Regulated by contract which usually covers:

• Initial fee
• Royalty fee/Management fee
• Capital required from franchisee
• Territory/Area of operation
• Duration of license and renewal
• IPRs
• Termination

Be Careful!

• The franchisee is not completely independent. It must comply with the terms and conditions of the franchise agreement.
• In addition to the initial franchise fee, franchisee must pay on-going royalties and advertising fees. This could result in a substantial up-front outlay in terms of advance payments.
• Franchisee must be able to balance restrictions and support provided by the franchisor with their own ability to manage the business.
• A damaged image or franchise system can result if other franchisees perform poorly or the franchisor has financial problems. This could cause disruption to on-going operational support in terms of supply of goods and services.
• The duration of a franchise is usually limited and the franchisee may have little or no say concerning termination.

Common Mistakes of Prospective Franchisees

• Not reading, understanding and/or asking questions about the franchisee agreement and other legal documents.
• Not understanding the responsibilities of a franchisee and the rights and obligations of a franchisor.
• Not seeking sound legal and financial advice.
• Not verifying oral representations of franchisor.
• Not analyzing the local market in advance.
• Not analyzing the competition.
• Not making thorough due diligence of the franchisor.
• Not choosing the right location.