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How can a territory define your rights as a franchisee?

Becoming a franchisee can give you an advantage as it allows you to form a small business that is part of an existing brand that the public knows and trusts. Still, a franchise agreement includes various provisions that you may not be familiar with, including a territory definition.

Entrepreneur explains that territory in a franchise agreement grants the franchisee the right to operate within a certain area. Depending on the contract language, your operating rights could be exclusive.

Protecting you from competition

The upside of a territory definition is that your franchisor can keep other franchisees from competing in your territory. This means customers in your area seeking the goods or services of your franchise are much more likely to patronize your establishment.

This is especially important if you buy into a popular franchise with multiple locations throughout a metro area. Too many franchisees can risk cannibalization and cause one or more franchise locations to fail.

Allowances for competition

However, not all franchisors will grant exclusive territory rights to a franchisee. Sometimes franchisors are in a growth period and are willing to allow another location to open in your territory, or at least in an area close by.

Also, consider that your franchisor may decide to directly operate in your territory. The competition from your franchisor may not be exact, however. The franchisor may limit its sales selection in your territory but allow you to offer the full range of products and services.

A careful examination of your franchise agreement should inform you of your rights as a franchisee. You should know if you stand a good chance of turning a profit with your franchise location.