Franchising Advices

5 Main Elements Of The Franchising Agreement


The most important thing one should know about the franchising agreement is that the parties under it may agree on everything they deem appropriate!

The principle, on which the franchise models are based, is that the franchisees act on their own behalf and at their expense but under the brand they have been provided. This means that the person who has bought the franchise may open, let’s say, a KFC restaurant but to issue the invoices from its own company and the cover the operational costs – rent, salaries, social insurance, etc.


Here are the main arrangements settled in the Franchising Agreement:

Franchise Package

The Agreement should describe in detail its subject – what the franchisor’s obligations are and what the franchisee will receive: what training and technical assistance will be provided to the franchisee. What advertising, organisational, logistic, technological or other support the franchisee can rely on. And also how exactly the brand can be used: whether by product distribution or by manufacturing goods and offering services.


Financial Relations

Usually, when buying a franchise business, one pays an initial franchise fee. Additionally, the franchisee may be obliged to pay also a monthly fee, which in most cases is calculated as a percentage of the turnover. As the control cannot always be strict enough, some franchisors determine also a minimum threshold of the monthly fee.

Very often, targets for reaching a specific turnover or profit are placed in front of the franchisees that they are supposed to achieve in the course of time.

It is especially important to clarify what additional investments the franchisor should make and within what terms. And finally, many franchisors collect a monthly advertising fee that may be invested, for example, in TV advertising campaigns.



In most cases, the franchisee is guaranteed exclusive rights for the territory of a certain area, town or region. But this may not always be the case. Some franchisors provide incentives to their most efficient franchisees in the form of acquiring rights for a second or third area at preferential conditions.



The term, for which the Agreement is concluded and what happens after its expiry. Under what conditions the Agreement may be renewed or terminated ahead of term by the parties.

Of course, the penalties are an important part of the Agreement but not less important is that the text stipulates how exactly the failure of either party to perform its obligations will be ascertained.



For the business model to be multiplied successfully it is important that the technological discipline be observed. That is why in most cases the franchising agreement refers to the Operations Manual, which gives a detailed account of all job descriptions, procedures, requirements for the design and furnishing of the points of sale, etc.

The franchisor could control the observance of these standards by mystery shoppers, video surveillance or by using other means agreed by the parties.

Although it is not necessary, the signature of the franchise agreement in front of a notary can facilitate considerably the satisfaction of the financial claims of the performing party in case of early termination of the agreement.


FRANCHISING.BG offers consultation and drafting of franchise agreements.