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Red flags to watch for when creating a franchise agreement

On Behalf of | Jun 24, 2024 | Franchise Law

Creating a franchise agreement is a big step for any business owner. In Indiana, it’s important to be aware of potential red flags that could cause issues down the line. Here are some key things to watch for which may be helpful.

Unclear terms and conditions

One major red flag is unclear terms and conditions in the agreement. The agreement should spell out everything clearly, including fees, royalties, and responsibilities. Ambiguity can lead to misunderstandings and disputes, so make sure the language is straightforward.

Unbalanced obligations

Look out for unbalanced obligations as another potential franchise law issue. The agreement should fairly distribute responsibilities between the franchisor and franchisee. If one party is bearing significantly more burden, it may lead to conflicts and operational challenges.

Hidden fees

Watch out for hidden fees in the franchise agreement. All costs should be transparent, including initial fees, ongoing royalties, and advertising contributions. Hidden costs can quickly add up, affecting the profitability of the franchise.

Restrictive clauses

Restrictive clauses can also be problematic. Pay attention to non-compete clauses and territory restrictions. While some limitations are standard, overly restrictive terms can hinder your ability to operate and grow your business.

Lack of support

A good franchise agreement should outline the support provided by the franchisor. If the agreement lacks details on training, marketing, and operational support, it could be a red flag. Adequate support is crucial for the success of any franchise.

Ensuring a balanced agreement

By being aware of these red flags, you can protect your interests and set your franchise up for success. This careful approach can help prevent future issues and ensure a smoother business operation.