Understanding a Franchise Agreement
A franchise agreement is a complex contract detailing the purchase of a franchise. An individual or company purchases a franchise for the purpose of using the name and business model to turn a profit. When working properly, the process is beneficial to both franchisor and franchisee. The franchise agreement outlines these terms, and understanding it is key to success.
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The Price
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One of the first and most important details of the franchise agreement is the cost of purchase. Standard procedure is to place a deposit at signing. You will pay the rest of the funds at various points in the transaction, such as delivery of inventory or at the start of operation. The payment amounts and schedule are detailed in the agreement.
Obligations of the Franchisor
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The franchisor is the company that is selling you the franchise. Since the franchise runs on a specific model, the franchisee needs assistance. The franchisor will provide this assistance in various ways. For example, it may provide the specific equipment used in the operation of the franchise. The franchisees pay for these services, but the franchisor will be there to guide them both before and after operations begin. The extent of this assistance is outlined in the franchise agreement.
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Obligations of the Franchisee
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The person purchasing the franchise is the franchisee. Just as the franchisor has obligations, so too does the franchisee. He must agree to operate the franchise in the manner set forth by the franchisor. He must follow the guidelines of the franchisor for everything from operation to inventory to advertising. Consistency is the key for both the franchisor and franchisee. The agreement outlines these obligations on the part of the franchisee.
Termination of the Agreement
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As the franchise agreement is a contract, the franchise agreement states the specific terms and conditions under which the agreement can be terminated. It details the amount of advance notice needed for termination. It lists acceptable reasons for the termination of the agreement. It also notes which actions, on behalf of either party, can void the agreement.
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