Wednesday, September 7, 2022

DIP, royalties, franchise fee… Find your way through the franchising jargon.

Become a franchisee
DIP, royalties, franchise fee… Find your way through the franchising jargon.
While franchising is a way to create new businesses, several key concepts in the French system can be confusing or disconcerting. We help you get to grips with the most important ones before you take the plunge.

Pre-contractual disclosure document

Known as document d’information précontractuelleor DIP in French, this is a detailed presentation that the franchisor must provide you with at least 20 days before you sign the franchise agreement. This document is fundamental, and it must be complete. You have a duty to read it carefully before you sign up. In particular, it must include a presentation of the franchisor, the financial statements from the last two years, and the list of existing members and also those who left the network in the last 12 months. The details of the expenses and investment required to join the network must also be included, together with a general and local state of the market.

Franchise fee (droit d'entrée)

The franchise fee may also appear under the name redevance initiale forfaitaire, or initial fixed fee. This is the sum paid by the franchisee on signing the contract, which gives you access to the network and the franchisor’s know-how. Some franchisors do not ask for an initial fee, but in most cases, it will be unavoidable. Check out what the fee entitles you to. It may be that networks include training, but this is not a given. Generally, you cannot pay for a franchise fee with a bank loan, so you will have to pay for it from your personal capital.

Royalty fees

There are two types of royalties or royalty fees (redevancein French). The first is called redevance d'exploitation or redevance d'enseigne (operating or brand royalties). These are the financial payments you make to your franchisor, generally on a monthly basis, in return for the know-how and assistance they will give you throughout your contract. Traditionally, these royalty fees are calculated according to a percentage of the turnover generated by the franchisee. But it may also be a fixed fee. The other royalty fee is dedicated to communications. Not all networks, especially the smallest, require this fee. This fee is highly important if you are joining a very well-known franchise. The amount you spend will go towards nationwide advertising campaigns paid for by the franchisor.

Operations manual (manuel opératoire)

This is a bit like the Bible of any franchisor. It is a manual containing the franchisor’s know-how. All the procedures must be described, whether in writing or in video format. This manual is substantive and confidential. You will be given it generally when you sign your franchise agreement.

Intuitu Personae

Even if your Latin isn’t top-notch, you have to understand this notion before you become a franchisee. It means that the contract is signed in consideration and in respect of the person who signs the contract. The franchiser will choose the members of the network who will represent the brand. This means that if you want to take on a new associate or sell your business in the middle of the contract, you have to obtain the authorisation of the franchisor. They will decide whether to approve or reject the person who wants to become the new shareholder or owner of the business.