“None of us is as good as all of us”*
* Ray Kroc – architect of the expansion of the McDonald’s franchise
Sooner or later, many entrepreneurs achieve the point where their organisation is rock solid: the concept works, the product or service package has proven successful, and the financial results are beyond satisfactory. At that point, the next natural step is clear: why not GROW the business! Anyone considering growth is soon faced with some key strategic choices. As an entrepreneur, are you going to set up and finance every branch or new unit yourself? Is franchising the right formula for growth? Like Ray Kroc, are you going to opt for commercial cooperation with partners who believe in the commercial concept and are also willing to invest in their own business, while contributing to the overall growth of the business format?
Even start-ups and new entrepreneurs soon have to make important choices. Do you opt for complete independence, with maximum scope for personal creativity, innovation and developing your own concept? Or could using a proven and successful business franchise format in which structure, support and brand awareness are central (but where not all aspects can be configured freely), be a better alternative? Those who opt for franchising are consciously choosing to be independent entrepreneurs but within a set of clearly defined rules. Franchise agreements are intended to protect and strengthen the brand, the network of franchisees and their joint success, even if this sometimes limits individual freedom and creative scope.
Before committing to a franchise formula, it is essential for a potential franchisor to first assess the ‘franchisability’ of his/her business format. Not every successful concept is automatically suitable for franchising. There are four key criteria that a franchise system must meet:
- Strongly distinctive concept: the concept must be unique and offer clear added value compared to competitors.
- Strongly positioned and recognisable brand: the brand must be recognisable and inspire confidence in customers and franchisees. The brand is one of the foundations of the franchise system.
- Proven financial success: the system must be demonstrably profitable and have a stable financial basis.
- Replicability and transferable know-how (‘savoir-faire’): the processes, knowledge and expertise must be easily transferable to franchisees so that the concept can be implemented consistently in multiple locations.
Having confirmed that this checklist of basic criteria is met, you can begin further development of the concept. This preparatory phase will include: – definition of standards, training, support services, including IT, and operational organisation. You also need to work on a strong legal framework and a robust financial plan. Taken together, these aspects constitute the fundamental blueprint for the franchise system.
The Belgian legislator has ‘translated’ the building blocks mentioned above into a legal definition of ‘commercial cooperation agreements’[1]. Although that is, arguably, less important for the purposes of this article, nevertheless, being aware of the Belgian law requiring documentation of precontractual information (set forth in the 2024 “PID Act”), is essential. As implemented in the Belgian Code of Economic Law, the PID Act obliges franchisors to provide reliable pre-contractual information to prospective franchisees, thereby reducing the risk of misunderstandings.
For now, however, let us go back to the key question at the heart of this article. ‘Is franchising the right business format that will permit optimal growth of my business?’
What are the reasons why entrepreneurs may consider creating or joining a franchise? A non-exhaustive overview of the main advantages and disadvantages for both franchisors and franchisees is set forth below:
The advantages
For the franchisor:
- Franchisors can set up a growth process with limited capital and build a network with limited risk.
- Collaboration with local partners through franchising makes it possible to enter new markets more quickly and at the same time and ensures strong local anchoring. Franchisees contribute local market knowledge, which makes the growth of the concept and the network more efficient and robust.
- Franchising creates economies of scale: a larger network leads to joint purchasing, marketing and knowledge sharing, ensuring more efficient processes within the network.
- Through long-term collaborations, the franchise system generates recurring income for the franchisor through royalties and cost contributions, making cash flow more stable.
- The structure of the model allows the franchisor to focus more on core activities such as strategic vision, system development, innovation and brand management rather than on day-to-day operational tasks.
For the franchisee
- Franchisees invest in their own outlet and actively contribute to the growth of the entire network.
- Choosing to become a franchisee combines the advantages of independent entrepreneurship with the strength of an existing and successful concept. Franchising can be considered a ‘ready-to-use’ business system: a developed and tested concept that allows for a faster start-up than with a completely autonomous initiative.
- As a franchisee, you are not alone. You become part of a network of like-minded entrepreneurs within the same system: a club of colleagues with a shared passion, in which experience, insights and best practices are all exchanged.
- Within the franchise network – long term collaborations not only strengthen entrepreneurship, but also the joint success of the system.
- The franchisor shares its knowledge and experience (know-how) and offers targeted support to the franchisee, both during the start-up and during the further expansion of the business. This allows the franchisee to reach ‘cruising speed’ more quickly and focus on the day-to-day operations and commercial growth of their franchise unit(s).
In addition to the undeniable advantages, there are disadvantages and significant challenges, or let’s call them rather ‘points for consideration’, for both the franchisor and franchisee:
Points for consideration
For the franchisor
- The transition from a traditional operating model to a franchise system implies a significant shift in management and governance. Operational management makes way for strategic leadership, with the focus shifting to managing, supporting and monitoring franchisees within the framework of a standardised system.
