Entry fee, DIP, royalties, personal contribution… As a prospective franchisee, you’ve seen these words come and go without always fully understanding them. But what does all this jargon mean? What are the terms you need to know before becoming a franchisee? We’ll help you make sense of it all.
To get you off to a good start, here are eight key words to help you understand and build your franchise project. They will often come back to you on the way to opening your business.
Organized trade definition
First of all, we need to know what we’re talking about. To do this, the first step is to put the franchise contract in context, and define what organized commerce is.
Organized trade refers to all types of networked business made up of legally and financially independent companies. Franchises, cooperatives, concessions and brand licenses are all types of organized business. They differ from integrated commerce, which is defined as a network of retail outlets owned by the brand. Subsidiaries or branches are run by employees of the parent company or by managers.
Entrance fee
Also known by the exotic name of flat-rate initial fee, the entry fee is the amount payable by a prospective franchisee on joining the network. The amount of this sum varies according to the company, its reputation and the tools it is able to make available to the franchisee.
Set out in the Pre-contractual Information Document, the entry fee covers the cost of fitting out the premises, initial training and any other expenses required to get the franchisee up and running. Depending on the brand, this fee can vary from 5,000 to 35,000 euros.
Personal contribution
Even if they join a network and benefit from the franchisor’s support, franchisees remain independent. It is therefore up to them to finance the total investment required to set up their business. The purchase of premises, location and creation of inventory are all elements for which the franchisee must have sufficient equity. It’s a budget that he often can’t afford on his own, and for which he applies to the bank for a loan.
To ensure the financial soundness of a prospective franchisee, the network head may require a minimum personal contribution. This amount fluctuates according to the business, with some requiring less investment at start-up. This is the case, for example, in business sectors that do not require the creation of stock.
Royalty
The franchise contract is a win/win commitment. In exchange for the network’s know-how, reputation, leadership and assistance, the franchisee pays the network a fee called a royalty. This can be a fixed amount or a percentage of sales, known as royalties. Depending on the brand, this percentage can vary from 1% to 12%.
The retailer may sometimes ask for payment of an advertising fee in exchange for communication and promotional activities at the various points of sale. As a special feature, this fee may only be used by the franchisor to promote the brand. Franchisees are therefore entitled to ask their network head how this money will be spent.
Pre-contractual information document (DIP)
Are you ready to launch your project and sign your franchise agreement? But before you can finalize this last step, you’re missing the key: the DIP. This document must be sent by the franchisor to the future franchisee at least twenty days before the contract is signed.
Made compulsory on December 31, 1989 by the Doubin Law, the DIP contains key information about the company the franchisee is about to join. In this way, they can make a well-informed commitment and start their new association with confidence. Among the information provided in the DIP, the future affiliate will find: a presentation of the company, its manager and its network, a presentation of the market, the company’s results and, of course, the clauses of the contract.
Doubin Law
December 31, 1989: the Doubin law defines a certain number of rules and obligations to be followed by “any business making its trade name, brand or sign available to others”. Franchises falling under this description are subject to this law, which guarantees the future franchisee a certain transparency in pre-contractual procedures.
Among other things, this law introduces the obligation to provide a pre-contractual information document before signing the contract. The content of the DIP is specified in the implementing decree of April 4, 1991.
The Bible
We’re not talking about sacred texts here, although we’re not far from them. More commonly known as the operating manual, this confidential register contains all the information relating to the franchisor’s know-how. Everything the franchisee needs to know about running his business is listed in great detail.
What are the sales procedures? How do you divide tasks between employees? The operating manual provides the franchisee with all the franchisor’s know-how, skills and tried-and-tested tricks to help him grow.
Contractor
As long as a professional is legally independent and acts under his or her sole responsibility, he or she can be considered an entrepreneur.
So whether you’re a self-employed or micro-entrepreneur, an entrepreneur, a start-up founder, a craftsman, a self-employed professional, a retailer, a farmer or a franchisee, you’re automatically awarded the highly prized title ofentrepreneur. The latter is not an employee, but acts independently and is not subordinate to anyone.
This means that he alone is responsible for organizing his work, setting his prices and choosing his suppliers and customers. In the case of a franchised business, the entrepreneur, not the franchisor, is responsible for financing the entire project.
