Looking to start your own franchise formula? Here is what you need to know

You have come up with a successful concept and want to grow your business. One option is to open a branch office, but you could also consider starting a franchise formula. Discover whether franchising is the right choice for you and your business and find out what goes into setting up your own franchise formula.

In this article, Cathy Kroone of Bagels & Beans will help you determine if franchising is right for you and discuss whether this approach to scaling up can help you achieve your growth ambitions.

1. Is franchising the right growth model for me?

When you think of franchising, retail and hospitality are probably the first industries that spring to mind. In reality, franchises can be found in many more industries nowadays, ranging from funeral homes and daycare centres to financial advisors, gyms, and healthcare providers. There is hardly an industry out there in which you cannot find a franchise formula. Not only do they come in all shapes, but in all sizes too. There are large nationwide franchise formulas, of course, but you do not always have to think big right away.

Research (in Dutch) by the Dutch Franchise Association (NFV) shows that there were 903 franchise formulas in the Netherlands in 2020, with 33,566 branches and a total turnover of €37.8 billion. So the figures look promising, but how can you tell whether a franchise is right for you?

Cathy Kroone is responsible for recruiting and selecting franchisees at Bagels & Beans, a franchise formula that has grown to 86 locations over the course of 26 years. For Kroone, franchising is a strategic choice. “You can also realise growth by opening branches and recruiting staff for each one, but you need a lot of capital for that approach. With franchising, franchisees are responsible for making investments and run the business at their own expense and risk. This makes collaborations less fleeting and guarantees that franchisers are as passionate about the business as you are.”

Guests who have had a bad experience in one branch are unlikely to visit a different one.

Kroone recommends that entrepreneurs thinking about a franchise formula answer the following questions first:

• Is my concept replicable: will it work if I copy the exact same concept in a different location?
• What added value can I offer to franchisees: why should someone choose my formula?

Once you answer these questions, you can start building a franchise formula.

2. How do I establish a successful franchise formula?

Finding the right franchisees is crucial to the success of your formula. Recruit candidates through your website and social media channels or through online marketplaces such as FranchisPlus and the National franchise guide (in Dutch). Kroone: “Determine whether you and the franchisee are a good match. They should believe in your concept and philosophy and be willing to work together. Be open and realistic when you meet potential franchisees and get to know each other. If both parties are convinced, you can take the next step together.”

For your formula to succeed, you have to invest in your relationship with franchisees

Finding the right locations for branches is just as important as finding the right franchisees. Investigate your options or have a specialised agency do a site survey. These surveys will reveal the size of your catchment area - where your customers can be found - and which competitors you will have to deal with, as well as providing information about the quality of the location in question and what turnover you can expect. Take a close look at local rules and regulations and talk to other business owners in the area to get yourself up to speed with the latest developments.

Kroone believes in the power of open communication and equality. “For your formula to succeed, you have to invest in your relationship with franchisees. You both have skin in the game and will really need each other. For the franchise model to really shine, you have to work well together.”

Bagels & Beans is a hard-franchise formula, which means that the franchisor has a lot of control. Bagel & Beans decides on the corporate identity, purchasing, nationwide marketing, and menu of all formulas. “We need uniformity for our concept to succeed. But I always say: we are hard on the rules and soft on the relationship.” The cooperation between Kroone and her franchisees relies on 3 key factors:

1. Commercial success
   Can the franchisee make a good living?
2. Satisfaction
   A satisfied franchisee will produce satisfied customers and staff.
3. Uniformity
   Does the franchisee follow the formula’s rules? “It matters to us, of course, but it is important to other franchisees, too. Guests who have had a bad experience in one branch are unlikely to visit a different one with the same name.”

Revenue model

Every franchisor has its own revenue model, but there are some common fees and charges that are shared by all:

• Startup fee
  A one-time fee to join the formula.
• Franchise Fee
  A percentage of revenue that you remit periodically (usually monthly) to be part of the formula.
• Advertising contribution
  A contribution to the costs incurred by the franchisor for advertising and promotional activities.

These fees and percentages vary from one formula to the next.

New Franchise Act

The Franchise Act aims to strike a balance between franchisor and franchisee interests. One of the main goals of the act is to strengthen the information position of franchisees even before the contract is signed. Kroone agrees that it is beneficial for potential franchisees to think carefully about what they are about to commit to. But franchisors should also remember that the legal cooling-off period can delay the process. “When recruiting franchisees, keep in mind that the process will be frozen for 4 weeks before you actually sign the contract and get started.”

Franchise contract

Franchisees and franchisors operate on the basis of mutual trust and clear agreements on issues like the use of the name and brand. These agreements should be put into writing in a so-called franchise agreement. Keep the franchise agreement simple and easy to read to avoid misunderstandings. A franchise agreement usually has a term of 5 years. Have an expert assist you in drafting the contract, like a lawyer specialising in franchise law.

Franchisees should believe in your concept and philosophy and be willing to work together

Franchise manual

The franchise manual is a practical guide for franchisees in which you lay down operational and legal agreements such as rules on marketing, corporate identity, and purchasing. When writing the manual, put yourself in your franchisee’s shoes and make it easy to read. The manual should answer practical questions like: who can I place orders with and how? Franchise manuals are a living document and can be updated constantly.

Franchise council

You may choose to set up a franchise council to professionalise communication within the formula and decide on fixed times to consult and engage with franchisees. Kroone: “By regularly sharing experiences, ideas, and considerations, you get to keep your finger to the pulse, learn to understand other's interests, and make decisions together. The franchisees are often represented on the council by a limited number of members in order to ensure that meetings stay effective.”

Regulations

The franchisees choose their own delegation. You lay down the functioning of the council in regulations. You draw up these regulations together with the franchisees.

3. Checklist for starting a franchise formula

Are you all fired up about starting your own formula? This checklist will get you started right away:

• Put pen to paper and work out every last detail of your concept.
• Describe exactly what a branch should look like.
• Draw up a potential site plan. Decide where to set up branches and perform site surveys.
• Get in touch with other formula owners and ask them every question you can think of.
• Register (in Dutch) your trade name and brand name.
• Decide on a division of labour. What will you do and what do you expect the franchisee to do?
• Draw up a revenue model and make sure it works for you and the franchisee.
• Determine a franchisee profile and create a recruitment plan.
• Create a franchise contract. Hire a lawyer specialising in franchise law.
• Create a formula manual.
• Develop instructions and training for the franchisee and their staff.
• Use the information provided by NFV (in Dutch) and decide whether to become a member.
• Update your website or develop a new one.
• Update the company description of your Chamber of Commerce listing.