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Before launching into the adventure, the potential franchisee needs to learn about the various ideas, concepts and duties. An important first step in this process is to explain the legislative framework of franchising. Next, the franchisee should thoroughly question the franchise in which he or she is interested before making a commitment. Finally, as in any sector, franchising has its own vocabulary. We have therefore created a mini-dictionary so that the world of franchising will no longer be a closed book to you.
DOUBIN LAW
There is no "Franchise Law" as such. However, in order to prevent problems and to protect the franchisee, the Doubin Law was passed in December 1989 in France. It requires the franchisor to provide various pieces of information (the content of which is laid down by decree) to the future franchisee so that the latter can make a fully informed decision.
To understand in what consists the Doubin Law, read the First article below.
To know the conditions required towards the Doubin Law, read the conditions below.
Doubin law: First article
Any person who makes a trade name a trademark or a name available to another person and requires an undertaking from the latter to pursue its activity exclusively or almost exclusively is required to provide the other party with a document giving truthful information enabling the latter to make an undertaking in the full knowledge of the matter prior to the signing of any contract concluded in the mutual interest of the two parties. This document, the content of which is laid down by decree, shall specify in particular the age and experience of the business, the state and the prospects for growth of the market in question, the size of the network of operators, the duration, the conditions for renewal, cancellation and transfer of the contract as well as the exclusive rights. Whenever the payment of a sum is required prior to the signing of the aforementioned contract, and in particular in order to reserve an area, the services offered in return for this sum shall be specified in writing, as well as the reciprocal obligations of the parties in the event of withdrawal. The document provided for by the first paragraph as well as the draft contract shall be issued a minimum of twenty days prior to the signing of the contract or, where applicable, before the payment of the sum referred to in the preceding paragraph.
The decree of application for article one of the Doubin law of 4th April 1991 specifies the information that the franchisor must provide to the franchisee candidate.
Doubin law: Conditions
The document provided for in the first paragraph of article one of the law of 31st December 1989 referred to above must contain the following information:
1) The address of the registered office of the business and the nature of its activities, with an indication of the legal form and the identity of the head of the business in the case of an individial or its directors in the case of a legal entity; where applicable, the amount of the capital;
2) the registration number in the register of commerce and companies or the registration number in the directory of crafts, and in the event of the trademark covered by the contract has been acquired following a sale or by a licence, the date and number of the corresponding registration in the national trademarks register and, in the case of licence agreements, details of the duration for which the licence has been granted;
3) details of the bank account or accounts of the business. These details may be restricted to the five main bank accounts;
4) the date of the foundation of the business with a summary of the major stages in its development, including that of the network of operators, if any, as well as any information enabling the professional expertise gained by the operator or by the directors/managers to be assessed. The information specified in the previous paragraph need only relate to the five years preceding the issue of the document. It should/must be supplemented by a presentation of the general and local state of the market for the products and services covered by the contract and the prospects for development of this market. The annual accounts for the two last financial years or, for companies making a public call for investment/savings, the reports drawn up for the two last financial years pursuant to the third paragraph of article 341-1 of law No 66-537 of 24th July 1966 concerning commercial companies must be annexed in appendix to this part of the document;
5) a presentation of the network of operators which must include: a) the list of businesses belonging to it with an indication for each of them of the agreed mode of operation; b) the address of businesses established in France with whom the person proposing the contract is bound by contracts of the same kind as that being considered; c) the number of businesses who, having been associated with the network by contracts of the same kind as that being considered, have ceased to be a part of the network during the year preceding the issue of the document. The document must specify if the contract expired or if it was cancelled or terminated; d) if applicable, the presence, in the area of business of the establishment envisaged by the proposed contract, of any establishment in which are offered, with the express agreement of the person proposing the contract, the products or services covered thereby;
6) the indication of the duration of the proposed contract, the conditions for renewal, cancellation and transfer, as well as the scope of exclusive rights. The document must, in addition, specify the nature and the amount of expenses and investments that are specific to the franchise or brand which the recipient of the draft/proposed contract will have to bear/undertake prior to commencing operations.
ADVICE
The advantages of franchising are attractive but its demands are no less numerous. That is why we have selected key questions to ask yourself before attempting the great adventure:
- Do you have the franchise profile? Do a self assessment.
- Do you know the market? Make a SWOT analysis.
- Does the franchisor make me the best offer? Get informed on the franchisor.
The franchisee's golden rules are:
- Visit the pilot unit and franchised units.
- Ask for details. Whatever the question, do not be satisfied with evasive answers.
- Compare. Does the proposal meets your expectations?
- Assess the quality-price ratio with the "fees" proposed by competitors and the additional turnover you are supposed to achieve.
Advice: Self assessment
Key questions to ask yourself and others before attempting the great adventure:
Are you ready to accept a "turnkey" commercial concept ?
In particular, if you are looking at a franchise in an area of business that you know, are you ready to question and change some or all of the working methods that you have used up until now? Franchisees are allowed limited freedom, since the commercial success of a franchise network depends upon the exact reproduction of its "ingredients" in each unit of the chain.
