The Franchise Agreement – Understanding The Basics – Part One

For potential franchisees, understanding the ramifications of the  franchise agreement can prove to be quite daunting.  Over a series of articles we will attempt to explain some of the basics.

Please note, that this advice is for guidance only and should never replace formal legal advice.  We recommend that everyone who is considering investing in any franchise obtains legal advice from a BFA approved legal advisor.   

What is the franchise agreement for?

The franchise agreement provides precise, legally binding details of the obligations of the franchisee together with the franchisor’s commitments, the length of the agreement and details of individual obligations after the agreement ends.  All verbal commitments or suggestions made by the franchisor during your meetings with them must also be included in the agreement or they will not be valid.

Signing the contract

The majority of franchisees set up a limited company to operate their franchised business. When signing the contract, a franchisee may be asked to sign in a personal capacity as well as on behalf of the limited company.  This means that you are personally liable for failure to comply with the requirements of the franchise agreement, such as, payment of franchise fees and royalties.  This is generally more of a consideration at the end of a franchise agreement but it also something every potential franchisee should be aware of.

The length of the franchise agreement

The franchise agreement will contain a clause confirming the duration of the franchise.  With Redstones, the initial agreement is for five years.  Some franchisors require payment of a renewal fee at the end of the franchise for franchisees who wish to continue operating their business.

Ongoing fees

Franchisees should ensure they understand exactly what fees are payable in addition to the initial franchise fee. The majority of franchisors charge an ongoing royalty or management services fee (MSF) based on a percentage of the franchisee’s gross turnover.

Marketing and advertising

In addition to the MSF, franchisees may be asked to pay a marketing and advertising fee.  The franchisor will provide full information on how this fund is used, which is normally at a national and local level.  At Redstones we have a comprehensive marketing strategy which encompasses all of the benefits that social media has to offer.

Franchisee training

After the franchise agreement is signed all franchisees receive comprehensive training after which includes full instruction on how to run the franchise basis. The cost of the training is normally included in the initial franchisee. Most franchisees will, however, be expected to fund their own accommodation and any travel expenses incurred during training.  With this in mind, it is important for all franchisees to confirm how long the training will take and where it will be carried out.

In the next article we will look at the areas of the franchise agreement which affect the operation of the franchise business.  In the meantime, if you have any questions on Redstones’ franchise opportunity, please don’t hesitate to get in touch.