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What to look for in a ‘Franchise Agreement’ ?

Due-Diligence:

  • Franchise fees
  • Duration of agreement
  • Territorial rights
  • Royalty
  • Benefits from franchise


In a previous article, I had mentioned about choosing the right franchise. A step ahead, this article is about a ‘franchise agreement’ — you will have to sign this with the franchise to choose in order to have predetermined terms on paper. You should and must sign a franchise agreement with the franchise you choose in order to avoid problems in the future. You might be wondering what to look out for in a franchise agreement, so this article is all about that.

Franchise Fees:

You might have agreed to a pre-determined amount of a franchise fee, but you must have it in an agreement. Another thing to watch out for is whether taxes are applicable on the franchise fees or not. Taxes can significantly increase your costs, so you want to make sure that you are keeping track of it.

Duration of Agreement:

You should know the duration for which you can franchise, whether it is 5 years or 10 years. Also have a clause which states that this term is renewable.

Territorial Rights:

Most franchises include territorial rights in their agreement. Territorial rights mean that the company will only allow one franchisee to operate in a certain radius. If the franchise you choose provides a territorial right, make sure it is part of the agreement.

Royalty:

‘Royalty’ or ‘commission’ is what the franchise will take from your store profits. This amount should not be too high, and whatever the amount is, it should be in the agreement. The agreement should explicitly mention that the commission is only applicable to the store profits, and not the revenue.

Benefits from the franchise:

Any other benefits that you can your franchise talked about should also be part of the agreement. For example, if a firm provides training and has support from the head office for their franchisees, you should make sure that this is part of the agreement.


While selecting a franchise you wish to take, make sure you look out for these aspects. SelectDine is a company that provides food franchise opportunities in India. What is good about them is that they filter out franchises by the criteria I have talked about in this article. Make sure you check out their interface!
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