What to look for in a franchise agreement
Insights from Dan Archer, Founder and UK Chief Executive, Visiting Angels
In an interview with Dan Archer at The British & International Franchise Exhibition, we explored what prospective franchisees should look for in a franchise agreement. While often viewed simply as a necessary legal step, the agreement is much more than that – it’s the foundation of your relationship with the franchisor and a vital safeguard for your investment.
1. The franchise term: How long are you committed?
Franchise agreements typically run for five years, often with a five-year renewal option. This structure, common in the UK, exists in part due to European competition law, specifically the Block Exemption Clause for Vertical Agreements. Longer terms, like 10 or even 20 years, may be found in high-investment franchises, where a longer runway is needed to recoup initial costs.
2. Understanding obligations – yours and theirs
Every franchise agreement should outline clear obligations and limitations for both parties. Franchisees must understand what’s expected of them, but also what they can expect in return. It’s a two-way street. While franchise agreements may seem to favour the franchisor, they’re primarily designed to protect the brand and, by extension, your investment, from the actions of other franchisees.
3. Renewals: What should you pay?
Renewal shouldn’t come with a franchise fee. By the time you’re five or ten years into your journey, you’ve already received your training and contributed significantly to the brand. Any fees at renewal should be administrative only, such as legal redrafting or premises updates, not a repeat of the initial franchise fee.
4. Territory: Define it clearly
Exclusive territory is a common (and valuable) feature in most franchise models. But it only works if boundaries are well defined. A clear agreement prevents conflicts between neighbouring franchisees and ensures everyone works collaboratively to build the brand, rather than encroaching on each other’s markets.
5. Fee structures: What are you paying for?
There are generally three types of fees:
- Upfront franchise fee: Covers training, onboarding, and brand access. It should reflect cost recovery, not profit-making. A disproportionately high entry fee paired with low ongoing fees may suggest the franchisor isn’t invested in your long-term success.
- Management service fee (MSF): This ongoing fee supports the services you receive – whether it’s admin support, marketing collateral, or operational guidance. The key is value. A higher percentage might be worthwhile if it includes robust support. A lower one may not be a bargain if you’re left to fend for yourself.
- Marketing levy: Collected into a central fund and used strictly to promote the brand. Transparency here is key. At Visiting Angels, for instance, franchisees are directly involved in deciding how these funds are spent – a model that promotes trust and accountability.
Final thoughts
A franchise agreement isn’t just a legal requirement – it’s a strategic document that sets the tone for your journey ahead. Take the time to understand its contents, seek expert advice and compare systems. The right agreement should offer protection, support, and clarity – giving you the confidence to grow your business within a trusted brand.
