If you are considering on buying a franchised outlet as a business of your own then perhaps one of the questions you might have is regarding the franchise territory that comes with your franchise. Often, franchisors will make a "bullet point" in their brochures about "Exclusive Franchise Territory" as if this is some kind of a bonus that you get for giving them the $20,000 franchise fee.

In the Franchise Disclosure Documents or FDDs it will often say "in your protected franchise territory," or something to that effect, along with a stipulation or in consideration of the granted franchise for "X" amount of dollars. Now then, you are probably wondering what this means. In fact, as a retired franchisor, I often give speeches and seminars in the breakaway sessions on Franchising. And it is amazing how often these questions about territory come up.

The reality is that some exclusive territories end at the door of your franchised outlets. You may think that is pretty harsh, but there is a good reason for it. Let's say that you sell a certain brand name within your location. But eventually the franchisor starts selling products with the same brand name in the grocery stores. If they gave you a 10 mile radius as an exclusive territory, they would be violating their franchise agreement with you for selling those products in all the grocery stores.

Worse, you might be in a shopping center with a grocery store that sells the same products, or rather the same brand name next door. Sometimes this can hurt your sales, and cannibalizing, is all too common in modern day franchising, and there is a lot of litigation there. Nevertheless, the reality of how protected your franchise territory really as depends on what you consider protected.

After all, any independent business can set up a business that competes with you across the street. No franchisor can protect you from that, and if they tried they would be in violation of antitrust laws and predatory competition. And it wouldn't be the first. The reality is that your protected franchise territory may look like a nice bullet point on the franchisor's brochure, but you really need to stop and consider that it may not be as protected as you'd be led to believe. Please consider all this.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes in franchising.

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