If you’re looking into purchasing a franchise or converting your existing restoration business to a franchise, it’s important to gain a thorough understanding of the process. One of the most crucial documents in the partnership between you and a parent company is the franchise agreement. Here’s a look at what this document is, its significance, and what you, as a prospective franchisee, should be prepared for as you move forward.
Legally Binding Agreement
A franchise agreement is a legal document that defines the relationship between the franchisor and franchisee. It details the obligations of both parties, laying the groundwork for how the franchise should operate. When thinking of converting your restoration business to a franchise, understanding the finer points of this agreement is imperative.
Who Stands to Gain in a Franchise Agreement?
Both parties benefit from a franchise agreement. The franchisor gets to expand its brand's reach and reputation with minimal risk, and in return, you, as the franchisee, receive a proven business model, ongoing support, training, and potentially a swifter path to profitability. The synergy of both entities working collaboratively ensures the brand's consistency and your business's long-term success.
The Binding Nature of a Franchise Agreement
The franchise agreement document is a legally binding contract. This means that once you sign, both you and the franchisor are obligated to fulfill your respective roles. It's not just a formality; it's a commitment.
Seven Key Insights Before You Sign
There are a few essential points in a franchise agreement that you must be cognizant of before you put pen to paper:
- Understand the Terms. Ensure you grasp every clause. If there's jargon or franchise terms that seem alien, seek clarification. Most people will hire an attorney to counsel them through this process. A legal advisor will answer your questions and make sure you fully understand your commitment.
- Duration and Renewal. Know the length of your franchise agreement and the conditions for renewal. The length of your commitment can vary by brand from 5 to 20 years.
- Fees Involved. Be sure the document is clear about both initial fees and ongoing payments, like royalties or advertising expenses.
- Territory Rights. Confirm whether your territory is exclusive or protected. This will help you assess any competition you may face in the marketplace.
- Training and Support. A major perk of franchising is receiving support and training. Ensure this is clearly stipulated in your agreement and that you’re comfortable with how the franchise prepares you for business. Ongoing support can vary by franchise so take the time to speak with other franchise owners to glean how satisfied they are with the assistance provided.
- Termination Clauses. Understand if there are any circumstances that allow the agreement to be terminated, by whom, and the implications thereof.
- Dispute Resolution. In the event of disagreements, have a thorough understanding of the procedures in place for resolution.
Beware of the Red Flags
There are several signs to look out for that might indicate that a franchise opportunity isn’t right for you. The brand’s franchise disclosure document (FDD) is a legal document that provides a clear definition of the roles of the franchisee and franchisor and contains valuable insights about required fees and the costs associated with entering into a franchisee agreement, as well as any operational restrictions. This document must be given to you as part of your due diligence process prior to signing your agreement. It will be your guide, revealing any potential problems. Be on the lookout for:
- High Franchisee Turnover. If many franchisees are exiting the system, it could signify dissatisfaction or operational issues. Be sure to look for information in the FDD about locations opening and closing.
- Bankruptcy. If it appears that a high number of franchisees have filed for bankruptcy, start asking questions. You can find this information in Item 4 of the FDD.
- Vague Financial Representations. Franchisors should provide a clear picture of potential earnings. Ambiguity can be a cause for concern. Look for information in the FDD to see where the franchise revenue is coming from. If it’s all from franchise fees, that may be concerning for overall growth. In addition, study the information provided about financial performance in Item 19 of the FDD.
- Inadequate Training or Support. The promise of training and support is a franchise's cornerstone as these are the pillars that help establish brand consistency. Explore the training and support details in Item 11 of the FDD, and if they’re lacking, reconsider.
- Too Much Franchisor Control. While maintaining brand standards is essential, excessive control can stifle your operational flexibility. Look for details in the FDD about the business experience of the franchisor’s leadership team, which can be very telling regarding how effectively the business is operating.
- History of Litigation. Frequent legal disputes between franchisors and franchisees can signal that the franchise is not functioning properly. Take the time to understand any disputes that have led to litigation in Item 3 of the FDD.
- Pressure to Sign. Be wary of any franchisor that seems to be rushing you into signing without adequate time for due diligence.
- Unexplained Fees. Any fees should be transparently listed and explained in Items 5 and 6 of the FDD. Hidden or unexplained fees can lead to unexpected costs, so be sure you understand each and every one.
Converting Your Business with ServiceMaster Restore
ServiceMaster Restore offers damage restoration and remediation services for water, fire, mold and more. For those in the restoration business considering a conversion, our franchise offers not just a renowned brand name but also extensive support in your business transition.
Our franchise process, including our conversion program, is broken down into simple steps, designed to create a straightforward experience. If you’re converting your existing restoration business, we’ll provide you with an experienced consultant from ServiceMaster Restore. This means you’ll have a go-to person who’s dedicated to making your conversion a seamless transition into our franchise model, allowing you to reap the benefits of a larger network while still retaining the essence of your original business.
Your conversion to ServiceMaster Restore means you'll become part of a trusted brand that’s been a leader in the restoration industry for more than 65 years. You’ll have the opportunity to take the business you built to a higher level, competing on a larger scale. Thanks to our numerous connections in the insurance sector, you'll have access to new revenue streams. Our advanced training initiative and committed business development team continuously strive to bolster our franchisees' success. Furthermore, you'll gain entry to our expansive national franchise owner network, where everyone is eager to offer assistance, resources, and guidance as you continue your restoration business journey.
If you’re ready to make the next move to grow your business, let’s get started on your path to becoming a ServiceMaster Restore franchise owner.