While much of the focus is placed on Franchise Disclosure Documents (FDD) over the course of a franchise sale, the franchise agreement is the document that lives beyond the initial signing. It is a binding contract that will be referred back to if any discrepancy or issue were to arise in the future, so it is imperative franchisees have a comprehensive understanding of the document before signing on the dotted line. 

In order to make sure prospective franchisees are equipped to ask the right questions when reviewing a franchise agreement, <a href="https://1851franchise.com/" style="text-decoration-line:none" target="_blank">1851</a> consulted the expert opinions of franchise attorney <a href="https://www.spadealaw.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=10-must-ask-questions-about-franchise-agreements-2708306" target="_blank" rel="nofollow" style="text-decoration-line:none" target="_blank">Tom Spadea</a> and seasoned franchisee and FranNet broker <a href="https://www.frannet.com/microsites/sswift/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=10-must-ask-questions-about-franchise-agreements-2708306" target="_blank" rel="nofollow" style="text-decoration-line:none" target="_blank">Stacy Swift</a> to determine the top 10 must-ask questions about franchise agreements.

How does the franchisor describe the franchisor/franchisee relationship?

Swift has spent the last 22 years with FranNet and was a franchisee with Fantastic Sams and Mr. Handyman before that. &ldquo;To me, a franchise should feel like a family, with everyone working toward the same common goal of success,&rdquo; she said. &ldquo;A franchisor&rsquo;s response to that question will tell you a lot.&rdquo;

What is the extent of the support the franchisor provides?

&ldquo;Franchisees need to have a strong grasp of what their role is and what the franchisor&rsquo;s role is,&rdquo; Swift said. &ldquo;Franchise systems provide the model and blueprint to follow, but it&rsquo;s up to franchisees to execute.&rdquo; 

&ldquo;Understanding the systems that will be at work and the support you will receive from the brand is crucial,&rdquo; she noted. Swift recommended validating the model with existing franchisees in the system. &ldquo;Ask how closely they follow the model, if it works, what marketing and training support they&#39;re getting and what they are getting out of it.&rdquo;

Do I have a strong comprehension all of the potential future fees I may encounter?

&ldquo;Understanding all the fees and potential fees that the franchisor may charge in the future is really important for franchisees,&rdquo; Spadea said. &nbsp;

Swift agreed, saying, &nbsp;&ldquo;The FDD gives franchisees an initial investment range broken down into categories, but the amount of working capital they actually need may differ. &ldquo;It&rsquo;s helpful to dig a little deeper and verify numbers and break-even points with existing franchisees. &ldquo;Err on side of caution and always have a cushion,&rdquo; Swift said.

What type of exclusions is the franchisor carving out for themselves?

&ldquo;No territories are absolute and it&#39;s important for a franchisee to know what could happen in the future,&rdquo; Spadea said. Inquiring about the different sorts of exclusions that exist in regard to territory gives franchisees a better idea of what to expect as their franchise grows. &ldquo;This doesn&#39;t mean they shouldn&#39;t do the deal, they just need to know what they are getting into,&rdquo; Spadea noted.

How seriously does the franchisor enforce brand standards?

&ldquo;Prospective franchisees should want to know how tough the franchisor will be in maintaining brand standards,&rdquo; Spadea said. &ldquo;Franchisors that are really tough on brand standards typically indicate a better system and even though the franchisee is agreeing to that enforcement against themselves, their investment is in the brand. Strong brand standards are better indicators of success,&rdquo; he added.

Are the franchisor&rsquo;s short- and long-term plans explicitly laid out?

&ldquo;Ask where the company&rsquo;s strategic plan has the brand in three, five and 10 years,&rdquo; Swift said. 

&ldquo;When a franchise&rsquo;s development team can thoroughly explain the short- and long-term plans of the system without glossing over key provisions, the franchise agreement becomes an asset to both parties,&rdquo; Spadea said. Without clear-cut goals and a detailed plan for how to achieve them, franchisors weaken the appeal of the investment to savvy franchisees.

Is the dispute resolution clause clear?

&ldquo;Even though it is most likely not subject to change, clarity on the franchise agreement dispute resolution clause is really important,&rdquo; Spadea said. &ldquo;There are no right or wrong answers here, but the clauses themselves can give you clues into the fairness and strategy of the franchisor which is a very important consideration because the franchisee is the weaker party in the contract,&rdquo; he explained.

Under what circumstances does the franchisor require a complete remodel?

Understanding what constitutes the need for a full remodel and how often it happens is pertinent information when reviewing a franchise agreement and ultimately selecting a franchise brand. 

&ldquo;Depending on when the franchisee is opening and wherein the logo/design lifecycle the franchisor is in, they may be faced with a full remodel pretty close to opening,&rdquo; Spadea pointed out. &ldquo;The franchisee should understand that mechanism in the agreement and negotiate reasonable limits in terms of dollars and time,&rdquo; he suggested.

How realistic is the franchisor&rsquo;s timeline for opening multiple units?

&ldquo;If signing a multi-unit deal, franchisees should be wary of an&nbsp;overly aggressive opening schedule,&rdquo; Spadea explained. &ldquo;Unless the funding is already lined up, opening one store per year over a multi-year span isn&rsquo;t always realistic,&rdquo; he added. Spadea warned that the ramifications of not meeting a quick-turnaround opening schedule because the first unit wasn&rsquo;t open long enough to secure funding could include defaulting under obligations and potentially forfeiting the deposit paid for those future stores.

Am I taking the proper steps to ensure I understand this document properly?

Franchisees must ask themselves if they have a comprehensive understanding of the entire franchise agreement before committing to a franchisor. &ldquo;Get a franchise attorney to review any and every document before you sign,&rdquo; Swift said, noting it can&rsquo;t just be any old lawyer taking a look at the paperwork. &ldquo;You need someone who specialized in this unique industry and knows how to read an FDD and more,&rdquo; she added. 

Spadea, a practicing franchise attorney, said that a qualified franchise attorney goes through the entire agreement with a franchisee so they aren&#39;t surprised by what they are committing to. &ldquo;It&rsquo;s in the franchisor&rsquo;s best interest in the long run that a franchisee truly understands the agreement and the commitments they are making by joining the system,&rdquo; Spaeda added.

&ldquo;The most poignant piece of advice I can give is that no question is off limits,&rdquo; Swift said. &ldquo;Don&rsquo;t be afraid to ask anything, within reason. This is a huge investment of your life savings, so don&rsquo;t feel the need to refrain from tough or direct questions.&rdquo;

10 Must-Ask Questions About Franchise Agreements

1851 Franchise

Franchise agreements are legal contracts that bind franchisors to franchisees. Understanding their contents is of paramount importance to any and every franchise sale.

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10 Must-Ask Questions About Franchise Agreements

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