Signing a franchise contract means committing to a network for at least five to ten years. As well as requiring substantial financial investment, this is a human, personal and family investment that you need to be prepared to make. So it’s best to make sure you’re making the right choice beforehand. Here’s a guide to what you need to think about before you commit.
Franchising can be a tempting adventure, but you need to choose your future network carefully, according to your tastes, desires and skills, to make sure you’re right for the job, and also your affinities with the brand and the quality of the network.
Tip 1: Take the time you need
Once you’ve decided on the business sector in which you want to operate, the first piece of advice before committing yourself to a franchise network is to compare several networks in the same sector.
“You shouldn’t be stingy with your time during this pre-contractual phase,” advises Charlotte Bellet, a partner at BMGB Avocats, meaning you should allow yourself between three and six months to choose the right network.
“You need to start with the one that most closely resembles you and your project, both financially and in terms of values,” explains Charlotte Bellet.
Don’t hesitate to meet several franchisors and compare them.
Tip 2: Conduct your own survey
Before signing the contract, the prospective franchisee must conduct his or her own on-site investigation to verify what is stated in the pre-contractual information document (DIP) provided by the franchisor 20 days before signing the franchise agreement. Even if it’s essential for the candidate to read it thoroughly, he or she should look for any missing information. “The profitability of a concept is not included in the DIP,” warns Charlotte Bellet, for example. There’s no question of contenting oneself with what’s written. The applicant must analyze the network in detail, its age, its capital, its financial soundness and its last two balance sheets.
Objective?
To check that what is being “sold” corresponds to reality: what is the state of the network?
What is the quality/price ratio?
How profitable are the outlets?
What support does the franchisor provide in the field?
“If the franchisor replies that the law does not oblige him to provide the information requested, run away!” advises Charlotte Bellet.
To judge the franchisor’s experience, the lawyer advises candidates to go further than typing the franchisor’s name on Linkedin: “You need to look on Infogreffe to see if he owns other businesses, or if he has gone into receivership in the past”.
It’s also useful to find out about the pilot’s success and circumstances: how did it get started?
Did it work right from the start?
How did it work?
And is it comparable and transposable with the same size of store and the same type of layout?
He needs to put himself in a prospect’s shoes, and ask himself how competitive the concept is.
Tip 3: Surround yourself with experts
During this decisive stage, it’s essential to surround yourself with professionals. To assess the network’s level of indebtedness and profitability, the candidate should seek the advice of a chartered accountant specialized in franchising. “Future franchisees can make this simple calculation to ensure that the franchisor’s balance sheet shows sales equal to the amount of the royalty in relation to the announced level of activity, multiplied by the number of sales outlets”, explains Charlotte Bellet.
This is also the time to discuss the location of the outlet with him: is it the right town? The right surface area? How far away from competitors? Is there enough foot traffic? What access and parking facilities are available? Is the rent acceptable in view of projected sales? These questions are all the more important if the future franchisee is not a native of the town. He or she needs to take the time to get to know it commercially. Many franchisees choose a location by default because it’s the only one available, or because franchisors put pressure on them to reserve the area,” notes Charlotte Bellet. But the choice of premises is just as important as the choice of franchisor.
Another professional to rely on is a lawyer specialized in franchising, who will be able to decipher the clauses of the franchise agreement.
These include the exclusive territory, contract duration and renewal clauses, the amount of the entry fee and royalties, non-competition clauses, post-contractual supply or non-affiliation clauses, and the arbitration clause in the event of a dispute.
Tip 4: Demand answers in writing
Candidates should gather as much information about the franchisor as possible directly from the franchisor.
The pre-contractual phase provides the opportunity to ask and obtain answers to all questions.
“Don’t be satisfied with verbal answers,” explains the lawyer.
Everything must be put in writing.
The franchisor must be encouraged to respond in writing.
Tip 5: Talk to other franchisees
In the DIP, the law requires the franchisor to provide a list of all existing franchisees, their length of service and the number of closures over the last twelve months.
Candidates can also assess the strength and density of the network, the evolution of the number of franchisees – the number of openings and closures each year since its creation – and whether there is an abnormal number of closures.
However, the franchisor is not obliged to provide the sales figures of franchisees.
It’s up to the candidate to ask about their level of business since they started up, and each year to judge how it’s progressing.
“You have to look for information to avoid bad networks. No franchisor who works will refuse to give sales figures,” assures Charlotte Bellet.
Even if he obtains all this information, he must ” call all the franchisees in the network and visit a large proportion of them. Once there, they’ll be more inclined to talk to you,” insists the lawyer.
And to confide in them about their relationship with the franchisor, its human and financial resources, the quality and experience of the animators, the operation of the website, the resources invested in communication, etc.
“It’s better to invest x thousands of euros in a Tour de France of franchisees than to invest tens of thousands of euros badly,” concludes the lawyer.
