Once you’ve decided on a Franchise, you may need to pay a deposit to secure a territory and this usually involves signing a deposit agreement.
This is not to be confused with the actual Franchise agreement, which is completed later on, but is another more serious step towards the final commitment of becoming a Franchisee. At this point in the process there is often additional information disclosed that wouldn’t be available at the earlier stages like at a Discovery Day or personal meeting.
Securing a territory or Franchise area with a deposit payment is common practice but there are certain things you need to be aware of to prevent any unexpected surprises down the line.
A deposit should only be paid when a clear agreement has been discussed and documented so both parties are very clear on the terms agreed.
Commonly, the terms will include the deposit amount as well the process and timeframe of return should you decide not to proceed to the final stage of becoming a Franchisee. If, in the case, you decide not to fully proceed it’s important you understand if you’ll receive a full or partial refund.
Not every Franchise is the same so you must be informed for your specific situation. Full refunds are rare because there are often direct expenses the Franchisor may have incurred during this period. These also should be clearly defined in the agreement and should not include Franchisor overheads or time. Direct expenses are often associated with administration or legal services incurred by the Franchisor. A deposit agreement will also be time bound meaning they’ll be a time limit the territory will be secured for and by when the Franchise agreement must be signed.
As you can imagine these finer details require strict adherence and the best way to avoid any problems is to keep well within the agreed timeframe. If, for example, the date was 01st Oct then make sure everything is received and confirmed with the Franchisor at least one week before. Of course if there is a legal or financial reason for a potential delay then contact the Franchisor immediately and also submit a written explanation in case its required for future referencing. Most of the time the Franchisor is able to offer a limited extension but it’s always best to submit all communication in writing.
On signing the deposit agreement you are now considered a potential Franchisee with the responsibility of reviewing the Franchise agreement, obtaining any legal representation and raising the remaining finance where applicable.
It’s also recommended you fully assess the business opportunity as final verification before proceeding on.
When you’re satisfied and ready to become a Franchisee, the deposit you initially paid may be refunded but generally it is off set against the Franchise fee, but again check the agreement before signing so you are well informed.
At any stage of considering a Franchise all documents you sign are of great importance and you must fully understand the contents and both parties’ obligations. If you’re unsure of anything it’s always best to gain further explanation from the Franchisor and seek legal/ professional advice before proceeding.