Negotiating Changes in the Franchise Agreement

Franchisors are very reluctant to negotiate changes to their system. The standards set by the franchisor are what guarantees that its customers get a consistent product. This consistency also protects good franchisees from the effect that bad franchisees would have on the system’s image, which protects their investment. These are some of the reasons why franchises have proven so successful. There are other management and regulatory reasons for franchisors to resist change.

Even still,

To negotiate, you need to be willing to walk away from any opportunity in which you will not be happy. There are thousands of other franchise opportunities available to you. Do not get caught up in the hype of any one and let it blind your investment decision. Also, never sign a franchise agreement without understanding what the terms mean and determining that you can live happily with the relationship even if you do not agree with all of the terms.

An experienced franchise advisor can help explain the various terms to you and may be able to help you negotiate the terms of your agreement. The relative who drafted your will or the local lawyer that has been involved in one or two franchise purchases is not what you need. Experienced franchise lawyers and franchise consultants know how franchising works and can steer you away from unreasonable demands and focus in on those issues that can effectively be negotiated.

A willingness of a franchisor to negotiate may actually be a sign of a weak franchise. If the franchisor is willing to negotiate changes that impact the consistency or quality of the brand, the franchisor has probably made those types of negotiations with other prospects. The franchisor might need to make a quick sale because its payroll might be due and it needs your payment quickly. If you see these signs of desperation, proceed with extreme caution.

Here are some basic changes you might be able to negotiate:

• The payment terms of your initial franchise fee
• The size of your protected territory
• The amount of startup training for you and your staff
• The amount of field support for your grand opening
• Your ability to sell your franchise to another franchisee without incurring the transfer fees
• The franchisor’s right to buy your location if you put it up for sale
• The standard cure periods if the franchisor finds you in violation of the agreement or standards of operation
• The elimination of the personal guarantees found in most franchise agreements

If you are converting your existing business to a franchised brand, you may have some additional leverage to negotiate changes, including fees, modifications to the standard décor package, changes to the length of training, allowance for existing inventory, among others.

This list is not exhaustive, and an experienced franchise advisor will help you determine what you need and let you known in advance if your proposed changes are reasonable. None of the items on the list above would have an impact on the franchise system as a whole, and some may even improve your performance. Therefore the changes you are asking for may strengthen the franchisor as well.

If you are the type of person that needs the franchise agreement to say exactly what you want or if you expect the franchisor to make all the changes you propose, you are probably not cut out to be a franchisee. For you, starting your own franchise system may be the most appropriate way to go.