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Who decides the length of a franchise agreement?
Louise Harris writes:
Franchise agreements should have a fixed term. That term is determined by the franchisor and will consider a number of factors, including:
• Does the franchisee have enough time to fully recoup the investment made and return a profit?
• Is there sufficient time for the franchisee to learn the business, grow it in the time frame and achieve the specific goals of the business, other than profit?
• If there is significant capital investment, it is important there is time to recoup that, unless it remains a saleable asset.
Ranging from an average of five to 20 years, the term is usually renewable with some caveats - mostly that a franchisee is in compliance with the franchise agreement.
It’s important to understand that, while the franchise term is usually non-negotiable, franchisees can exit before its end, subject to some penalties in most cases. This can be through selling, buy back or just closing in the event of distress.
Franchisees buying an existing business should seek to buy a whole new term - not what’s remaining for the outgoing franchisee.
Louise Harris is an experienced franchisor, having built and sold an award winning franchise. She is now head of strategic partnerships at easyStorage.
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