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Franchise Agreement Checklist

http://www.franchisedirect.co.uk/coffeefranchises/179 Examine your franchise options. This includes research on the Internet, in trade magazines and by attending franchise exhibitions. Franchise Directs directory of coffee franchise opportunities is a great resource. Once you start examining the different coffee shop franchises that exist, ask yourself the following questions to help you choose the one that makes the most sense for your current situation. 1. Does this coffee franchise have a well-recognised brand name? This can be crucial in the success of your coffee franchise business, as consumers prefer brands with which they are already acquainted. 2. How much capital is required? Find out whether or not you can afford the franchise. Some franchisors offer direct or third party financial assistance, so be sure to ask. 3. What kind of training and support will they provide? This will depend heavily on the franchisor you choose, so make sure to find out exactly what they offer. Usually, they will give you the rights to use the companys name and brand, and provide training on their products as well as guidelines on managing employees and administrative activities. They also often provide help with the launch of the business and may give you a discount on supplies and products with their bulk purchasing power. However, keep in mind that some franchisors do charge fees for the ongoing support and may even charge monthly royalties on the profit you make. 4. Are there many similar coffee shops in your area? You want to make sure that the area in which you plan to start your coffee house franchise is not one thats already inhabited by similar coffee houses. Too many of the same type of store in the same neighborhood could be bad for business. Some franchises may offer exclusive territories, where you are the only franchisee in the area, so it is best to find out what the companys policy is early on. 5. How strictly do you need to conform to guidelines set out by the franchisor? When you open up a coffee franchise, you will need to think about the appearance of your storefront. This may include displays of the logo and specific dcor requirements that will need to be strictly implemented. 6. What are the companys policies on selling your franchise down the road? At some point in the future, you may decide to sell your franchise. This can be for a variety of reasons, including retirement, personal circumstances or starting a new business. Make sure the coffee franchise youre looking at has resale procedures that are easy on you. The best way to find out all the important information about your potential coffee shop franchise is by talking to current franchisees, visiting the franchisors head office and carefully reading through the franchise agreement. Talking to current franchisees will provide a real-world perspective on owning a franchise for that coffee company. Ask them about their day-to-day operations, their struggles, and earnings both at start up and currently. Visiting the franchisors head office will tell you what kind of operation the company is running. A visit will give you insight into the leadership and direction of the company, as well as provide an indication of the support you will likely receive as a franchisee. Finally, reading the

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Franchise Agreement Checklist


franchise agreement should verify all of the information that youve discussed previously with the franchisor. This is a crucial legal document that will establish the details your contract term and answers to all of the questions above. Once you follow these steps, you should be ready to choose the coffee shop franchise that will best suit you.

Terms & Conditions of Use


While a franchise agreement is a critical document and should be carefully reviewed by a lawyer before it is signed, a franchisee should remember that: 1. The balance of power is usually significantly in favor of the franchisor and, therefore, so is the terms and conditions of most franchise agreements; 2. Not even the best franchise agreement offers absolute protection to a franchisee against an unscrupulous franchisor; 3. In the event of a dispute between a franchisor and a franchisee, most franchisors have a lot more time and money than franchisees to fight a protracted court battle. So, a franchise agreement cannot and should not take the place of detailed and thorough due diligence by the franchisee before entering into the franchise agreement. Term/Renewal Initial term how long? 5years? 10 years? Right to Renew? How long? 5 years? 10 years? Additional Fee Required? Can franchisor amend franchise agreement, royalties and other terms and conditions on renewal? Territory Exclusive or non-exclusive Clearly defined Right of first refusal for adjoining territories

Franchise Fees/Royalties What percentage? Definition of sales. When payable? Advertising or other fees? Is franchisee required to contribute to a national advertising campaign? Will advertising be conducted in territory? Does franchisee have to spend a minimum amount per annum on local advertising? Does franchisee require franchisors approval with respect to advertising?

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Franchise Agreement Checklist

Manual/System Strict compliance with system, the franchisors specifications and the operating manual. Standards in dealing with public. Sale of products and provision of services specified by franchisor. Purchase of inventory, supplies and equipment from the franchisor or franchisorapproved suppliers. Requirement to use the franchisors trademarks and logos on all products. Hours of operation. Maintaining the condition of the premises and all equipment at a specified standard. No alteration of business premises without franchisors consent. Participation in promotion initiated by Franchisor. Requirement to refurbish premises from time to time. Is principal required to work full time in business? Minimum levels of working capital and/or inventory.

Franchisors Obligations


Site

Assistance in site selection. Assistance in construction of the business premises or construction of a turnkey operation. Initial training. On-going training. Who pays?

Does franchisee have to own business premises? Does franchisee have to lease business premises? Will franchisee hold head lease or will franchisor hold head lease and franchisee sublease from franchisor?

Accounting Reports, records, financial statements and audits. How often must reports be submitted? Does franchisor have full access to franchisees books? Is franchisee obliged to purchase uniform software? What is the cost? How are advertising and promotion costs divided?

Non-Competition/Confidentiality Both during and after termination of franchise agreement. For how long after franchise agreement terminated? In what territory? Non solicitation of employees of the franchisor, the franchisee or other franchisees.

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Franchise Agreement Checklist

Trademarks Franchisor absolute owner of trade marks. Franchisee obliged to prominently display trademarks of the franchisor and use franchisors signage. Franchisee must report infringements of trademarks to franchisor.

Personal Guarantee/Security Required? For how long? Is guarantee capped? Is spouse obliged to sign guarantee? Security required? General Security Agreement over all assets of the franchised business? Mortgage on home? Letter of Credit?

Insurance and Indemnity Types of insurance franchisee required to obtain. Franchisor approval of insurance. Franchisor to be named as an insured. Copies of insurance to be given to the franchisor. Franchisee to indemnify franchisor with respect to the operation of the franchised business.

Death or Incapacitation of Franchisee Can franchised business be passed on to spouse, children or other heirs on death? If so, any fee to be paid or agreements to be signed? Does franchisor have right to buy back the franchised business? If so, at what price?

Sale and Assignment Franchisor can assign franchise agreement at any time. Franchisee can assign franchise agreement only with franchisors consent. On what basis can franchisor withhold consent? Does franchisor have right of first refusal to purchase franchised business? At what price? Sale or assignment deemed to include transfer of control of corporate franchisee or change in partnership. Franchisee not permitted to mortgage or pledge assets or the franchise agreement without franchisors consent.

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Franchise Agreement Checklist

Termination Events of default. Can franchise agreement be terminated immediately or is franchisor obliged to give notice of default and provide the franchisee with a reasonable period of time to remedy? Effect of termination. Franchisors right to purchase franchise business on termination.

Miscellaneous Interest on overdue accounts. Non-withholding of payments and non-setoff. Notice. To whom? And how much? Applicable law? Are disputes to be arbitrated or mediated first? Four corners clause entire agreement. Force majeure (include terrorism?) Are there state laws governing franchisor/franchisee relationships, including contract provisions, financing arrangements and terminations? If so, does the contract meet all requirements?

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