Thinking of becoming a franchisee? Here is your checklist

As a franchisee, you join an existing concept. You take advantage of the franchise's name recognition, advertising and purchasing benefits. Other things you have to take care of yourself. Read here what to look for when choosing a franchise formula.

What is a franchisee? 

As a franchisee, you enter into a contract with the owner – known as the franchiser – of an existing concept. The contract generally runs for 5 years. You will be given room to create your own business under the franchiser’s name and will be required to pay the franchiser a fee (known as an entry fee). 

One of the best-known examples of franchise businesses is McDonald's. While franchising used to be mostly common in the hospitality and retail sectors, you now see it in other sectors as well. Healthcare, for example, and employment agencies, gyms, and childcare. Franchisors want to make their formula as attractive as possible. Especially now that there are multiple formulas operating in almost every industry. This means you, as a franchisee, have real options to choose from. 

Benefits and disadvantages of franchising 

When choosing an appropriate formula, you should always consider the benefits and disadvantages. Do you care about the company’s market position or good name/reputation? Or is receiving support more important to you? 

Benefits 

• Name recognition/brand awareness 
• Favourable buying terms 
• Marketing support 
• Support in applying for funding and negotiations for the building 
• Opportunities for training and education 
• Central accounting system 

Disadvantages

• Entry fee 
• Handing over a portion of the sales revenue (franchise fee) 
• Non-compete clause 
• Business transfer can be tricky 
• Complying with the franchiser’s rules
• Required to buy products and services 

Choosing a franchise 

There are significant differences between the various franchises out there. Will you choose hard franchising or soft franchising? Hard franchising means everything is already in place: This includes items such as product range, stock, store design, buying, branding and corporate identity, and marketing and promotional materials. Soft franchise, by contrast, gives you greater freedom to make your own choices. But the difference is not always so clear-cut, says Pieter Koelewijn of Franchise Plus. "You can't actually compare hard franchising and soft franchising. Your solution can be 'hard' on purchasing and automation, but 'soft' on marketing and promotion."

If you are considering starting a franchise, you should start by reaching out to other franchisees within the formula. Ask them about their experiences. 

Home franchise 

More than 60% of new businesses in the Netherlands start out in the services industry. The Nationale franchisegids reports that this has been the sector with the largest number of franchises for several years now. The threshold is usually fairly low, as you can generally start your business from your own home. You will need less capital than when opening a shop or restaurant, because you won't need a building, stock, or inventory.

Costs 

The rates you pay for a franchise may vary significantly. The amount needed to start, depends in part on the floor space and the location, and on your choice for soft or hard franchising.mThe website of De Nationale Franchisegids contains a list of all franchise formulas in the Netherlands (in Dutch). 

Signing your franchise contract 

Have you found a franchise organisation that is right for you and meets your requirements? When signing a contract, both parties must share with each other all relevant financial information. They then have 4 weeks to consider the contract. 

Try to get a feel in advance for the results achieved within the franchise formula and (if possible) revenue forecasts. Contact the franchiser to request figures. Van de Peppel: “It is useful to obtain relevant data relating to the profits earned, revenue, and costs, including start-up investments. Think about some of the aspects which are important to your future and set some ground rules.” 

You should also ask the franchiser how many new businesses have started within the formula over the past 3 years? How many have ceased to operate, in what geographical areas, and why?

Consult a franchise specialist (accountant or lawyer) for your research and exploratory discussions. Contract terms may be negotiable. You want to build a good relationship with your franchisor. So it may be helpful to have a consultant to guide you through the discussions and ask the critical questions. 

Franchise rules

Franchise contracts must comply with the rules for franchises. Van de Peppel gives an example: "When a contract expires, any non-compete clause cannot be valid for more than one year and can only cover the geographic area in which you operated as a franchisee."

Risks 

A business plan helps you to identify risks. The next step is to figure out how to handle these risks, including risks associated with contracts, terms of supply and payment, and insurance. Something you always need to consider: the franchiser could potentially go bankrupt (in Dutch). This could have a massive impact on your business. The formula will be out in the hands a trustee. This person is appointed by the court and must ensure that the bankruptcy proceeds properly. The trustee decides whether the formula will be continued, sold or terminated.

Register with the Netherlands Chamber of Commerce KVK 

As a franchisee, you are required to register with KVK. You need a signed franchise agreement for this. Are you starting from a shop or business premises? Then bring the signed purchase or rental agreement with you to the appointment at KVK.