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Franchise Agreements in the Netherlands

Information about starting a franchise company in the Netherlands

Do you have certain ambitions about starting a company oversees? Then the Netherlands definitely proves to be a very attractive and competitive destination. Whilst some potential entrepreneurs have very detailed and personalized business plans and ideas, some others might have a harder time coming up with a fitting goal or business idea. In such cases, starting a franchise might prove to be a profitable way of making money overseas.  We will outline more information about this option below. If you would like personal advice, never hesitate to contact Intercompany Solutions directly.

Why become a franchise owner?

Sometimes as a starting entrepreneur, you can experience a lot of competition. Especially in specific sectors such as the food and beverage industry and the textile industry. This especially goes for countries where all industries are thriving, such as the Netherlands. In such cases, it can be lucrative to join forces with an already established company or brand. Once you start a franchise, you basically enter into a contract with the owner of a trade name. You can then legally open a company under this name, generally when you invest a certain amount. These trade names are often well-known brands or concepts, which makes it easy for customers to find you as a new company. These are proven success concepts, that give you a good start as an entrepreneur.

What is a franchise exactly?

Franchising is in essence a method of selling services or products via a franchiser. This franchiser already established a brand and trade name, as well as a profitable business system. If you decide to start up a franchise, you are appointed as a franchisee. The terms and contract are often similar, in most cases you will pay an initial fee and royalties to be able to do business within this franchiser’s system of conduct. The franchise itself is the brand under which you operate and as such, the franchise is the binding part in the contract. The entire practice of brand creation and distribution within the system is named franchising.

There are roughly two types of franchising. The most commonly known type is known as business format franchising. In this format, as a franchisee you will not only operate under a certain brand name to sell goods and/or services, but also will be provided with a system in order to operate the business properly. In other words; most of the work is already cut out for you to do. In most cases, you will acquire all the necessary material such as development support, a marketing strategy and operating manuals and learning material. Another possibility is product distribution franchising. This is a separate sector which often involves the automotive industry, bottling and other manufacturing industries. Both options provide you with start-up information, commodities and resources, which is ideal for starting entrepreneurs.

How to choose the right brand?

One of the toughest parts of starting a franchise business is choosing the right chain to invest in. One of the best and most straightforward ways to find out if a chain is suitable for you, is simply contacting the company itself and talking to already existing franchisees. Practical information often trumps theory, especially if you would like to know if previous franchisees are happy with their decision to join a certain chain. Try to find out via social media if you know any people who invested in a franchise. It might just provide you with the very information you need.

It is also a very good idea to ask a possible franchiser to look at their Uniform Franchise Offering Circular (UFOC), which should include information such as:

  • A history of the franchise
  • Expected fees and royalties to be paid and the approximate initial costs of starting the franchise
  • All civil, criminal or bankruptcy actions that the directors have been involved in or worked towards with third parties
  • A complete summary of the officers, directors and other executives
  • The standard terms of the franchise agreement
  • Any reasons a franchiser can terminate the contract before it expires

Always keep in mind that the franchiser is responsible for providing material and support, such as a suitable location, training materials, planning the opening of the location, marketing and communication advice and general support. Make sure to discuss these terms in detail once you have chosen a preferable chain, so you know what you can expect from each other in the near future.

Advantages and disadvantages of a franchise business

As briefly mentioned in the introduction, as a franchise entrepreneur you immediately benefit from brand recognition. Customers are familiar with the trade name and know what to expect from your company. This means you won’t have to spend as much time on marketing and promotion as in a regular situation, where you have to set up an entirely new brand as an entrepreneur. In addition, you run less risk, since the concept has already proven itself and as a franchisee you often have access to professional knowledge provided by the franchiser. The marketing is also arranged for you.

Are there any disadvantages? In some respect, there are. For example, as a franchisee you have less freedom to make decisions because you follow a certain formula. The degree of freedom also depends on whether it concerns a soft franchise formula, or a hard franchise formula. With a soft franchise formula, the rules are less strict and the franchisee is fairly free to run his/her own business. Of course, the entrepreneur must also adhere to a number of rules in such cases, but aspects such as advertising, marketing, purchasing and stock are generally not recorded. The franchisee is therefore free to fill in these aspects. With a hard franchise formula, the rules are quite strict and aspects such as house style, stock, purchase location and media expressions are fixed. Provisions have been drawn up for this by the franchiser, which limit the franchisee in this regard. In addition to a limited freedom, you as an entrepreneur must take into account that you also have to pay part of the turnover to the franchisee for using the trade name and the services that are provided.

Factors to take into account

The first step in becoming a franchise entrepreneur is making a choice: in which industry do you want to start your business? It is helpful, if you already have some work experience in this industry since it will make starting your business a lot easier. Do not focus on one franchise formula, but orient yourself well in the industry of your choice. If you provide sufficient comparison material, you can make a well-informed choice that suits you best. You can also decide to start in an entirely new market or sector, but please keep in mind that most franchisers require a minimum amount of knowledge and experience of their sectors.

How much will you need to invest?

If you are thinking about setting up a franchise business, you need starting capital to set up your company. These are costs such as the building in which you settle, any furnishing, training and other necessary materials. You often have to pay an entrance fee as well, which is a one-time fee to join the existing formula. The costs differ a lot per formula. Usually you can predict that the more successful the formula is, the higher the entrance fee will be. In addition, you pay a periodic franchise fee, which is laid down in the franchise contract. This fee consist of an amount for the services your franchiser provides to you. Make sure you set up a solid financial plan that covers all these costs.

Starting your franchise business in the Netherlands

When you have made a choice and the franchiser wants to enter into a partnership with you, you will both consult. During this consultation, you will discuss the franchise agreement and the franchise manual. Investigations must also be carried out, such as a location study and a feasibility study. These examinations are mandatory. In this start-up phase, make use of a specialized lawyer and accountant, so that you can be sure that your business has a chance of success. When all this is completed, you both sign the contract, and you can start immediately. You will start with specialized training to prepare you for everything within your franchise formula. After completing this training, you will start the company at your chosen location.

If you would like personal advice on starting a business in the Netherlands, Intercompany Solutions can aid you. We have assisted a wide plethora of foreign entrepreneurs and investors in any imaginable sector, which means we can assist you with specialized information tailored to your specific sector of choice. Intercompany Solutions can also prepare a financial plan for you and help with the periodical and yearly tax return. Please contact us directly if you would like to know more about the services we offer, or if you would like to receive a personal quote.

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