Are you ready to accept the control or monitoring of your business by a franchisor who might advise you or even criticize you?
The success of a franchise network also depends upon the cohesion of the chain. Most franchisors therefore check compliance with the concept by means of visits to the point of sale, "mystery" or "dummy" customers, require regular delivery of information and monitor the activity of each franchised unit as far as its balance sheet.
Are you ready to devote time and energy to the life of the franchise network?
Many networks have established advertising and product committees in which franchisees may take part. They also organize regional and national meetings at which information is exchanged and individual experiences are discussed. In short, franchising requires a degree of group spirit.
Given your qualities and also your weaknesses and shortcomings, what type of assistance do you require?
Depending upon whether you are a good salesman, a good professional but a poor manager, or on the other hand if you have management skills but little in sales, you should look at different franchise networks.
Advice: The market
Key questions about the market and the products:
- In which business niche is the franchise network positioned ?
- What is the network’s customer base or target?
- Is the market already old or mature?
- Are the market shares already divided up between several large groups?
- Conversely, is it a new market and what is its potential target?
- What products or services are distributed by the network?
- In the case of the former, are there genuine collections suited to each season?
- Do they, on the one hand, fit in with the rest of the market and on the other hand do they display originality?
- Do they satisfy a customer need?
- Does the franchise offer a good price/benefit ratio compared with the competition?
Key questions about the know-how:
- What know-how does the franchisor offer?
- Has the franchise actually implemented effective and rational delivery, working and management methods?
Advice: The franchisor
Key questions about the network and the franchisor:
- Is it already an established network?
A network that has been operating for ten or fifteen years is a sign of stability. However, you should check that it is developing its products, working methods and designs to respond to customer requirements and new technologies.
- Is it a new franchise?
What are its growth targets and what resources does it have to achieve these? In any event, ask for information on the history of the network and the growth of its turnover. Do not hesitate to refer to trade directories in order to check the figures you are given.
- Who is the franchisor?
Is it a powerful distribution or manufacturing group or is an enterprising owner trying to expand his business? What is the capital of the company or companies, who are the shareholders, what is the organizational structure of the franchisor company? The French Doubin Law requires any network director to provide future members with all this information. Try to meet the other franchise directors and find out about their past.
- What services does the network offer?
- Does it offer initial training to new franchisees, ongoing training to established franchisees?
- Does it offer an assistance at the point of sale?
- What is the amount of the initial investment?
Note: Franchisors do not include the fees, legal costs or leases in the figures they initially declare. In some cases they may require a prestige location that will substantially increase the starting cost.
KEY WORDS
The following is a list of definition of terms - from "Bible" to "turn-over" that will become part of your daily vocabulary as a future franchisee:
Associated commerce: Term which includes franchising, voluntary chains, co-operatives.
Bible or Operating handbook: This is the confidential document that contains all information relating to the know how of the franchisor. In principle, everything relating to the pursuit of the business is defined in it in the smallest detail. This document enables a franchisee to exercise the business of the franchise very quickly. It is returned in the event of leaving the network.
Central purchasing office: Office that centralizes purchasing in order to obtain the best prices.
Central references/Selection office: Office which selects suppliers which, depending upon the network, franchisees may be contractually bound to use.
Concession/Licence: Form of association based on the contractual concession/grant of a trademark, which does not necessarily entail services by the licensor.
Concession of licence: Rental, under various conditions, of a trademark or a patent, Convention: Annual meeting of all the members of a chain.
to a third party.
Doubin law: Law (No 89-1008 of 31st December 1989; and its decree of application: No 91-337 of 4th April 1991) defining a number of obligations for commercial and craft businesses who make a trade name, trademark or name available to others by means of a contract. This law, which covers franchising, ensures a relative degree of transparency in pre-contractual relations.
Exclusive Territory: Geographical territory granted contractually to a franchisee with either the exclusive use of the name (the franchisor undertakes not to establish other points of sale under the same name) or exclusive products (the franchisor undertakes not to distribute its products through other shops) or with both the forms of exclusive rights referred to above.
Franchise contract: Document drawn up by the franchisor and which lays down the rights and obligations of the signatory or signatories.
Franchising: The implementation of everything associated with a franchise.
Forecast operating account: Document drawn up by the franchisor laying down all the expenses, revenues and profit and loss of a franchised unit. It is only a projection of the results.
Full disclosure: American law that requires all franchisors operating in the United States to provide candidates for their networks full information relating to their network prior to signature of the contract. This law ensures full transparency in pre-contractual relations.
Joining fee: Sum to be paid when joining the chain. In principle, the amount depends upon the reputation of the franchise and the package offered by the franchisor.
Organized commerce: Term which includes all types of networked organization, multiple chain, concessionaires/licencees, franchisees, co-operatives, voluntary chains, etc.
Reservation contract or Pre-contract: Contract provising for a trial period before signing the final contract. Often used when reserving an exclusive territory with the payment of a reservation fee. The clauses of this pre-contract bind the signatories in the same way as the final contract.
