(FS6) The Agreement, Verbal Agreement, and the FDD
During the meetings with your franchisor, you will hear them make promises and you are likely to verbally agree to things. You’ll also read the FDD and the franchising agreement and will have to sign parts of both. All these experiences culminate into the end result of owning a franchise, but later down the line, which of these things matters the most legally?
If the verbal agreements, statements, and/or promises affect how you feel about the franchise, always double check that they are written in paper on the contract that you will be signing. If not, you should question them and their validity. While verbal promises are still considered legal in court, they are harder to prove. Franchise and business professions will tell any franchise that most problems to arise between franchisor and franchisee during the early stages of creation are due to a franchisee’s misunderstanding of their legal obligations and their understanding of the franchise agreement. Take your time to read and re-read over the franchise agreement in order to fully understand everything. If you’re met with questions or things you don’t understand, don’t be afraid to ask the franchisor or your franchise attorney.
Ask about any verbal promises that may seem small and easily to follow through with like, “providing continual hands-on support”. You’re giving this company your time, money, and support, so you should know exactly what it is that you’re paying for. The time to find this out is not on the field when you’re suddenly ready to call the favor and realize that the favor was not part of the deal. Usually by this point, the promises are at least months past and will be even harder to remember, let alone have prove existed in the first place.
Enlisting Help
We’ve mentioned it a few times already in this section, but haven’t gone much into depth. If you’re having trouble understanding (and sometimes even if you’re not) any of the terms found in your contract, FDD, or other paperwork given to you by your franchisor, it’s important to hire some kind of help in understanding it whether that’s a lawyer, financial advisor, or a family member who has a background in law. There are many qualified individuals out there to help you find success in your chosen path such as:
Lawyers
Trained in legal matters, lawyers will be one of your greatest allies when it comes to your franchising agreement and understanding the lingo within it. There are even lawyers that specialize in franchising laws. As a result, their comments and attention to detail tends to be on more important issues and they can spot discrepancies easily. They’ve have likely seen thousands of FDDs and franchising agreements before after all. They can even help you negotiate better terms with your franchisor. If you’re not sure where to start looking for a lawyer try:
- IFA’s Suppliers Forum
- Other franchisees
- The American bar Association’s Forum on Franchising
- The Directory of Franchise Attorney’s
- Your home lawyer, professional colleagues or recommendations
These are just some great resources. The internet, above all else, is a great place to start. However you should always double check sources to be sure you get a real lawyer.
Financial and Business Advisors
Number crunching and legal documentation are their day-to-day game. They’re used to preparing papers as well as seeing them and can also help you when negotiating with your franchisor or reading over any legal documents you receive during your franchising journey. You can also find many financial and business advisors continuing their service with franchisees even after the paperwork is signed.
When you look for an advisor, you should ask them about their qualifications, such as if they finished a course of studies offered by the IFA’s Educational Foundation and if they are Certified Franchise Executives (CFE). The CFE is pretty new, but it’s an important mark for industry standards when it comes to franchise professionals.
Negotiating With Your Franchisor
So you’ve read over the FDD and the agreement, and you’ve consulted with the lawyer you’ve hired about what you found. Now it’s time to decide if you want to haggle or feel out any wiggle room in the contract. You’ll have to be careful as you approach this because the wrong verbiage or energy when you enter into the conversation could shut your franchisor down immediately.
Remember that the strength in franchising is in its consistency. Public expectations are already set and that’s why the franchise is so popular. The importance in negotiating is not to make your franchise different, but to imagine yourself in a room of other franchisees signing their paperwork and to imagine everyone there got a better deal because they negotiated.
Not all franchisors are going to be willing to negotiate and you can accept that. Also know that most franchisors will probably also play hard-to-get. Again, see it from the franchisor’s point-of-view and that in negotiating with others, it could end up that everyone is work different on the same system; it’s just not going to work. Honestly, you should be more wary of a franchisor who is gung-ho about negotiating or if the company offers lower fees to sign immediately because often this is a ploy to pressure franchisees. The franchisor’s flexibility could be a sign of inconsistency or financial trouble on their end.
If you do enter into a negotiation phase with your franchisor, here are some things you might hear:
- A change in size for your protected property
- Additional field support
- Additional grand-opening support
- Additional training for you and your staff
- Default cure periods
- Guarantees and/or limited liability
- Intra-owner transfer
- Lower fees for conversion franchises
- Payment terms for the franchise fee
- Right of first renewal
- Start-up date
- The purchase price for your business on termination
If you have questions on any of the following during negotiations, ask questions. Bring it up with your consultant as well as your franchisor. There’s nothing wrong with asking questions or being diligent and you will be far better off in the long run if you understand absolutely everything in the terms and conditions. A good franchisor will always respect their franchisee’s desire to be fully-informed and knowledgeable and this can affect the life of your relationship positively moving forward.