Thinking of becoming a franchisee? Here is your checklist

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 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. 

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. 

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. You can also look at it differently, 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 format. Ask them about their experiences. 

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.mThe website of De Nationale Franchisegids contains a list of all franchise formats in the Netherlands (in Dutch). 

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 4 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 3 years, how many have ceased to operate, in what geographical areas, and why. 

Franchise Act

"Franchise contracts must comply with the Franchise Act. This law gives you insight into your rights and obligations," says Van de Peppel. He 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 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. 

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 Netherlands Chamber of Commerce KVK 

As a franchisee, you are required to register with KVK. 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.