Drafting FranchiseAgreementa

In a franchise, an entrepreneur enters into a partnership with a franchisor (group) whereby the franchisor makes a business formula available to the enterprise. A franchise agreement is a contract that includes all arrangements regarding the group, the franchise formula, and its implementation. A franchise formula can be very advantageous. The franchisee is an independent entrepreneur who is responsible for the day-to-day operations of their franchise enterprise. The franchisee benefits from the marketing of the franchisor's franchise concept. Because the franchise formula Because it is a scalable concept, you face fewer risks as an entrepreneur. You can focus better on day-to-day operations. The franchisor also faces fewer risks, as the franchisee invests their own capital in the business, allowing the franchisor to focus on the expansion and growth of the group. Because certain tasks are centrally managed by the group—for example, marketing, product supply, and store layout—you, as a franchise entrepreneur, can focus on successfully operating the franchise formula. Personnel costs can be significantly lower, enabling you to achieve a good operating result more quickly. It is important to realize that the franchisor can handle a number of tasks for the franchisee, such as the store's interior design. This ensures the franchise maintains a uniform appearance, but thanks to the franchisor's experience, this is done efficiently, and certain start-up problems can be avoided. The advantage of using an existing concept is that the risk for newcomers is limited to a certain extent. Additionally, you benefit from the image and reputation of the franchise formula. The franchisor will often guide the franchisee and provide staff training. Finally, it is good to know that the franchisor benefits from the local marketing efforts and the involvement of the franchisee. There are also disadvantages to a franchise formula. It is advisable to first gain experience at other franchise businesses. This allows you to gain experience and get to know the formula well. You can then determine for yourself whether you are capable of making a success of it. A successful existing franchise formula with demonstrable success does not automatically mean that the franchise will succeed everywhere. Therefore, carefully check whether that formula will also work for you as a franchisee in the specific location you have in mind. The franchisor is focused on spreading the franchise formula as quickly as possible. As a result, the franchisor is more inclined to cooperate in opening a new location. The goal of the franchisee is to make their business a success. However, keep in mind that the franchise is viable thanks to the efforts of the franchisee. The franchise formula itself is no guarantee of success. Additionally, it is good to check whether the franchisor has sufficient franchisees in addition to the franchisor's own locations. This gives you a clear picture of the strength of the group's franchise formula. The fees of the franchise formula As a franchisee, you pay a certain fee for the use of the franchise business. At the start, the franchisor often receives a participation fee from the franchisee. This is a fee for the franchisor for the development of the franchise concept and, of course, a fee for starting up the new location. The first part of the fee is essentially the goodwill you will pay for the franchise concept. This means that, as a business, you will be using a concept that has already proven itself in practice. The franchisor has had to invest heavily in this. This includes not only marketing to increase brand awareness, but also developing the franchise concept, providing training programs for franchisees and their staff, market research, and the legal costs associated with protecting the brand, concept, and franchise. In addition, the franchisee will often also have to pay a fee for the right to operate the franchise formula. There are various names for this, but royalty fee or franchise fee (franchise contribution) are the most commonly used. Incidentally, this fee is also intended to finance the further development of the franchise formula. These costs are often invoiced as a percentage of the franchise business's turnover. A contribution towards marketing costs (advertising), for example, is also charged. This is done so that the franchisor can organize and execute the marketing activities of the franchise formula. A major advantage of this is that the local business can benefit from the franchisor's regional, national, and/or global advertising activities. The new Franchise Act entered into force on January 1A transitional regime applies to existing franchise agreements, but new franchise agreements must comply with stricter rules. This tightening will have consequences in four areas:

• During the pre-contractual phase, the franchisee must gain insight into all relevant data so that he can make a well-considered decision;
• Additional requirements are imposed regarding goodwill compensation;
• During the term of the agreement, the parties must act as a good franchisor and franchisor. This entails that the franchisor must assist the franchisee when necessary;
• To prevent the franchisor from unilaterally implementing changes, a right of consent applies.

In practice, the franchise agreement between the entrepreneur and the group is a complex document in which the entrepreneur's independence is severely restricted. As a franchisor, you impose certain obligations on the entrepreneur that he must adhere to when operating the franchise formula. Whether you are just starting a franchise formula or already have several franchise participations, it is always important to make and record clear agreements. For instance, specify what support the franchise entrepreneur will receive from the franchisor. You often see references in the franchise agreement to a handbook in which all agreements are meticulously described. This is therefore inextricably linked to the agreement. The handbook and the agreement are drawn up by the franchisor. It is important that you have the handbook and the franchise agreement thoroughly reviewed. There must be a good balance between the obligations of the entrepreneur and ensuring that the support and compensation from the franchisor remain in the right proportion. This is logical, as the franchise business commits to a specific formula for a considerable number of years. In daily practice, we often see ambiguities, disputes, or conflicts arising from the collaboration. Therefore, legal support is advisable for this type of agreement. Consult an expert lawyer for drafting and/or reviewing your franchise agreement!

The franchise agreementspecifies the conditions under which the franchisee may use the brand name and the concept of the franchise formula. Furthermore, it stipulates that you are required to stock the franchisor's product range. Provisions regarding the franchisor's supporting tasks are included concerning purchasing, training, store layout, administration, marketing, etc. Additionally, the fees you, as a franchisee, must pay to the group are naturally included, as well as the method by which these are calculated and invoiced. It is very often also agreed that you will share business information (number of visitors, turnover, costs) with the franchisor. Furthermore, the term for which the franchise agreement is drawn up is agreed upon. Pay close attention to this, because as a franchisee, you are personally investing in setting up the business, and your store is set up according to the franchise concept. If, a few years later, you are faced with a franchisor who does not renew the contract, realize that you may no longer use the franchise formula and must remove the setup from your store. The franchise agreement also contains agreements regarding confidentiality, non-competition, quality control by the franchisor, and formula management.

If you do not have a franchise agreement, you essentially have nothing to fall back on. Entering into a franchise is a long-term relationship you establish with the franchisor. In doing so, you are entitled to expect professional support from the franchisor. This therefore also implies that a franchise agreement underlies the collaboration. If this is not the case, it is advisable to have one drawn up yourself. However, this will not occur often in practice, as the stakes for both parties are too high.