What terms can be negotiated in the world of franchise agreements?

According to a respected franchise attorney, “Between the… FDD and the franchisee, there’s a franchise agreement and everything that’s on the table.” This statement seems to have both a literal and a figurative meaning, but the gist is this – unless you’re asking something really outrageous, you’ll have more leeway to talk about your negotiate terms than you think.

Your negotiating position may vary

Your ability and position to negotiate certain terms of your franchise agreement may depend on who you are dealing with. The opportunity may not be possible with well-known franchise brands that have a waiting list of candidates to buy, but emerging brands desperately looking to increase their franchisee footprint can present an opportunity.

While reviewing both the FDD and your franchise agreement, it is recommended that you engage the professional services of a franchise attorney who can help you determine your prospects and the likelihood of concessions. Keep in mind that the franchisor-franchisee relationship is one that is meant to be purpose built to last, usually 10 years. If you are partners before then, you want to set up an open and transparent line of communication.

Related: Consider these following points before signing a franchise agreement:

What you can negotiate

Some people, for example those with a sales background, probably understand negotiation better than someone with a non-sales background. But as long as you think like a seller, you get an idea of ​​what you can negotiate. Sellers want to close the deal and use a whole host of techniques to get it done.

You can imitate some of their tactics, but it’s best to stick to the primary negotiating areas. These typically include your territorial rights, renewal terms, transfer rights, royalty payments and renewals. That said, if you see something in the agreement that doesn’t sit well with you, you still have every right to bring it up for negotiation.

Fees and Royalty Payments

While any prospective franchisee can request a review of fees and royalty payments, if you are considering playing with multiple units, your ability to negotiate these terms of your franchise agreement will increase. In that scenario, you have something of value to the franchisor; the ability to sell in multiple territories instead of just one.

It’s not uncommon to negotiate some leeway over the initial rate range, as well as scheduled opening dates, for your next locations. When it comes to the initial fees, don’t expect many concessions. You’re more likely to get some wiggle room with royalties.

Related: Seven Winning Negotiation Strategies for Any Situation

Territoriality

Your franchise agreement must specify in detail your territorial rights, usually an exclusive area of ​​operation in which you are free from infringement by another franchisee. Most cover a three- to five-mile radius from operations or zip codes, but some legal experts point to “carve-outs” for non-traditional spaces, such as hospitals, airports, and sometimes even mixed residential shopping malls.

You can submit a request to have these rooms reserved exclusively for your operation. As a guideline, make sure what you propose is mutually beneficial to your franchise and brand.

What if failure is not an option?

Some franchisees are rightly concerned about the possibility of business failure, especially in light of a 10-year term stipulated in the agreement. As a franchisee, you understand your obligation to continue contributing to the brand as long as things are going well. But if not, it’s also important to understand that if you’re not making a profit, you’re obligated to continue. Get clarity on whether or not you’re personally on the hook for damage. If so, you may be able to negotiate a maximum amount for compensation.

Your ability to negotiate is dependent on many factors and anything you propose should be seen as a reasonable request. Sometimes it’s the smaller things that are easiest to gain concessions, such as extra cash for your grand opening and increased oversight during your first few months of doing business. These areas are much more malleable than fees and royalties, so make sure you manage your expectations reasonably before proposing changes.

Related: 8 Negotiation Tactics Every Successful australiabusinessblog.com Can Master