Organise purchasing before opening your first franchise outlet

Your regular supplier knows you personally, sometimes fits in an extra delivery and offers discounts based on your longstanding relationship. But will those arrangements also apply to an independent franchisee? If you want to franchise an existing business, you need to rethink purchasing. Within a franchise network, supply arrangements must work not just for the founder, but for every business owner who joins. This guide helps you check that before your first franchisee comes on board.

1. Check whether your suppliers can grow with you

Start with the products and services an outlet cannot operate without. These might include ingredients, packaging, equipment, maintenance or an essential software system. For each item, record who supplies it, which terms are agreed in writing and what happens if supplies fail to arrive.

An agreement covering your own business does not automatically give a franchisee the same rights. So ask explicitly whether the supplier is willing to supply independent businesses within your franchise network, on what terms and in which regions.

At a minimum, discuss:

• Capacity: can the supplier serve additional outlets without compromising quality?
• Delivery: what ordering schedules, minimum quantities and lead times apply to each address?
• Price: do discounts depend on your own purchasing volume or the network’s combined purchases?
• Payment: will each business owner have a separate credit assessment and payment terms?
• Service: who handles breakdowns, returns and quality complaints?

Get commitments in writing before presenting them to prospective franchisees. A supplier’s enthusiasm for expansion does not mean it has accepted an obligation to supply future franchisees.

Check any existing exclusivity arrangements too. These may prevent you from buying elsewhere or reselling certain products. If in doubt, have your current contract reviewed to establish whether it is suitable for supplying several independent businesses.

2. Decide who orders, pays and bears the risk

There are several ways to organise purchasing. You can buy centrally and resell to franchisees, or franchisees can order directly from approved suppliers. A combination is also possible. Make a deliberate choice for each product category rather than automatically carrying over your current approach.

Central purchasing gives you greater control over the product range and stock. In return, you take on financing, storage, administration and potentially additional liability. With direct supply, the franchisee handles more of the practical work, but it must be clear which franchise-specific terms the supplier will apply.

For each supply route, draw up a simple overview:

1. Who enters into the purchase agreement?
2. Who places and confirms the order?
3. Who receives the invoice?
4. When do ownership and risk pass to the buyer?
5. Who handles damage, defects and recalls?

Above all, avoid unwittingly guaranteeing franchisees’ debts. A framework agreement with a supplier may contain such obligations. Equally, a franchisee should not assume you will resolve supply problems if your role is limited to negotiating prices.

Test your chosen arrangement with a separate order, delivery, invoice and return. This will reveal practical problems before a new business owner becomes dependent on it.

3. Make mandatory purchasing legally and financially clear

The Netherlands has specific franchise legislation: the Dutch Franchise Act (Wet franchise), incorporated into Book 7 of the Dutch Civil Code, Articles 911 to 922. For franchisees established in the Netherlands, these provisions cannot be departed from to their detriment. Among other things, the rules require timely pre-contractual disclosure and proper conduct by both franchisors and franchisees.

For your purchasing model, this means a prospective franchisee must be able to understand the obligations and financial implications of joining before committing. Set out which products are mandatory, where they must be purchased, how prices are determined and which additional costs can be anticipated. Consider transport, minimum order quantities, mandatory stock levels and equipment hire. Include the relevant supplier terms if they form part of the proposed arrangements.

Be clear about your own financial interest too. Do you receive a purchasing rebate, a resale margin or another fee? Explain in plain language how the model works and who receives any benefits. Do not present a supplier discount as a guaranteed benefit for the franchisee if you actually retain it yourself.

Alongside the Dutch Franchise Act, Dutch and EU competition law also apply. Purchasing obligations and exclusivity are not automatically prohibited, but whether they are permissible depends on their structure and the circumstances. Resale prices also require attention: pressure or incentives must not turn a recommended retail price into an effective mandatory minimum price. Have restrictive arrangements reviewed in advance by a legal adviser with expertise in franchising and competition law.

4. Put a workable alternative in place for supply problems

A mandatory supplier with no fallback option leaves the entire franchise network vulnerable. Decide in advance what a franchisee should do in the event of shortages, quality problems or a sudden price change.

Use objective product specifications wherever possible. Specify, for example, materials, composition, safety and appearance. This allows you to assess alternatives without losing the franchise’s distinctive identity.

Record who approves substitute products, how quickly requests will be considered and which temporary solutions are permitted. Also appoint someone to log incidents and discuss recurring problems with suppliers. Keep franchisees informed about relevant disruptions so that each outlet does not have to solve the same problem independently.

Practical takeaway: before opening your first franchise outlet, create a single purchasing overview covering suppliers, contracting parties, costs, obligations and fallback options. Ask both the supplier and your legal adviser to check the relevant arrangements. This builds the relationship on workable agreements, rather than personal favours.