Buying a franchise in Illinois requires careful decision-making. This applies across the board—from choosing the specific franchise opportunity that you want to pursue to choosing your territory. When it comes to choosing your territory, there are lots of factors to consider, and this makes it critical to work with an experienced Illinois franchise attorney who can help you make informed decisions throughout the buying process.
Many new franchisees assume that their franchisor will simply assign them a territory on a take-it-or-leave-it basis. While this may be true in some large franchise systems, franchisees generally can—and should—play an active role in determining both the location and scope of their territories. Since these factors can truly make or break your franchise, you need to be confident that your territory provides a reasonable opportunity for success.
Understanding the Type of Territory Your Franchisor Offers
When it comes to making a smart choice about your territory, the first step is to understand what type of territory your franchisor offers. Typically, franchise territories fall into one of three categories:
- Exclusive – If your franchise territory is truly exclusive, then you should not face any intra-brand competition within your territory. However, while many franchisors claim to offer exclusive territories for marketing purposes, their franchise agreements include carveouts for things like internet sales and “company-owned” locations. As a result, if you have been told that you will receive an exclusive territory, you should not take this at face value, but instead work with your Illinois franchise attorney to ensure that you have an accurate understanding of the terms of your franchise agreement.
- Protected – If your territory is not exclusive, it may be protected. Protections can include restrictions on the placement of other franchises or company-owned locations in your territory, restrictions on other franchisees marketing within your territory, and anything else that gives you some sort of enforceable right. Here, too, it is important to understand exactly what you are getting, and your Illinois franchise attorney can help you here as well.
- Defined – The third common type of franchise territory is a defined territory. Rather than providing you with rights, a defined territory restricts where you can market your franchise. A defined territory isn’t really much of a territory at all, and rather only serves to restrict your ability to succeed as a franchisee.
As you can see from these descriptions, exclusive, protected and defined territories are very different—and they can have very different implications for franchisees’ chances of success. While you might not necessarily need an exclusive or protected territory in order to succeed as a franchisee, it is critical to know what you are getting when you sign your franchise agreement. Understanding the nature of your territorial protections (or lack thereof) will be important when it comes to choosing your territory in Illinois as well.
Choosing Your Territory
Choosing your territory is a critical step in the process of buying a franchise. Once you have determined whether your territory will be exclusive, protected or simply defined, then you can begin the process of working with your franchisor (and your Illinois franchise attorney) to select a territory that makes sense for your particular circumstances.
Along with the nature of your territory, one of the other key factors for choosing a territory is your geographic location. Typically, franchise territories are based on some type of geographic boundary, such as ZIP codes, county lines, or streets. Within franchise systems, franchisors will often try to ensure that franchisees have roughly the same population numbers within their territories—as this roughly provides them with equal chances of success.
Thus, a franchisee in Chicago may have a much smaller territory, geographically speaking, than a franchisee in Peoria or Springfield, who may in turn have a much smaller territory than a franchisee whose outlet is located in rural Illinois. In Chicago, a franchisee’s territory may consist of a few city blocks, whereas a franchisee in a suburban or rural area may have a territory that consists of several zip codes or an entire county. As a prospective franchisee, the key is to focus on what you think you need in order to build a successful business based on where you plan to operate.
These days, many franchisors rely on sophisticated software to help them select and manage their franchisees’ territories. Again, however, even if your franchisor takes the lead in defining your territory, you should still play a very active role in the process.
Making Sure Your Territory is Clearly Defined
Once you have chosen your franchise territory in Illinois, the final step is to ensure that your territory is clearly defined. This applies to both your exclusive or protected rights and the geographic description of your territory.
All franchisors have standard language that they use in their franchise agreements to define their franchisees’ territories. However, this language is deficient in a surprising percentage of cases. As a prospective franchisee, you should not assume that the language in your franchisor’s franchise agreement is sufficient. Instead, you should rely on your Illinois franchise attorney to carefully examine the language in the agreement—and assist you with negotiating this language if necessary.
While choosing and clearly defining your territory can take time, it is imperative that you not rush this part of the franchise buying process. If you don’t have clearly defined territorial rights as a franchisee, this can sew confusion and discord, and this can lead to costly disputes that impair your ability to operate your franchise successfully.
Discuss Your Franchise Opportunity with Illinois Franchise Attorney Jeffrey M. Goldstein
Are you thinking about buying a franchise in Illinois? If so, we invite you to contact us for more information. Illinois franchise attorney Jeffrey M. Goldstein has well over 30 years of experience advising both prospective and active franchisees. To discuss your franchise opportunity with Mr. Goldstein in confidence, please call 202-293-3947 or request a free initial consultation online today.