What is a franchise agreement?

On Behalf of | Mar 10, 2022 | Franchise Law

Franchise businesses are easily among the most successful operations in the state of Texas. Practically every industry has some sort of name brand franchise distributorship in the vibrant Texas economy. The franchise model is a standard method of conducting business that commonly result in high profitability. But what goes into a franchise agreement? The truth is that franchise agreements are often tilted heavily in favor of the franchisor, which means that the franchisee must understand each detail associated with what can be a confusing contract in some situations. The franchise owner often has little autonomy in running their own business.

Advantages

There are some clear advantages for entrepreneurs who can secure a franchise agreement. One of the first is territorial guarantees against competition under the business logo. The franchise usually comes with access to a specific product line that is also often included in national marketing campaigns. Franchisees not only make profit from individual sales, but they often enjoy high-volume sales as well.

Disadvantages

There are assuredly some disadvantages of operating a franchise business. One issue can be a lack of total control over operations, many times being part of the contract language. Franchising companies also require a significant initial investment along with a royalties payment schedule of some type. Creativity is also discouraged and not even allowed for some franchisees, which can also limit profits in high competition locations.

It is vital for all individuals who are considering a franchise business to perform due diligence before entering into an agreement with a company that could have a major impact on the return on investment that all business managers want to see. Decisions made at the corporate level can impact the profitability on the local level, many times catching the local owners in the middle of a bad market situation.