- The franchise model implies a different financial revenue model, whereby the franchisor generates income through franchise fees and royalties, which entails a fundamentally different income and cost dynamic. An appropriate P&L approach and careful financial planning in advance are required to correctly assess profitability and cash flow at the level of the franchise network.
- The success of the network depends heavily on the performance of the franchisees, which poses a systemic risk, requires additional coordination and may be challenging to manage.
- There is also a significant risk to brand reputation, as one underperforming branch can affect the brand perception of the entire network, especially in the start-up phase.
For the franchisee
- Success does not come automatically, even within a franchise system. The result is largely determined by the franchisee’s commitment, discipline and entrepreneurial mindset. The system provides a framework and support, but day-to-day implementation and local anchoring remain crucial.
- It is also important to keep expectations realistic. Franchising is not a guarantee of success. Dreams of quick profits or effortless growth without intensive involvement are often illusory. A clear understanding of investments, workload, profitability and growth potential will help prevent disappointment in the longer term.
- Choosing the right type of franchise concept is essential: do you opt for ‘hard franchising’, where processes and decisions are strongly controlled, or ‘soft franchising’, which leaves more room for autonomy and your own entrepreneurship? The degree of control must match the personality, competencies and expectations of the franchisee.
- Check the history of the brand and concept, how many points of sale are there? Visit existing franchise branches and talk to the franchisees. Ask questions, share your concerns and listen to their feedback. Check how many franchises have closed in recent years? How many are yet to be opened?
Making the right choice requires careful and thorough preparation by both parties:
For the franchisor, as mentioned above, there is the implementation of the franchise system which requires the careful creation of a number of essential tools, including a carefully elaborated know-how (or ‘brand’) book, setting out in detail the vision, values and standards of the network. A tailor-made business plan with sufficient attention to regular cash planning for both franchisor and franchisee. A strong, but balanced, franchise agreement that not only provides safeguards regarding the ‘third-party’ franchise network but also emphasizes the spirit of sharing a ‘win-win’ between franchisor and franchisees and which pays attention to regular communication and appropriate dispute resolution mechanisms (including mediation).
As mentioned above, franchisors are obliged to provide reliable pre-contractual information to prospective franchisees. The Pre-Contractual Information Document (“PID”) is the absolute cornerstone of a transparent and sustainable franchise relationship. The more honest, complete, accurate and detailed this document is, the better prospective franchisees will be able to form a correct and realistic picture of the concept, the system, the support offered and the associated costs and benefits.
Franchise: Negotiation and PID Obligations
The existing PID obligations were expanded by an Act of February, and Royal Decree of August, 2024. They now include, among other things, the franchisor’s obligation to share an estimated operating account for a period of at least three years with the prospective franchisee.[2]
However, the prospective franchisee also has a responsibility to study the PID carefully and critically, and to be completely transparent with the franchisor about their own experience and financial situation. The PID largely determines the chances of success of a long-term, balanced and successful partnership without the unpleasant surprises that are not in the interests of either party. We recommend organising a thorough question and answer session before signing the franchise agreement to allow any ambiguities to be clarified and further refine expectations. Franchisees are also highly recommended to seek appropriate expert assistance, from accountants, franchise experts and/or lawyers during the cooling-off period if they have not already done so beforehand.
Final Thoughts: Franchising is not a guarantee of success, but it is a scalable and capital-efficient growth model that enables companies to accelerate the expansion of their market position. The strength of franchising lies in the systematic organisation of a network of independent entrepreneurs within a centrally managed strategic operational framework. By combining local entrepreneurial spirit with central brand management, processes and expertise, a whole that performs structurally better than individual companies can be created.
In this context, Ray Kroc’s famous quote – “None of us is as good as all of us” – succinctly summarises what franchising makes possible economically and strategically. This same idea also forms the core philosophy of the Belgian Franchise Federation (BFF). Ray Kroc’s quote emphasizes that cooperation is central: franchisors and franchisees each contribute to a stronger whole, based on their respective roles and expertise. Only by sharing knowledge, aligning interests and jointly building professional and sustainable systems can the franchise model realise its full potential.
| Alexander DUPONT | & | Benoit SIMPELAERE |
| alexander.dupont.be@gmail.com | benoit.simpelaere@flinn.law |
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[1] Art. I.11. Belgian Code of Economic Law.
[…] 2° “commercial cooperation agreement”: agreement concluded between two or more persons, whereby one person grants to the other the right to use a commercial formula in the sale of products or the provision of services in one or more of the following forms:– a common brand;
– a common trade name;
– a transfer of know-how;
– commercial or technical assistance.
[2] Laruelle 2.0 Act – “Much ado about nothing”? Presentation by Alexander Dupont and Benoit Simpelaere at the Belgian Franchise Federations Experts’ Day on 14 November 2024.
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