Thinking of becoming a franchisee? Here is your checklist

You have your heart set on a specific franchise and are all excited about the idea. Franchising sounds like a relatively straightforward way of getting into business. As a franchisee, you benefit from a company’s reputation and advertising communications budget, as well as the favourable buying terms associated with a successful, proven concept. But there are some drawbacks as well: you have a non-compete clause and limited freedom. And you are required to hand over a portion of your turnover or sales revenues. Discover what starting a franchise involves. 

As a franchisee, you are essentially jumping on a riding train. But is running a franchise as easy as it seems? Find out what to watch out for when choosing a franchise. How much will it cost you, what are the risks, and what are the benefits and disadvantages of starting a franchise. 

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 most well-known examples of a franchise company is McDonald’s, while others include 123wonen, ’t Zusje, Mango, Hunkemöller, New York Pizza, and Shoeby. 

The majority of franchise businesses used to be restaurants and supermarkets. But the system has now branched out into other areas, including healthcare, temporary employment agencies, gyms, childcare centres, and furniture shops. Franchisers seek to make their formats as appealing as possible, especially now that there are multiple formats operating in each sector.  This means you, as a franchisee, really have something to choose from. 

New Franchise Act 

A new franchise act entered into effect on 1 January 2021. Before that, we had the franchise code, which worked on the basis of commitments. The new law is designed to improve clarity and legal certainty. “The rules of the game are clearer now. As a franchisee, you have a better understanding of your rights and obligations  (in Dutch). It is easier to assess where you stand legally,” says Jorg van de Peppel, franchise lawyer at Pep FranchiseLawyer in Rotterdam. He cites 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. New contracts must comply with these requirements.” 

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. “However, I should add that franchising is not a magic wand. You need to come up with a solid plan, so you know what you are doing,” says Bart van der Schoot of the Belangenvereniging voor Franchisenemers Nederland (Interest Group for Franchisees in the Netherlands/ BVFN, in Dutch). 

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

For more information about franchising, you should check the website of the general advocacy association for franchising, NFV (Nederlandse Franchise Vereniging, in Dutch). 

Benefits and disadvantages of franchising 

When choosing an appropriate format, you should always consider the benefits and disadvantages. Do you care about the company’s market position or good name/reputation? Or are you particularly interested in receiving support? 

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 guidelines and procedures 

• Required to buy products and services 

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. For example, Kaldi koffie en thee requires an entry fee of €12,500 and private equity of €30,000. Runnersworld requests an entry fee of €7,500. They also require personal funds of €60,000, while the total average investment works out at three times this amount. 
The website of De Nationale Franchisegids contains a list of all franchise formats in the Netherlands (in Dutch). 
If you are looking for funding for your franchise and are unable to get a bank loan, check out the opportunities provided by alternative funding. 

Home franchise 

More than 60% of new businesses in the Netherlands start out in the services industry. The Nationale franchisegids (National Franchise Guide, in Dutch) 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, where a large amount of money is invested in the building, stock, and inventory. Franchisees in the service industry focus on both the consumer and the business market. Examples: freelance networks such as aid providers, lifestyle coaches, homework tutors, business consultants, and administrative services providers. 

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 four weeks to consider the contract. 

Try to get a feel for the results achieved within the franchise format 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 format over the past three years, how many have ceased to operate, in what geographical areas, and why. 

Risks 

A business plan also 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. For one, the format will be passed to a trustee, who will then decide if the retail format will be continued, sold, or terminated. 

“The greatest pitfall is having too much trust in the franchiser’s system. It is a partnership between two independent businesses, so you cannot put all the onus on the franchiser when it comes to your success,” van der Schoot says. 

Engage the services of a consultant in your research and explorative talks. Contract terms may be negotiable. You are hoping to build a good relationship with your franchiser. It will be good for a consultant to support you in these talks and ask critical questions. 

Registering with the Chamber of Commerce KVK 

As a franchisee, you are required to register with the Chamber of Commerce. You need a copy of the franchise contract and a copy of the sales contract or lease for the building where your business will be based. If not all the paperwork is ready yet, but you still need the KVK number, pre-registration may be helpful. 

If you are looking to take over a franchise, you will be faced with specific issues. Be sure to check out these recommendations. 

For further information about launching your own business, download the Starting a business checklist here.