Franchise Agreement Negotiation: What Entrepreneurs Need to Know

Opening a franchise can be an exciting opportunity for entrepreneurs, but it’s important to thoroughly review and understand the terms of the franchise agreement before signing on the dotted line.  As a franchisee in Chicago, here are some tips to consider when negotiating the terms of your franchise agreement:

Know Your Rights:

It is important to understand your rights as a franchisee under both federal and state law.  In Illinois, the Franchise Disclosure Act (FDA) requires franchisors to provide potential franchisees with a disclosure document that includes information about the franchise system, the franchisor, and franchisee’s obligations.  This document must be provided to franchisee at least 14 days before the franchise agreement is signed, giving franchisee time to review the terms and ask questions.

Review The Franchise Agreement Carefully:

The franchise agreement sets forth the rights and obligations of both franchisor and franchisee, and it’s important to understand all the terms before signing.  Some key areas to pay attention to include the franchise fee, the term of the agreement, exclusivity provisions, and franchisor’s control over franchisee’s business.  If there are any terms that you don’t understand or that you disagree with, be sure to ask for clarification or negotiate for a change.

Negotiate for More Favorable Terms:

While the franchise agreement is typically non-negotiable, there may be some room for negotiation on certain terms.  For example, you may be able to negotiate a lower franchise fee, a longer term of the agreement, or more favorable exclusivity provisions.  It’s a good idea to have an attorney help you identify areas where negotiation may be possible.

Consider the Franchisor’s Support:

One of the main benefits of franchising is the support and assistance that franchisors provide to their franchisees.  Be sure to consider the type of support that franchisor will provide, including training, marketing, and ongoing operational assistance.  You may be able to negotiate for more support or better terms in these areas.

Protect Your Intellectual Property:

If you’re planning to develop and use your own intellectual property (such as a trademark or copyrighted materials) in connection with your franchise, be sure to protect it.  You may want to consider negotiating for provisions in the franchise agreement that give you ownership of your intellectual property or that allow you to license it to franchisor.

Seek Legal Assistance:

Franchise law can be complex, and it’s important to have an experienced attorney review your documents and provide guidance on the terms and potential risks.  An attorney can also help you negotiate more favorable provisions and protect your interests.

By following these tips and being proactive in the negotiation process, you can help ensure that you have a successful and mutually beneficial franchise relationship. 

Schedule a Free Consultation with The Castle Law Firm

The Castle Law Firm offers legal assistance to individuals who are interested in buying franchises in the Chicagoland area.  We can help you understand your rights and responsibilities under your franchise agreement, provide recommendations, and negotiate with the franchisor on your behalf.  With Attorney Rob Castle’s vast experience in aiding franchisees throughout Illinois, The Castle Law Firm can assist you in establishing and operating your franchise while working towards your business goals.  To schedule a free consultation, please call (312) 889-8702, book an appointment online, or email the firm today.