How to prepare pre-contract information for prospective franchisees

Are you turning a successful business into a franchise network? Prepare a pre-contract information pack before you first offer a franchise licence. This is not a sales brochure, but a set of documents that allows prospective franchisees to assess the investment, obligations and risks. It also helps you provide consistent information throughout recruitment discussions and keep a record of what you actually told your future partner.

1. Distinguish legal obligations from your own standards

Czechia has no specific franchising law, mandatory franchise disclosure form or dedicated register of franchise networks. Nor is there a general statutory deadline specifically governing the provision of franchise documents before signing. This does not, however, mean that material information can be withheld.

The main legal framework is Act No. 89/2012 Coll., the Czech Civil Code. Section 1728(2) governs the mutual disclosure of factual and legal circumstances during contract negotiations, so that the parties can establish whether a valid contract can be concluded and ascertain the other party’s interest in entering into it. The principle of good faith and the rules on pre-contractual liability also apply. A franchise agreement is generally concluded as an innominate contract — one not defined as a specific contract type by law — under Section 1746(2).

Depending on the nature of the relationship, Act No. 441/2003 Coll. on Trade Marks, Czech and EU competition law, and data protection rules may also be relevant. An information pack is no substitute for checking that the franchise concept itself complies with these rules.

The European Code of Ethics for Franchising is a self-regulatory document, not Czech legislation. Its relevance to a particular network may arise from membership of the relevant association or a contractual commitment. Set a reasonable period within your own process for reviewing the documents and consulting a lawyer; do not present it as a statutory deadline.

2. Build the pack around the investor’s decision

Above all, the documents should answer these questions: what will the franchisee receive, what must they arrange themselves, and what could put their business at risk? A practical outline includes:

• The franchisor and the concept’s history: the identity of the contracting company, the team’s experience, company-owned and franchised outlets, and the extent to which the concept has actually been tested.
• Brand rights: the trade mark owner, the territories and goods or services covered, and the franchisor’s authority to grant a licence. Do not confuse a pending application with a registered trade mark.
• Scope of support: training content, help with opening, access to advice, and services charged for separately.
• The franchisee’s obligations: personal involvement, staffing, mandatory systems, suppliers and operating standards.
• Contractual restrictions and exit arrangements: the contract term, renewal, termination, transfer of the outlet, territorial protection and any non-compete restrictions.

Include a draft agreement and a list of its schedules. For the operations manual, you can initially provide its structure and the key obligations, sharing sensitive procedures under controlled conditions. However, do not use trade secrecy as a reason to conceal costly obligations until signing.

3. Separate pilot results from financial projections

Financial information presents the greatest risk of misunderstanding. The actual results of one outlet are not a promise of a future franchisee’s performance. For every financial summary, identify the data source, reporting period and type of outlet. Explain whether the figures relate to an established business, a newly opened pilot or a financial model.

When adapting the results of your own business to a franchise model, add costs that the pilot did not bear: remuneration for the founder’s work, market rent rather than a discounted rate, franchise fees or paid support. Also state whether figures include or exclude VAT, and distinguish operating profit or loss from cash flow.

Present both a base case and a downside scenario. Describe your assumptions for customer numbers, average spend, wages, margins and the time needed to get the business up and running. Do not invent a one-size-fits-all payback period; show which assumptions prospective franchisees need to verify for their own location.

Alongside the initial franchise fee, include equipment, deposits, stock, permits and licences, training, software, marketing and a working capital reserve. For ongoing fees, explain the calculation basis, payment deadlines and any minimum amount. If you quote a percentage of turnover, make clear what counts towards that turnover.

4. Establish a disclosure process and version control

Appoint someone to take responsibility for the accuracy of the pack. Each version should have a date, a version identifier and a list of attachments. The recruitment team must use the same documents; verbal promises about exclusive territories or earnings must not contradict the draft agreement.

Sensitive information can be shared after a confidentiality agreement has been signed. However, make the documents available in good time before any binding decision, particularly before the agreement is signed or a non-refundable payment is made. If you charge a reservation fee, explicitly describe its purpose and the conditions for a refund.

Keep a record of the files provided, the prospective franchisee’s questions and your written answers. If material terms change, send an update and allow time for a fresh assessment. An acknowledgement of receipt proves delivery, not the truth of the information, and does not automatically exclude liability.

Practical takeaway: Before starting recruitment, have the information pack, financial model and agreement checked for consistency. Prospective franchisees should be able to explain the total investment, main obligations and risks in their own words. If the documents do not enable them to do that, clarify the documentation first.