Preparing a franchise information pack for your first franchisee

If you want to turn an existing business into a franchise, you need more than a convincing presentation before anyone signs. A carefully prepared pre-contractual information pack helps prospective franchisees assess the proposed relationship. It also lays the foundations for a franchise network where expectations, costs and responsibilities can be discussed openly.

1. Establish what you must disclose in advance

The Netherlands has specific franchise rules: the Dutch Franchise Act, incorporated into Book 7 of the Dutch Civil Code, Articles 7:911 to 7:922. These include pre-contractual disclosure obligations and a statutory reflection period. These provisions cannot be departed from to the detriment of franchisees established in the Netherlands.

A pre-contractual information pack, often referred to in the Netherlands as a PID, is a practical way to bring the required information together. There is no mandatory standard form. What matters is the content, clarity and timely provision of the information; a polished cover does not make an incomplete pack complete.

As a new franchisor, include at least:

• The draft franchise agreement with all appendices, including relevant sections of the operations manual.
• An explanation of the franchise concept and each party’s rights and obligations.
• An overview of fees, mark-ups, investments and other financial contributions.
• Information about how and how often consultation takes place, along with relevant contact details.
• An explanation of any competition from the franchisor and access to turnover-related data concerning the franchisee.
• Information about your financial position and the required financial data relating to the proposed location.
• Any other information you know, or can reasonably be expected to suspect, is important to the decision to enter into the agreement.

Ask a lawyer specialising in franchising to check that the pack meets all statutory requirements. Use this list as a working structure, not as a substitute for that review.

2. Translate your existing business into specific commitments

In a business you run yourself, many working practices are taken for granted. A prospective franchisee does not have that background. Explain what they will actually receive, what they must arrange themselves and what they are required to purchase.

For example, distinguish between support at launch and ongoing operational support. Who provides training? Who pays travel and accommodation expenses? What help will the franchisee receive if equipment fails or sales disappoint? Avoid promises such as ‘comprehensive support’ unless you explain exactly what that covers.

Set out all costs in a single overview. For each item, specify how it is calculated, how often it is payable, when payment becomes due, any possible adjustments and the services included. Cover items such as the initial franchise fee, ongoing franchise fees, marketing contributions, software and mandatory fit-out requirements. Also identify which figures are still estimates and what they depend on.

Then check that the presentation, information pack, agreement and operations manual are consistent. Promising exclusivity in a sales meeting is incompatible with an agreement that allows competing outlets in the same territory. Clearly document the brand and usage rights being offered, along with any restrictions.

3. Make gaps in the information clear

For a first franchise outlet, there is no franchise network track record. Say so explicitly. Do not present experience gained in your own business as though it came from working with independent franchisees.

You must provide financial data for the proposed location insofar as it is reasonably available. If it is not available, provide data from comparable businesses and explain why they are comparable. Identify relevant differences, such as location, floor area, opening hours and the owner’s involvement in running the business.

The Dutch Franchise Act does not automatically require you to prepare a turnover or profit forecast. If you do provide projections, distinguish them clearly from actual results and explain the assumptions and uncertainties. Have the supporting financial analysis checked by an expert.

Also keep a list of outstanding issues. Is the final software price still missing, for example, or is a lease uncertain? Explain what remains unresolved, who is looking into it and when clarity is expected. Do not use a general warning about business risk as a substitute for specific information.

4. Plan for the four-week reflection period

The information required by law must be provided at least four weeks before the franchise agreement is entered into. Plan this period from the date the required information is supplied, not from the introductory meeting.

During this period, you may not amend the draft agreement unless the change benefits the prospective franchisee. You may not enter into the franchise agreement or any agreements inseparably linked to it, with an exception for a non-disclosure agreement. Nor may you encourage the prospective franchisee to make payments or investments connected with the franchise agreement that has yet to be signed.

Do not, therefore, request a reservation payment or require the prospective franchisee to order fixtures and equipment in advance. Do allow time for questions, research into the location, and independent legal and financial advice. The prospective franchisee also has a duty to conduct their own enquiries.

If information turns out to be incomplete or the proposal changes materially, seek legal advice on what this means for the required period before setting a signing date.

5. Keep evidence and resolve questions carefully

Use a dated table of contents, version numbers and a secure method of sharing documents. Record which documents were provided to which prospective franchisee and when. An acknowledgement of receipt proves delivery; it does not confirm that everything has been understood or that statutory rights have been waived.

Keep questions and answers with the information pack. Ensure that any commitments forming part of the relationship are also incorporated into the appropriate contractual documents. This gives your franchise network a reliable information base from its very first member.

Practical conclusion: first make the information pack complete and internally consistent, have it checked, and only then schedule signing. Treat the reflection period as time for due diligence, not as a sales deadline.