Wednesday, September 7, 2022
4 tips to make the most of your DIP
Become a franchisee
The pre-contractual disclosure document – DIP – is in theory sent to you after your first meeting with the franchisor and at least 20 days before you sign the contract. Take the time to read it and exploit it to secure your project and make it work for you.
1. Is the DIP up to date?
Before you get down to details, work out when the information in the document dates back to, and tick off the information which, according to the Doubin Act (article L330-3 of the French Commercial Code) are mandatory in the DIP. Among the most important items, you should have access to the last two years’ financial statements of the franchisor, the list of the members of the network, a description of the local and general state of the market, but also the list of franchisees who left the network in the previous 12 months, together with the draft franchise contract. If any of these items is missing, ask the franchisor to send them to you.
2. Check out the departed franchisees
With the DIP, you can analyse the churn rate in the network, in other words the franchisees who have left the brand. The law stipulates that your future franchisor must give details of the movements of franchisees over the past 12 months, together with the reasons for their leaving (revocation, non-renewal, liquidation, etc.). While you should not be unduly alarmed at a list of franchisees who have terminated their contracts, you should understand when and why these terminations happened. The list of the members of the network must enable you to determine how healthy the brand is. To do so, select several franchisees who are established in similar areas to the one you are aiming for, and download their balance sheets on specialist websites like societe.com. You will therefore see whether the franchisees are making a profit, and whether the concept is viable in this type of zone.
3. Phone up some franchisees!
The list of franchisees should also allow you to contact them so you can ask them about their feelings, their experience, and their tips. Also ask them how the concept is faring against the competition and whether they are satisfied with the assistance they get from the franchisor. The DIP also provides you with the last two years’ financial results of the franchisor company. These figures will give you a bit more information on the state health of the brand. Details of the investments required for your project (franchise fee, royalties, training, etc.) and a description of the local and general state of the market are also provided. Here too, you shouldn’t take for granted the information given in the pre-contractual disclosure document. It is important to conduct your own market survey and get out there on the ground to analyse footfall, for example.
4. Challenge the franchisor
If, once you’ve read the DIP, there are still a few grey areas, ask the franchisor! If they don’t give an honest answer to your questions, be wary. There should not be any off-limits subjects. Also, don’t fall for the lofty promises of the brand you are considering. And you should beware of networks who try and force you to sign, failing which you would lose the exclusive rights over your desired catchment area. To avoid any unpleasant surprises, don’t hesitate to ask for help. Whether from a legal adviser, a chartered accountant or a geomarketing consultancy.
All these experts will be at Franchise Expo Paris, from 16 to 18 March 2024.