Checklist_Basic Franchise Agreement Terms

6:17 PM Posted by Blony

. One of the most popular way to start your own company is through a franchise; a business organization in which a well-known firm with a successful product or service – the franchisor – enters into a contractual relationship with another business – the franchisee – that operates under the franchisor's name in exchange for a fee. Franchise agreements vary from franchise to franchise so it would be impossible to identify every term and issue that should be considered in all situation. The checklist should be used in conjunction with the franchise agreement – the document that will set out all the terms and conditions that will govern your ownership of the franchise – which will be drafted by the franchisor. In any event, you shouldn’t sign it until you’ve discussed your options with your attorney.

Issues relating to the franchise cost terms

 What is the initial franchise fee? Is any part or the entire initial fee refundable?

 Does it include an ‘’opening'' inventory of products and supplies?

 What are the payment terms: amount, time of payment, lump sum or installment, financing arrangements, etc.?

 Does the franchisor offer any financing, or offer help in finding financing?

 Are there any deferred balances? If so, who finances and at what interest rate?

 Does the contract clearly distinguish between ``total cost'' and ``initial fee,'' ``initial cash required,'' or ``initial costs,'' etc.?

 Are there periodic royalties? If so, how much are they and how are they determined?

 How and when are sales and royalties reported, and how are royalties paid?

 If royalty payments are in whole or part payment for services by the franchisor, what services will be provided?

 Are accounting/bookkeeping services included or available?

 How are advertising and promotion costs divided?

 Is a specified amount of working capital required of the franchisee to cover operating costs until profits can be made?

 Must premises be purchased or rented, and are there further conditions on either of these (from franchisor, selected site, etc.)?

 How and by whom will the building be financed, if purchased?

 Does the franchisee have to make a down payment for construction and/or equipment?

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