How to Avoid Breaching Your Franchise Agreement

Franchise agreements are legally binding documents that are signed by both franchisees and franchisors. These documents detail how the relationship between the two signing entities should work. It also outlines the legal rights and obligations of the franchisor and franchisee.

How to avoid breaching your franchise agreement

As a franchisee, you want to do everything that you can to abide by this contract while taking part in franchise business opportunities. Failing to do so could result in lost funds, damaged professional relationships, and a loss of your business. Here are a few things you can do to ensure you don't breach your franchise agreement.

Use Approved Suppliers

Franchises become successful by maintaining a consistently high quality of products and services across their locations. To make this possible, franchisors will often ensure that all equipment, ingredients, or other sorts of stock are purchased from specific, designated suppliers. Franchisors will typically make a list of the suppliers that they allow you to purchase from and give it to franchisees along with the operations manual.

Stay Within Your Specific Territory

Your franchise agreement may explicitly state which geographical territory you can operate and market within. Franchisors do this to avoid ruffling the feathers of other franchisees and to give each franchisee a fair chance at attaining a loyal consumer base. Some franchisees find these rules easier to abide by than others. For example, if you run a food truck, then you will have to pay more attention to boundaries than someone involved in fixed restaurant franchising. If you take part in home improvement franchising, then you also have to be mindful of which clients you accept.

Pay Franchise Fees

Though not all franchisors expect their franchisees to take part in an investment program, many will require you to contribute financially to their franchise network. There will likely be an initial franchise fee that you have to pay. Additionally, there will be fees related to the set-up of your location. You may also need to pay for a variety of insurances and for legal counsel. Pay these fees quickly to avoid forgetting about them.

Hit Milestones

Given the amount of support that a franchisor offers, they expect to see a certain level of success. Because of this, your franchisor may give you certain goals to hit. It is understandable if you find yourself struggling to get your business off of the ground initially, but if fiscal troubles become regular, then you risk not reaching your target. This could result in a breach of your agreement. Avoid this by asking for guidance when you need it and by diligently managing your books.

According to Statista, in 2020, the economic output of franchises in the U.S. was approximately $670 billion. While you may be eager to make your franchise a success, you have to prepare to abide by certain regulations. Read your franchise agreement thoroughly before signing it so that you know what you're agreeing to. For more information about franchise business opportunities, reach out to Franchise Recovery!

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