Buying a franchise in Belgium: assess the franchisor’s financial health

An attractive franchise concept is not necessarily a financially sound one. Prospective franchisees usually assess their own investment, but sometimes overlook the business behind the brand. As an independent business owner within a franchise network, you depend on a partner that needs to remain operational for years to come. This guide helps you assess that partner’s financial health before you commit.

1. Investigate the right company

Start not with the logo, but with the legal identity of the business you will be contracting with. A brand may use separate companies for franchise agreements, logistics, staff and technology. The company you meet during initial discussions may therefore not be the one you sign with.

Ask for the full company name and enterprise number. Use Belgium’s Crossroads Bank for Enterprises to check details including the company’s identity, legal form and status. Then look up the available annual accounts at the Central Balance Sheet Office of the National Bank of Belgium. Not every business has the same filing obligations, so ask for an explanation before drawing conclusions about missing documents.

Ask the franchisor to provide a simple group structure chart. It should clearly identify your contracting partner, the parent company and the businesses providing essential services.

Ask three specific questions:

• Which company receives my initial franchise fee and ongoing payments?
• Which companies hold the staff, systems and resources that keep the franchise network running?
• Is any financial support from the parent company legally binding?

A strong group is not the same as a strong contracting partner. A verbal promise that the parent company will always step in does not provide the same protection as an enforceable commitment.

2. Read the figures as a trend, not a snapshot

Review several consecutive sets of annual accounts with your accountant, where available. One profitable financial year tells you little if previous losses have eroded equity or debts are rising rapidly.

Pay particular attention to the following:

• Equity: is there a buffer to absorb losses, or has that financial foundation weakened?
• Liquidity: are there sufficient available funds and receivables that can be collected in time to meet liabilities falling due soon?
• Profit or loss: do profits come from recurring operations or exceptional transactions?
• Debt: when must loans be repaid, and to whom does the company owe money?
• Amounts owed by group companies: does a substantial share of the assets consist of money still owed by related companies?

These figures need to be read together. An accounting profit, for example, does not mean there is enough cash in the bank. Conversely, a loss during a well-supported investment phase is not necessarily an immediate cause for concern.

Ask for more recent interim figures as well. Published annual accounts describe the past and may not reflect significant developments. Ask why the figures have changed and what evidence supports the explanation. For a young franchise with a limited track record, its funding, available resources and the assumptions underpinning its business plan become particularly important.

3. Check how the franchise business funds itself

Next, investigate where the money comes from. A franchisor that funds its day-to-day operations mainly through initial fees from new franchisees may become vulnerable if expansion slows.

Ask about the balance between one-off income from new franchisees and recurring income from existing outlets. Not every detail will be publicly available. However, a substantiated explanation, provided confidentially if necessary, will help you assess how dependent the business is on continued growth.

Also ask what major investments are planned and how they will be funded. These might include a new distribution centre, a digital platform or expansion into other countries. Ambition is not a problem, but the funding behind it should not remain an unexplained gap.

Cross-check the explanation with existing franchisees. Do not ask for confidential figures, but for practical experiences: are reimbursements processed on time, do deliveries remain reliable, and do their points of contact change unusually often? Such signs do not prove financial difficulties on their own, but may warrant further questions.

Discuss what would happen if an essential group company ceased operating. Could your outlet continue to function temporarily? Ask a lawyer to assess which contractual provisions genuinely support business continuity; a contract can never eliminate the risk of bankruptcy entirely.

4. Use the statutory pre-contractual period to reach a decision

Belgium has specific pre-contractual rules for commercial cooperation agreements, including franchise agreements. These are set out in Title 2 of Book X of the Belgian Code of Economic Law, particularly Articles X.26 to X.33.

In principle, you must receive the draft agreement and a separate pre-contractual information document at least one month before entering into the agreement. That document contains important contractual provisions and socio-economic information. Use this period for independent due diligence, not simply to read through the documents. The statutory disclosure requirement does not replace your own financial assessment.

The contractual relationship is also governed by general contract law and the applicable rules on unfair terms between businesses, among other provisions. There is no comprehensive, standalone franchise law that removes your financial risk.

Before making your decision, draw up a short list of identified risks, missing supporting documents and conditions that must be met. Have your accountant check the financial conclusions and your lawyer assess any guarantees.

Practical conclusion: sign only when you understand which company will be your partner, how it funds its operations and what supports its ability to keep trading. If significant questions remain unanswered, postpone your decision.