Understanding your franchise agreement
Once you’ve decided that you’d like to become a franchisee, you need to ensure that you completely understand the franchise agreement. This will outline everything that’s expected of you as well as what you can expect to receive. Importantly, it forms the foundation stone for developing a good working relationship with your franchisor.
The agreement is a legal document that sets out both your rights and your responsibilities as a franchisee. You therefore need to read it carefully before signing it. It will give details of what your franchisor will provide as it licenses you to run a business using its brand, trademark, processes and support. In return, you’ll agree to abide by its operating conditions, standards and payment terms.
By going through the document in detail – with the help of legal advice – you can make informed decisions about your potential purchase and can also highlight any concerns you have about the agreement.
Key agreement components
There are certain aspects that are common to most franchise agreements.
Your costs and what they’ll cover
First and foremost, you need to be sure what you’ll be getting in terms of your franchise and what it will cost you. The agreement should spell out your territorial rights. These will define the geographical region within which your franchise will have the exclusive rights to operate as a business licensed by your franchisor.
One of the most important sections to understand is the cost of your initial investment, your franchise fees and other charges. To find out more about what these will be, take a look at our guide to what costs are involved when buying a franchise. This gives details of the set-up and recurring costs for your new business. Most agreements will explain the franchise fee, the minimum investment required and the terms for ongoing royalty fees. At Home Instead,we set out these initial investment details on our website, as well as giving you an idea of the potential profitability of your franchise.
Another area that should be covered is the terms involved in any renewal of the franchise agreement. What is the length of your agreement? Are you happy with it? You might want to renew it after this period finishes. Make sure you understand what conditions you will need to meet to extend the agreement. Equally, you might want to terminate or transfer the agreement at some stage. Again, check the terms and conditions involved. Even though you might not think you’ll need to terminate early, your circumstances can change, and it’s always best to be prepared.
As a potential franchisee, you should be aware of all your financial obligations – including aspects such as insurance and utilities. You should also ensure that you have enough working capital to cover the unexpected expenses that can crop up from time to time.
Support from your franchisor
Other sections of the franchise agreement will explainthe level of support you can expect from your franchisor. This might typically include a range of training programmes designed to help you run, develop and grow your business; various resources and tools (for example, homecare management software); as well as IT and sales and marketing support. For instance,Home Instead has a strong national advertising programme and also provides franchisors with local marketing support. Check your agreement to see what additional fees might be incurred as a result. It might also stipulate what standards must be met in any promotional material you produce.
Your franchisor will license you to use its brand name, trademarks and any proprietary systems. You’ll need to know how and where you can use these, as the franchisor will understandably want to protect their corporate image and will want to avoid any unauthorised use of its brand.
Meeting your responsibilities
In terms of your own obligations, in addition to your financial commitments, you will also need to adhere to the operating standards set out by your franchisor. These include any established practices and procedures it has developed for its franchisees to follow.
Finally, you might be asked to meet certain targets as your business develops, and to meet specific performance criteria. This helps to assure the franchisor that its franchisees are maintaining a certain level of standards throughout.
Legal and financial obligations
As a franchisee, you’ll have to comply with a range of rules and regulations relating to the care sector and the role of a home care franchise. For instance, the franchise agreement will detail the various permits and/or certificates you’ll need to obtain to work in this area. Make sure you’re fully aware of these and have the relevant documents and licences in place before you start your business. There can be some penalties for non-compliance with your legal obligations.
Remember that there can also be serious implications if you fail to meet your financial obligations, which include keeping accurate records and submitting regular reports to your franchisor.
On a more positive note, it’s worth working closely with a professional consultant, such as a franchise lawyer. They can not only look over the conditions of the agreement with you but might also be able to help you to negotiate more favourable terms for aspects such as fees or territorial rights. Having said this, most aspects of the agreement are likely to be non-negotiable.
This is where due diligence and research become important. By exploring the franchisor’s history, reputation and financial health – and by talking to existing franchisees – you could get a clearer picture of how open the franchisor is likely to be to any negotiations. Ultimately, if you don’t ask, you won’t get any better terms!
Seeking professional advice
The most common mistake potential franchisees make is to skim through the agreement without really looking at or understanding the detail. And it’s the detail that can make all the difference. This is where a financial or legal consultant can really make a difference – especially if they specialise in franchise work. They’ll understand all the complexities and nuances of the agreement and will highlight any areas of concern. They will also advise you how to address these. This will help you to make sure that you can have the best possible start for your new business.
What next?
Some steps you can take before signing the agreement include:
- Check out potential financial or legal advisors – you could ask other franchisees for any recommendations.
- Find out more information about franchising from reputable franchise associations (e.g. the British Franchise Association) and similar resources.
- Read through our other blogs on different aspects of developing a franchise in the home care sector.
Once you’re happy with the agreement and have decided to sign it, what happens next? There may be certain aspects you might want to discuss with your franchisor, such as tweaks to the payment schedules. Then it’s a matter of starting to set up your business, and getting involved with any training programmes provided by your franchisor.
Get the ball rolling
If you’d like to know more about Home Instead franchise agreement, book a call with Luke Spellman, our Franchise Development Manager.