Published in L´express Franchise , 20 - February , 2025 Overview franchises

Beware, it's a red flag when a franchise announces no royalties to attract prospective franchisees. "Check carefully to find out why they're doing this," says Carlos Barbadillo, CEO of the franchise consultancy Barbadillo y Asociados, who shared this and many other tips in an online workshop organized by the Torrejón City Council (Madrid) on February 20th.

Barbadillo describes franchising as "a system of associated commerce, not a sector." He emphasizes that it's a system encompassing "almost all economic sectors." This network already boasted 78,255 franchises in 2023 alone, compared to fewer than 30,000 in 2001—more than doubling in twenty years.

How can I become part of a franchise?

Barbadillo reminded everyone that the essential elements of a franchise are human: “the franchisor and the franchisee,” bound by a written contractual relationship between individuals. He insisted that the franchise must be based on a “complete and proven business concept, not on an idea without a verified model or pilot units.” He added that this must be complemented by “the subsequent transfer of knowledge, ongoing support for the franchisee, and network control by the franchisor.” He advises prospective franchisees to “consult the brand beforehand” regarding any questions or points necessary to finalize the contract.

The Fees to Pay When Setting Up a Franchise
Among the fees to be paid is the initial franchise fee, a payment the franchisee makes upon joining the franchise. “It must be well-justified to avoid disputes between the parties,” Barbadillo stated. This fee generally includes the use of the brand, the transfer of know-how, and the agreed-upon territory for the business. Normally, payment is made upon signing the contract. Then there's the royalty or maintenance fee, which refers to "payments for ongoing services to the franchisor." Barbadillo adds that "the most common practice is to calculate percentages of revenue."

Other aspects to consider when opening a franchise
The consultant also advised prospective franchisees to consider the contract's duration, "what happens when it ends?" and the exclusivity of the supply chain, "will I have 100% access to approved suppliers, or not?" He also urged them to pay attention to "the specific obligations of your sector." And finally, to "consult with a franchise specialist," if necessary.

Finally, Carlos Barbadillo concluded the talk by discussing "three clauses we shouldn't find" in franchise agreements. He referred to price impositions, although the franchisor could suggest prices or establish a price range; not restricting the sale of products between franchisees themselves, something that could happen if there is any delay or problems with the supply, and not restricting passive sales, for example, through the internet.