Item 12: Territory

Content: By definition, “the minimum area granted to the franchisee. The franchisor may use an area encompassed within a specific radius, a distance sufficient to encompass a specified population or another specific designation.”

Purpose: The franchisee, where appropriate, needs to know what restrictions are in place to give them the best possible chance of success.

Tips & Advice: This topic is especially critical in business categories where population density drives the business model. For example, if you invest in a restaurant franchise, you want reasonable assurance you and a fellow franchisee are not competing for the same client base. It is also important you fully understand this because it is a continual source of disagreement in large, mature systems. “Impact Issues,” or “encroachment,” as they are often called, occur when a franchisee thinks the franchisor opened another location too close in proximity and has been negatively impacted as a result. Make sure you understand what protection you are purchasing. On the other hand, keep in mind some very successful systems have no exclusive territories at all. More about this in Chapter 8.

Often new franchisees want as much territory as possible. Sometimes a franchise company will discount the fees of additional territories if they are purchased at the same time. Also, some franchisors my use the last official census data to determine the population base in a territory. While you always want the most current data, if the franchisor is using older data and your area has grown rapidly since the census was taken, the additional population can be considered a bonus for you!