It’s rare to find a franchise that isn’t on fixed terms and most first-time franchisees are so excited about their new venture that they don’t pay much attention to this aspect.
Some franchise agreements have a specific initial term that doesn’t include any franchise renewal rights. However, there are some with fixed initial terms as well as options/rights for renewal, but this isn’t something you can take for granted.
In case you have an agreement without any franchise renewal options, you will be at the franchisor’s mercy once the original term expires as they aren’t obligated to renew terms. But even in situations where renewal is an option, there is no guarantee that it will surely take place.
Most franchise networks have very specific requirements that the franchisees are required to meet in order for their agreement to be considered for franchise renewal, such as:
In most franchise network setups, the franchisees are required to sign a new agreement when the renewal is due to take place. It isn’t necessary that all the terms contained in the new franchise agreement are identical to the initial franchise; in fact, there may be a difference even in the financial terms too.
Sometimes the new financial terms make the proposition less profitable and if the franchisee decides to sell, it may be worth less as well. This is why most franchisees wonder what they can do to ensure they are able to renew their agreement. Here are a few pointers that can help ensure franchise renewal:
As a franchisee, you need to keep in mind that you don’t own any of the systems or the branding and that under the agreement terms you are only permitted to use these for the stipulated timeframe. Once you reach the end of the agreement period, you cannot use either the systems or the brand. There are times when a franchisee works diligently and builds up a very solid business that far exceeds the initial outlay. If the agreement isn’t renewed, all of their hard work can be washed down the drain.
In such a situation, only the equipment and the plant are the franchisee’s assets. The one way to ensure that you have all your bases covered is to get advice from an experienced franchise lawyer and an accountant; this will give you a better understanding of the terms of the franchise agreement and will help ensure that you have enough time to make a good ROI.
If you want to know anything more about franchising or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435