Buying a franchise: how to assess the know-how you are paying for

When you buy a franchise, you are not just paying for the right to use a recognisable name. A significant part of its value should lie in practical know-how and proven procedures that mean you do not have to build the business from scratch. Before joining a franchise network, check what the franchisor means by business know-how, how you can assess it and whether it will actually be usable in Croatia.

Distinguish a business system from a collection of general tips

A claim that the franchisor has a ‘fully developed concept’ tells you little. Valuable know-how should explain how specific tasks are carried out, who performs them, in what order and how errors are identified. A brand presentation and a few recommendations about being polite to customers are no substitute for an operating system.

Choose one important process and ask the franchisor to explain it from start to finish. This might be taking an order, preparing to deliver a service, managing stock or dealing with an unhappy customer. Ask four questions:

• What steps must the employee follow?
• What forms, tools or checklists do they use?
• How is it established that the work has been done correctly?
• What happens when the standard procedure is not enough?

Value lies not in the number of pages in the manual, but in how usable the procedures are. A short, clear procedure may be more useful than extensive material that repeats generic business advice. In particular, check whether the system’s success depends on the founder’s personal abilities in ways that other people would struggle to replicate.

Assess the know-how without asking for every secret

The franchisor has a legitimate interest in protecting confidential methods before a contract is signed. That does not mean you should have to pay for content you cannot assess at all. Suggest a limited review: the contents page of the operations manual, an anonymised example of a procedure or a demonstration with no opportunity to copy the material.

Choose a process that matters to your future business, rather than simply accepting whichever one the franchisor wants to show you. For a service franchise, for example, follow the process from the initial enquiry through to service completion and complaint handling. For a retail concept, check how the system handles ordering, stock shortages and slow-selling products.

During the demonstration, note what is documented, what exists only as verbal guidance and what depends on additional software or an external service provider. Ask whether employees can follow the procedure without constantly contacting the franchisor. If not, you may be buying an ongoing dependence on their intervention rather than transferable know-how.

An agreed review does not give you the right to use or share confidential materials independently. Its purpose is to assess the investment while reasonably protecting both parties’ interests.

Check suitability for Croatia and legal protection

A procedure that works well in another market is not automatically ready for Croatian conditions. Ask the franchisor to distinguish between the original model and locally adapted procedures. For example, instructions on invoicing, handling personal data, complaints and food safety must comply with applicable Croatian and EU rules.

Ask who checks local compliance, who approves adaptations and who pays for them. A translated manual is not proof of legal or operational suitability. A form from another country may be perfectly understandable in translation yet still be unsuitable for use in Croatia.

Croatia has no dedicated law comprehensively regulating franchises, nor a specific general requirement to provide a standardised pre-contractual franchise disclosure document. The contractual relationship is governed by the Civil Obligations Act, including the principle of good faith and fair dealing and the rules on performance of obligations and liability for breach of contract. Freedom of contract is not unlimited; competition rules are also relevant.

The Act on the Protection of Undisclosed Information with Market Value is also important for confidential business know-how. Information does not become a trade secret simply because the franchisor labels it as such: what matters is its secrecy, its commercial value arising from that secrecy and the reasonable steps taken to keep it secret. The European Code of Ethics for Franchising can provide a useful standard of conduct, but it is not Croatian law.

Turn verified value into a contractual obligation

After the review, draw up a short list of the know-how you expect to receive. Instead of wording such as ‘access to all know-how’, specify the categories of procedures, how they will be accessed, the language of the materials and the deadline for making them available. The confidential content need not be reproduced in full in the contract, but the franchisor’s obligation should be sufficiently specific.

Clarify whether access includes updates and whether you may make the materials available to employees who need them. If everything is hosted on a digital platform, check how you will operate when it is unavailable. Also record any reliance on tools that carry additional charges so that you can properly assess the value of the offer.

Work with a lawyer to establish how delivery of the materials will be recorded and what happens if an important part of the promised content is missing. An acknowledgement of receipt should not also confirm that the content is complete unless this has been checked.

Practical takeaway: before signing, examine one key process in actual use. If it is unclear what you will receive, how you will use it in Croatia and what the franchisor is obliged to deliver, the know-how is not yet sufficiently defined for you to assess its value reliably.