How Negotiable is a Franchise Agreement?
Great question, one we hear everyday from our franchisee clients. Unfortunately the answer is “it depends”. It depends on many factors of the franchisor and the franchise system. There are some factors which would tend to indicate to us that the franchisor is more flexible and others which would indicate that the franchisor will not budge. Below we explain a few of these factors which can help a potential franchisee evaluate the franchise opportunity.
Age of the Franchisor
Younger franchisors are generally much more open to negotiating terms with a franchisee. Sometimes a potential franchisee, if one of the first or the first in a major market, can have significant leverage in negotiations with a franchisor. As the franchise system grows and the franchisor becomes more mature, typically the less willing franchisors are to negotiate. It is simply supply and demand, they are successfully selling franchises on their own terms – why should they change to make the sale to you?
Size of the Franchise System
This is often related to the age of the franchisor but can be an independent factor. If the size of the franchise system is under 25 units, generally a franchisor will be more willing to consider and accept revisions from the franchisee.
Experience of the Franchise Leadership/Sales Team
Sometimes even an aged franchise system can have relatively inexperienced leadership or sales personnel. This can be for many reasons, new ownership, family owned company, or even bad hiring. The more experienced the leadership and sales team, the less likely many revisions desired by the franchisee will be acceptable. Also, has the leadership experienced previous bad franchisees? If so, don’t expect many breaks in negotiations.
Experience of the Potential Franchisee
Franchisees with deeper experience in franchising, especially as multi-unit owners can leverage their previous experience as reduced risk for the franchisor and secure some concessions. Franchisors are more comfortable working with those experienced with franchises than those who may be seeking a franchise for the first time.
Sometimes you never know how or why a franchisor may be willing to modify the franchise agreement. A good bonus, good weather, cheerful demeanor – I could take my guess but every now and then my franchisee clients will secure a modification certainly had an element of luck to it.
Generally, franchise agreements are not very negotiable but with an experienced franchise counsel you can make targeted revision requests and make a common sense adjustment to protect both the franchise system and your business. While you shouldn’t expect make major modifications to a franchise agreement, it never hurts to ask and engage with the franchisor about your concerns and how the agreement can be better suited for your business opportunity.
Reach out to Reidel Law Firm today to have your franchise agreement reviewed and counsel on how to secure revisions from the franchisor. You can reach by the email button below or by phone at +1(832)510-3292.