When you start as a franchise entrepreneur (in other words: become a franchisee), you agree with a franchiser to start a business using their concept and name. You remain an independent entrepreneur. There are several sectors in which you can become a franchisee, and several approaches.
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Choose a sector
In the Netherlands, franchises exist in the sectors:
- Personal services: financial services, accounting, real estate, but also hairdressers, staff outings organisers, etc.
- Furniture and fittings: kitchen and bathroom sales, furniture, interior decorating
- (Health) care: opticians, childcare, assisted living for the elderly, etc.
Choose an approach
You can opt for a soft or a hard franchise, depending on how much freedom you want; or how much responsibility you want to take on.
If you opt for a soft franchise, you will have a lot of freedom. You decide how to run the business: advertising, marketing, purchasing and inventory practices are all up to you. In effect, the business name and concept are all you franchise. You also have greater responsibilities and less security.
When you operate a hard franchise, you are under strict rules from the franchiser regarding branding, inventory, purchasing, and advertising. You will run less risk, and receive support from the franchiser in many aspects (from training to being able to use standard advertising and branding tools), but have less freedom.
Tips for choosing a franchise
- Consider: how well known is the franchise? For how long has it existed? How does the franchise deal with market changes? Talk to entrepreneurs who do business with the franchising organization, and ask the franchiser about its results and financial situation.
- Find out if the franchiser is transparent about its business methods. What margins does he operate by, for instance, and how much influence does he have on your margins?
- Does the franchising organisation have a franchisee association? En does the organization abide by the European Code of Ethics?
- Ask other franchisees in the same franchise if they will show you their annual records. Try to find out if there have been many franchisees in the past that have gone bankrupt or have stopped.
How much does it cost to become a franchisee?
To enter a franchise organisation, you will usually have to pay an entry fee, a franchise and an advertising charge. Franchisers can also demand a minimum investment of either a fixed amount, or a percentage of the total starting capital required. It differs per organization. The – Dutch language only - Nationale Franchisegids lists the terms and conditions of nearly all franchisers.
Ask for advice about the franchising contract and the manual
When you enter into a franchise, you will sign a franchising contract. In many cases, there will also be a manual containing practical matters like sales marketing, purchasing, sales and corporate style. The franchising contract contains the agreements between you and the franchiser. For instance: the duration of the agreement, insurances, and the business premises. It also states the financial terms, like the percentage of sales you transfer. The franchising contract and the manual together form the terms and conditions under which you will operate. Before you enter into the agreement, make sure you have read the manual, and get advice on the contract. Before you sign, make sure you know:
- the prognoses for turnover and results for the location you are interested in. The franchiser is not required to give you this information of his own accord, but they are important if you want to form a good impression of your chances and risks. Check if the prognoses are based on verifiable market and location research, specifically for the location you are interested in. Get to the bottom of things and have an independent third party assess the information, if you are in any doubt. You, as franchisee, are obliged to do research and interpret the facts before you sign the contact;
- your rights and obligations under the terms of the franchising contract. Always read the contract with a critical eye and ask questions. Ask for independent legal advice, if anything is unclear to you;
- if there is enough room to negotiate. Your franchiser may work with standardised contracts, that leave little room for negotiations. Read the contract carefully, and don’t sign anything until everything is clear. When in doubt, ask a third party for advice. For instance, an accountant or lawyer who specialises in franchising matters.
- In what ways does the franchiser support you? Think of marketing, business management, and advice. How much does this cost you?
- What are the franchiser’s duties, and in how much detail are they defined? Think about promotional activities, and guarding the franchising quality.
- What are your rights and obligations as a franchisee, for instance: are you obliged to buy certain products/services? And are there any requirements regarding pricing (by the way, under the antitrust act, set prices are not allowed in franchising. The franchiser can only recommend prices).
- Carefully read what the contract says about your business premises. If you are the owner of the premises, find out if there is a competition clause in your contract, and if there is, what the consequences would be if the franchising contract would end.
- Determine the scope of the contract: are there stipulations on exclusivity and/or competition after termination of the contract? Is it unequivocally clear what you can and cannot do?
- Find out what the possibilities are if you want to end your business during the runtime of the contract, because of disappointing results or other reasons. Is there an exit route? Find out the consequences for your investments and costs.
- Make sure you have legal support insurance that covers franchising disputes. As an entrepreneur, you are not entitled to subsidised legal support by the government.
- Check if the contract is based on Dutch law for legal procedures and disputes.
- If your franchising contract mentions arbitration as the preferred method to settle disputes, you may be at a disadvantage as franchisee. Arbitration is not the same as mediation, and is often a costly procedure. One advantage of arbitration is that disputes can be settled faster than by starting a court procedure.
Choosing a legal structure
You enter into a franchising agreement as an independent entrepreneur. This means that you will have to choose a legal structure for your business, to determine liability and tax matters. The most common legal structures are sole proprietor, general partnership (vof), and private limited company (bv).
Register with the KVK
You have to register your franchise with the Netherlands Chamber of Commerce (KVK). The legal structure you have chosen determines the steps you have to take (there are different forms to fill out for sole proprietors, general partnerships and private limited companies). When you go in to finalise your registration, don’t forget to bring your franchising contract, plus a copy of the rental or sale agreement for the business premises you will be located in. If you were already registered at the KVK before you decided to enter into a franchising agreement, you should change your registration.
In the Netherlands, franchising is not subject to any specific legislation. However, franchise parties are subject to general legislation, such as the Competition Act (Mededingingswet), the Trade Name Act (Handelsnaamwet) and the Benelux Convention on Intellectual Property (Benelux Verdrag op Intellectueel Eigendom).