Buying a franchise: how to assess mandatory purchasing requirements

When you join a franchise network, you are not just buying the right to use a brand. You often also commit to buying ingredients, goods or equipment from designated suppliers. Centralised purchasing can protect quality and simplify operations, but unsuitable terms can leave you with excess stock or bring sales to a halt. Before signing, check who controls purchasing, who bears the risk of supply disruptions and how much money will be tied up in stock.

1. Map out what you actually have to buy

Ask for a complete list of mandatory purchases. A general statement that the outlet must comply with brand standards is not enough. Distinguish between items you must buy from head office, items you must buy from approved suppliers and items for which you can choose your own supplier.

For each category, establish:

• who your contractual supplier is and whom you pay;
• whether there is a minimum order or purchase commitment;
• who determines the size of your opening stock order;
• whether you must also buy seasonal and promotional goods;
• how an alternative product or supplier can be approved.

Review the franchise agreement, purchasing terms and operations manual together. Your obligations may be spread across several documents. If the agreement refers to a product list that is updated periodically, ask how changes are made and how much time you will have to adjust your stock.

Pay particular attention to automatic deliveries. Find out whether you can adjust orders to reflect actual demand, or whether head office allocates goods without your confirmation. Also ask for a sample order and invoice so you can see how the rules work in day-to-day operations.

2. Calculate how much cash will be tied up in stock

A low purchase price does not necessarily mean a good deal. Delivery charges, storage, payment terms, minimum pack sizes and shelf life also matter. A bulk discount is no help if you cannot sell some of the products.

Model both a typical order and your opening stock order. Use the supplier’s current price list and record delivery charges, any packaging deposits and when payment falls due. Distinguish between an accounting expense and an actual cash outflow: an advance payment to a supplier reduces your bank balance before the goods even arrive.

Then ask yourself a practical question: What happens if the stock takes longer to sell than I have to pay the invoice? You will need to bridge the gap with your own funds or working capital finance. If you are relying on a loan, confirm its availability with the bank, not just the brand’s representative.

For food or cosmetics, ask for rules specifying the minimum remaining shelf life on delivery. For seasonal products, clarify whether you can sell off, exchange or return remaining stock. Unless expressly agreed, do not assume that the supplier will buy back unsold goods. Also check who pays for stock that becomes unusable following a change to the mandatory product range.

3. Check how supply disruptions and claims are handled in practice

A mandatory supplier poses a greater risk if you are not allowed to use an alternative. Ask head office to explain what happens if a key ingredient is unavailable, the ordering system fails or a delivery is delayed.

Look for specific answers in the contractual documents: when an order is accepted as binding, what the delivery lead time is, how supply disruptions are reported and who approves emergency purchases. Wording such as ‘delivery subject to availability’ offers little help when planning shifts and sales.

Ask several current franchisees about their most recent specific delivery problem. How long did they wait? Were they allowed to buy elsewhere? Who handled the claim? You are asking about their experience of the process, not for trade secrets.

Distinguish between the responsibilities of head office and those of an external supplier. If another company issues the invoice, a promise from the franchisor alone may not give you an enforceable claim against that company. The rules for claims, replacement supplies and any compensation for loss must align with your contract with the actual supplier.

4. Understand the Czech legal framework

The Czech Republic has no dedicated franchise law, compulsory state register of franchises or legally prescribed disclosure document specifically for prospective franchisees. That does not mean pre-contractual negotiations are unregulated.

The principal legislation is the Civil Code, Act No. 89/2012 Coll. Among other things, it governs good faith, pre-contractual duties to provide information, contractual obligations and rights relating to defective performance. Franchise agreements are commonly concluded as contracts not specifically defined by the Civil Code; individual supplies may be subject to the rules governing sale contracts. General disclosure duties are no substitute, however, for your own due diligence on purchasing terms.

Mandatory purchasing requirements may also need to be assessed under Act No. 143/2001 Coll., on the Protection of Competition, and, depending on the circumstances, EU competition rules. Commission Regulation (EU) 2022/720 on the block exemption for vertical agreements may be relevant. Exclusive purchasing arrangements are neither automatically prohibited nor automatically permitted: their status depends on the specific terms and market circumstances.

5. Agree how problems will be resolved before signing

Work with a lawyer to draw up a short list of situations the documents must cover: late deliveries, defective goods, changes to the product range, excess stock and emergency purchases. For each, specify the responsible party, the deadline and the consequences of failing to meet the obligation. Turn verbal assurances into binding contractual terms.

The practical takeaway: Do not sign until you can describe the journey of an order from placement through payment to any claim. This will show you whether the purchasing rules support your business or place an unreasonable level of risk on you.