Franchise agreement: From a Noobpreneur Point of View

Franchise agreement - (c) Elrepositorio.comFranchising is about getting the right business at the right location, right?

Wrong! It’s about the franchisee agreement and the ability to stick to it. Therefore, franchising is not for everybody.

Franchising is for those who can follow set rules and comply to what outlined in the franchise agreement. If you can live with it, you can succeed. If not, you’d better be opening your own business.

Franchising involves two totally different entities united in a common ground called franchise agreement

It would be unfair and bias to talk about franchising from one side only, whereas there are actually two sides involve in it – the Franchisor (the brand owner) and the Franchisee (the brand licensee).

They are united by a franchise agreement. I’m not going to talk deep into franchise agreement, yet (maybe in my future posts?)

What I am going to talk about is that the agreement filled and ‘spiced’ with the rights and responsibilities of franchisor AND franchisee – therefore, it’s uber important.

When an agreement is done between two entities, that’s usually needed due to the ‘contradictive’ nature of the two entities.

An agreement is sealed to unite the differences.

Franchise agreement is NOT partnership agreement.

Alas, many people mistakenly believe that franchise agreement is partnership agreement.

This misconception causes wrong expectations of the franchisees – they expect the franchisor to be equal partner with shared responsibility. Well, it’s totally wrong!

There are several basic differences between a franchise and a partnership:

  • A franchise doesn’t share profit – it charge a form of royalty and marketing fee in return for support and branding.
    A partnership (licensing, business opportunities, multi level marketings, etc) – either equal or not – share profit.
  • A franchise doesn’t share risk – franchisee holds the whole responsibility of the success of its unit, whereas the franchisor guarantee that the support and brand image are well taken care off.
    A partnership shares risk among partnership members.
  • A franchise implements top-down approach – franchisees must comply and follow the franchisor’s guidelines.
    A partnership, as you might guess, determines who’s in charge by the amount of share owned in the partnership.
  • In a franchise, relationship are enacted on set rules – again, in my noobpreneur term, generic relationship.
    In a partnership, relationship are negotiated – in my noobpreneur term, organic relationship.

Why franchisee agreement is very important

Just like any other agreements, franchisee agreement is purposed to lay all rights and responsibilities on the table – to see whether they are the best fit for the franchisee and the franchisor. If you liked it, carry on. If you didn’t, bail out.

This is important, because the latter disputes in franchising are mostly caused by the misinterpretation of franchise agreement by the FRANCHISEE – not the franchisor.

In many publications, franchisors are often blamed for the franchisees’ failure. Believe me, more often than not, it’s the franchisee who s–ks, not the franchisor. I’m a franchisee, I know what I’m talking about :)

Yes – franchisors have their own bad, but the call to agreeing or not-agreeing on the agreement is on the franchisees. You sign it, meaning you understand it. Period.

Last words

Franchise agreement is not easy to understand – it’s often lengthy and boring :)

However lengthy and boring it is – the franchise agreement is crucial.

About the length and complexity, the franchise agreements are set to regulate every single detail – to let potential franchisee fully understand what it takes to run the franchise unit.

If the agreement was too simple, potential franchisees might see the franchisor is not serious enough to tackle potential problems.

One word of advice – if you were not a good agreement reader, consider hiring a lawyer to translate the agreement into more casual language and warn you if potential problems presented.

Ivan Widjaya
Franchise agreement reader