Franchise Territory: What is Too Close for Comfort?
Walk into any franchise development office and they will tell you that the true magic begins to take shape “back in mapping.” It is the territory of a franchise that outlines an actual picture in a prospect’s mind that makes them look down at a map and say, “Wow, that could all be mine!”
The mapping department is where franchise territories are drawn, redrawn and created, sometimes based on geographical radius, by population density, and typically with regard to saturation in their specific market. It is best to have a territory that allows a franchisee the opportunity to fully develop his or her business while still allowing the franchisor opportunities to develop the brand and capitalize on the full potential of an area. Territory mapping is not easy, and there is a lot at stake.
The right or wrong territory can make or break a franchise business, which is why there is an entire section in the FDD (Franchise Disclosure Document – Item 12) dedicated to this topic. Item 12 explains how the territory is drawn and why it is drawn that way, whether it is exclusive, and if there are any service parameters (delivery, for example, for a restaurant). The FDD is then reflected in the Franchise Agreement, which is legally binding. Both legal documents are in place to protect the franchisor and franchisee, and for good reason. Disputes over territory infringements are among the most common lawsuits brought by franchisees against the franchisor. A good team will work in tandem to negotiate a franchise territory that works best for all involved parties.
Careful consideration of each aspect of a franchise is critical to the success or failure of a business. It’s exciting to finally have a picture in your head of where your service area will be located! Take the time, utilize the expertise “back in mapping,” and together the franchisor and franchisee will chart a course that brings your picture to life.
Compliance System for Franchisors
If you are a franchisor looking for ongoing legal guidance, Spadea Lignana offers a CORE program for franchisors. This is a cost-effective and practical solution for the ongoing legal needs of franchisors, including but not limited to, FDD updates, state registrations and franchise agreement executions. Through a proprietary cloud-based system we can effectively and efficiently manage FDD Disclosures and Franchise Agreement executions for fair flat fees billed monthly.
