Buying a franchise in Belgium: check how royalties are calculated

A low royalty rate does not automatically make a franchise good value. The definition of turnover, minimum fees and treatment of discounts together determine what you actually pay. Clear fee arrangements give both parties a reliable basis for their franchise relationship. Before buying, therefore, examine not just the rate but the full calculation. This guide will help you carry out that check with your accountant.

1. Map out the full royalty structure

Royalties are recurring fees for using the franchise system and receiving the services agreed in the contract. They may be a percentage of turnover, a fixed amount or a combination of the two. Sometimes a fee is built into the price of products you buy.

Ask the franchisor for a single overview of all recurring franchise fees. For each fee, record:

• what you are paying for;
• how the fee is calculated;
• when it is due;
• which document establishes the obligation to pay;
• whether a minimum, maximum or index-linked adjustment applies.

Keep royalties separate from items such as software costs and other services invoiced separately. This will help you spot whether you may be charged for the same service in more than one place. That is not necessarily unlawful, but it does call for a clear explanation.

Also ask for an anonymised sample statement from an existing outlet. A sales brochure usually shows the rate; an actual statement reveals which items are included in practice.

2. Examine how the contract defines turnover

The key question is not just: ‘What percentage will I pay?’ Also ask: ‘What amount is that percentage applied to?’ A reference to ‘turnover’ without further explanation leaves too much room for disagreement.

Check at least how the following are treated:

• VAT: is the fee calculated on turnover excluding or including VAT?
• Discounts: is the amount before or after a customer discount used?
• Returns and credit notes: do these reduce the amount on which royalties are calculated, and in which period?
• Gift vouchers: does the sale of the voucher count, or its eventual redemption?
• Online orders: which sales are allocated to your outlet?
• Platform sales: is the calculation made before or after an ordering platform’s commission?
• Unpaid invoices: do you also pay royalties on amounts customers fail to pay?

There is no single universally correct contractual approach to every item. What matters is that the parties’ choice, and its financial implications, are clear.

Pay particular attention to sales where the amount you receive is lower than the recorded sales value. A platform commission, for example, may reduce your receipts without reducing the amount on which royalties are calculated. Your accountant needs to be able to factor that difference into the profitability forecast.

3. Test minimum fees, tiers and adjustments

A turnover-based fee does not always rise and fall entirely in line with your trading activity. A contractual minimum may mean you still pay a fixed minimum amount when sales are weak.

Have the royalty formula tested under different scenarios: a slow start, normal trading, a temporary closure and a month with a high volume of returns. Use your own substantiated budget for this, rather than relying solely on an example from the franchisor.

Where there are tiered rates, check whether a new percentage applies to all turnover or only to the portion above a threshold. Also ask whether thresholds are assessed monthly or annually, and whether a balancing adjustment is made afterwards.

Check when the obligation to pay begins. Is it on signing, during training or only when the outlet opens? What happens if the opening is delayed? Put any exemptions in writing, with clear conditions governing when they begin and end.

For index-linked adjustments, the index used, the starting basis and the timing of adjustments must be clear enough for you to check the calculation independently.

4. Link the calculation to your contractual rights

Belgium has no standalone law governing the entire franchise agreement. However, specific pre-contractual rules apply: Title 2 of Book X of the Belgian Code of Economic Law governs the information to be provided for commercial cooperation agreements.

As a general rule, you must receive the draft contract and the pre-contractual information document at least one month before entering into the agreement. Use that period to have the fee clauses and annexes checked against one another. A verbal explanation of royalties is no substitute for clear contractual wording.

General contract law and Belgian rules on unfair terms between businesses are also relevant. An unfavourable fee is not automatically an unfair term. Nevertheless, ask a lawyer to examine whether any provisions are unclear or create a manifest imbalance between the parties’ rights and obligations.

Negotiate a billing process you can verify: access to the turnover data used, a procedure for correcting errors and a reasonable period for disputing invoices. Also check who bears any costs of carrying out checks. Do not assume you can simply withhold disputed amounts.

5. Prepare a trial royalty statement before deciding

Ask your accountant to prepare a complete royalty statement using a representative sales list. Include discounts, returns, gift vouchers and online sales. Ask the franchisor to carry out the same exercise and compare the results.

Any differences will show exactly where clarification is needed. Incorporate the agreed solution into the contract or a signed annex, not just a presentation.

Key takeaway: only buy once you can reproduce the royalty invoice calculation using your own sales data. It is not the lowest percentage, but a clear and predictable calculation, that allows you to assess a fee properly.