Franchising is in most cases a form of cooperation that can bring great benefits to all involved, the proverbial “win-win situation”. Evidence of the success of franchising can be seen in multiples in every shopping center in the Netherlands. In a relatively short period of time, the phenomenon of franchising has spread to virtually all sections of society.
Franchise concepts therefore come in an enormous variety, from shoemakers to fast-food restaurants and from courier services to drugstores. The variation in activity that lends itself to franchising therefore seems endless. However, there are limits to that. Practice shows that not all franchise concepts, sometimes started with good courage and good intentions, lead to success. In general, it is extremely difficult to indicate where the boundary lies in that context. An important rule of thumb is that, perhaps, of course, the franchisee can generate sufficient turnover with the business to be operated by him, which, when compared to his operating costs, produces an adequate operating result from which to live. That goes without saying, of course, but in practice it sometimes happens that concepts meet that requirement in theory, but prove difficult to handle in practice. It goes without saying that concrete examples cannot be given here, but where some business activities as (part of) a branch company, belonging to a larger whole, can be an adequate addition to the total package that the company concerned offers to the end user, the same activity can be used for a franchisee simply offer too little economic basis. In order to anticipate these problems, it is therefore always advisable to open one or more pilot locations of the franchise concept to be launched on the market and to actually operate it for a considerable period of time, so that the (potential) franchisor knows from his own experience whether the concept is suitable to be operated as a franchise concept. Incidentally, members of the Dutch Franchise Association are already obliged to do so under the European Code of Honor on Franchising, which explicitly states the desirability of a pilot location.
As an extension of the above, the prognosis problem has already been discussed several times in this section. Does a (potential) franchisor paint a too rosy picture?
Ludwig & Van Dam franchise attorneys, franchise legal advice