Are the terms of a franchise agreement negotiable at all?

Franchise Agreement Negotiation

By Michael Seid, Managing Director, MSA Worldwide

Without a doubt, well established franchisors are reluctant to negotiate changes to their system. The quality and other standards set by the franchisor allow the system to deliver to the public what they expect under the brand, and protect the good franchisees from the effect that bad franchisees would have on the system’s image, therefore protecting their investment. A standard franchise offering better allows the franchisor to maintain consistency in the franchise system, a very important element of why franchising is so successful. There are certainly countless other management and regulatory reasons for franchisors to resist change.

Still, “no change” is not and has never been an ironclad rule, even in the most established franchise system.

It is important when you are looking to invest in a franchise that you work with an experienced franchise advisor. Uncle Alex who did your will, or the local lawyer ​who has been involved in one or two franchise purchases, is not what you need. Experienced franchise lawyers and franchisee consultants know how franchising works and can steer you away from unreasonable demands, and focus in on those issues that can effectively be negotiated.

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. Don’t 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.

Willingness of a franchisor to negotiate may actually be a sign that this is not a franchise for you. Professional advisors often use the ploy of seeking negotiated changes because a willingness by a franchisor to readily make a change could be a danger sign. If the franchisor is willing to negotiate changes that impact the consistency or quality of the brand, it probably has made those types of negotiations with other prospects. The franchisor might need to make a quick sale because its payroll might be due and they need your upfront payment quickly. Joining a system so desperate for cash that it’s willing to make changes is a recipe for disaster.

Understand what types of changes your franchisor might be willing to make for you, so that you do not overreach and ask for things that are just impossible for the franchisor to provide you. Some changes you might be able to negotiate are:

  • The payment terms of your initial franchise fee
  • The size of your protected territory
  • Additional start-up training for you and your staff
  • Additional field and other support for your grand opening
  • Your ability to sell your franchise to another franchisee without incurring the standard 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
  • 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 to:

  • Fees, modifications to the standard décor package, changes to the
    length of training, allowance for existing inventory, and a host of other
    issues that may impact you if you are converting an existing business
    to the franchise system’s brand.

The above list is not exhaustive; an experienced franchise advisor will help you determine what you need and let you know in advance the reasonableness of the changes you propose. If you look at the list above, you will note that none of these items would have an impact on the franchise system as a whole, and most may enable you to improve your performance. Therefore the changes you are asking for strengthen the franchisor as well.

As a final note, 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 changes you think are needed in the operation, you are not cut out to be a franchisee in any event. For you, starting your own franchise system may be the most appropriate way to go.

Do you have questions about franchising?

MSA Worldwide’s experts can help you determine if investing in franchising is right for you.

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