Become a franchisee

The entrepreneur associated with a franchising chain is identified as a franchisee. Before subscribing to any type of contract with franchisors, future franchisees should become aware of their own potential and skills through a necessary and preliminary assessment of the quality of the franchisor and its network and possible economic benefits.

The information which should be requested on the franchising network includes:

  • Name and corporate form.
  • Year that the franchisor was established.
  • Year that the franchise was launched.
  • The total number of direct sales outlets in Italy.
  • The number of franchised sales outlets.
  • The number of any sales outlets outside Italy. This information reveals the momentum behind the network’s growth.

Regarding the contract, it is appropriate that:

  • The commercial franchising contract must be drawn up in writing, under penalty of being considered null.
  • The franchisor must have tested its commercial formula on the market.
  • Where the contract has a fixed term, the franchisor must nevertheless guarantee the franchisee a minimum term sufficient for amortisation of the investment and in any event no less than three years.

The contract must also expressly indicate:

  • the amount of the investment and any entry expenses which the franchisee must incur before the start of the activity;
  • the procedures for calculating the payment of royalties and a possible indication of minimum proceeds to be achieved by the franchisee;
  • the field of any territorial exclusivity both in relation to other franchisees, and in relation to sales channels and units directly managed by the franchisor;
  • the specific know-how provided by the franchisor to the franchisee;
  • possible procedures for recognition of the franchisee’s contribution of know-how;
  • the features of the services offered by the franchisor in terms of technical and commercial assistance, planning and set-up and training;
  • the terms and conditions for renewal, termination or possible transfer of the contract itself.

For the ideal sales outlet it is necessary to request:

  • The assumed average surface area of the sales outlet.
  • The optimal organisation of the sales outlet (this helps to complete the information on an important element which determines potential rental costs with greater precision).
  • The number of employees, including the franchisee, necessary to run the activity.
  • The catchment area. The franchisor’s objective in establishing the catchment area is to assess the size of the area in which the franchisee performs its activity, and especially to avoid a situation whereby the exercise of the business is unproductive. Exclusivity is obviously the direct reference and it therefore rests with the franchisee to assess whether the catchment area communicated is sufficient for the activity’s “sustainability”.

Training

Franchising is, by definition, a commercial formula for which the law also foresees a transfer of know-how from franchisor to franchisee, where know-how is defined as “the practical, unpatented knowledge base drawn from experience and tests executed by the franchisor, a knowledge base which is secret, substantial and identified” (law 129/2004). The franchisor delivers the so-called operating manual to the franchisee, containing all the knowledge required to carry out the activity.

How much money is needed to launch activity as a franchisee?

It is good to properly understand how much money we will need to launch our franchise activity. The items which need to be taken into consideration relate to start-up costs, the premises which will host the activity, advertising expenses, refurbishment of the premises and furniture. Law 129/2004 on franchising states: “The contract must expressly indicate the amount of investment and any entry costs which the franchisee has to incur before the start of the activity”.

Fee and royalties

In the commercial franchising contract the following definition applies: a fixed sum which the franchisee pays for right of entry at the time of drawing up the commercial franchising contract. Royalties are defined as a percentage which the franchisor requests from the franchisee, in line with turnover or as a fixed share. In considering these two aspects, the law respects the autonomy of the parties. Fees and royalties are calculated and agreed in a free manner.

 

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World Franchising Council