Buying a franchise in Belgium: assess the contract term and investment

A franchise agreement may look attractive, yet its fixed term may be too short for you to recoup your investment. An appealing retail concept, an established brand and a workable monthly budget will not solve that problem on their own. Anyone considering a franchise should therefore ask a practical question: does the agreed operating period give you enough time to recover the money you invest, without relying on an uncertain extension?

1. Establish how much operating time you will actually have

Belgian franchise agreements are not subject to a general statutory minimum or maximum term. The parties agree the duration. General contract law applies, alongside competition law and the rules on unfair terms between businesses in Book VI of the Belgian Code of Economic Law (known by its Dutch abbreviation, WER), among other provisions.

Belgium also has specific pre-contractual disclosure rules for commercial cooperation agreements, including franchises. These are set out in Book X, Title 2, Articles X.26 to X.33 of the Code. As a rule, you must receive the draft agreement and the pre-contractual disclosure document at least one month before entering into the agreement. Use this period to have the contract term assessed from a financial perspective too: statutory disclosure safeguards do not guarantee that the operating period will allow you to make a return.

Do not just look at the number of years stated in the contract. Also check:

• Does the term start when you sign, when you receive the keys or when you open?
• Do fitting out, training and a delayed start count towards the term?
• Is there a fixed end date, even if the opening is postponed?
• Which provisions could shorten the planned operating period?

Put signing, the first payment, opening and the end of the contract on a single timeline. A contract year spent partly fitting out the premises is not a full year of trading in financial terms. If necessary, ask for a clearly verifiable start date and provisions covering delays to opening.

2. Distinguish depreciation from recovering your investment

Depreciating an asset in your accounts is not the same as recovering your money. An investment may be recognised in the profit and loss account over several years, even though payment is due immediately. Conversely, an accounting profit does not prove that you have recovered all the money you put in yourself.

Work with your accountant to draw up an investment schedule focusing solely on the funds you need to commit to this outlet. Include items such as the initial franchise fee, fit-out, technical installations, franchise-specific software and opening costs. For each item, record:

• when you pay;
• who will own it;
• how long it will remain usable;
• whether it can be used outside this franchise system;
• its realistic resale value at the end of the contract.

A bespoke counter or branded shopfront may have years of useful life left, but be worth little to another business owner. Do not automatically use the book value as the residual value. Substantiate any expected sale proceeds and deduct any removal or selling costs.

3. Base your calculations solely on the fixed contract term

Next, have an assessment made of whether the available cash flows will allow you to recoup your investment within the agreed term. This is not a fresh sales forecast, but a test of the time available: even a viable outlet may not have enough years to recover its initial investment.

Use a cash flow statement that correctly accounts for operating costs, appropriate remuneration for your own work, taxes, essential replacements and financing payments. Ask your accountant to distinguish the return on the total investment from the recovery of your own capital contribution. This avoids double-counting loans and repayments.

Assess at least three scenarios:

• The outlet opens on the planned date.
• Opening is delayed while some costs are already being incurred.
• Essential replacement investment is needed before the contract ends.

In each case, calculate the position at the fixed end date. Do not factor in a possible extension if it still depends on a new decision or agreement. Also check whether any loans will remain outstanding at that point. An unpaid debt does not disappear when your right to use the franchise concept ends.

4. Negotiate both the term and the size of the investment

If the available period proves too short, a longer contract need not be the only answer. Being tied in for longer can also work against you if the outlet underperforms.

Discuss several options, such as a lower initial investment, a phased fit-out, reusable equipment or a financial contribution from the franchisor. If you will be required to make a substantial investment in the franchise concept later on, ask in advance how that obligation relates to the remaining contract term.

Do not assume you will automatically receive compensation for investments you have not recouped. If you want a buy-back arrangement or compensation for your investment, specify what it covers, when it applies and how the amount will be calculated. Have the final terms legally reviewed and included in the contract documents; verbal reassurance is not a reliable basis for your calculations.

Practical conclusion: only sign once a single overview shows what you will invest, how many months of actual operation you will have and how much will remain unrecovered at the fixed end date. If an uncertain extension is needed to make up the shortfall, renegotiate first.