Unsurprisingly, there are multiple payments related to owning a franchise. As dictated by the Federal Trade Commission (FTC), franchisors must list those fees in their Franchise Agreements. The following are the primary payments that will be listed:
Initial Franchise Fee: Franchisees pay this fee to obtain the right to use the franchisor's trademark, products and/or services. These franchise fees, which are essentially paying for established operating systems/brand awareness, may range from under $10K to over $100K.
Legal/Accounting Fees: Attorneys need to review your franchise agreement in order to create a legal entity for your franchise (i.e. a corporation, LLC, etc), and accountants need to review a franchisor's financial statements.
Liability, Property/Casualty, and Other Insurance: Make a copy of the franchisor's insurance requirements (listed in their UFOC) and fax them to your brokers for rate quotes should you wish to get an idea of how much insurance will cost. If you have employees, you might be required to offer disability and life insurance along with additional employee benefits such as retirement plans.
Employee Salaries: Making a profit can take up to three years; make sure you know how much you'll need for your employees' salaries during that time.
Building and Outfitting Costs: Building/outfitting store costs vary substantially depending on the kind of business you're opening. The costs will most certainly be more if you are attempting to build a store from the ground up than if you're merely outfitting an existing location. However, even in the latter scenario, you'll need ventilation, décor, furniture/seating, fixtures/equipment, lighting, signage and restrooms.
Rent and Security Deposits: You'll have to pay these fees if you lease space for your business.
Equipment and Software Upgrades: Your franchisor may require planned equipment and software upgrades, which you would have to pay for.
Royalties: Franchisees must pay regular royalty fees to the franchisor. These fees are generally monthly, and can range anywhere from 4 to 8 percent of a franchisee's total sales.
Advertising Fees: A number of franchisors require franchisees to contribute to an advertising fund, which funds local to national ad campaigns, commercials, and other promotions. Some franchisors have co-op programs in which the franchisor pays a portion of the costs, allowing franchisees to pay for the rest on a case-by-case basis.
Franchise Payments Franchisees Can Expect to Pay - To learn more about this author, visit Sebastien Page's Website.
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Sebastien Page
(Visit Sebastien's Website)
Sebas
tien Page is Director of Marketing for
Wo
rldFranchising.com, the most
comprehensive information resource for
potential franchise buyers. The company
also publishes franchise best sellers such
as Bond's Franchise Guide, and Top 100
Franchises Guide. Before joining
WorldFranchising.com, Page was Marketing
Manager for Franchise.com where he
successfully led the Marketing Department.
Sebastien Page is very active in the
franchise community and he often writes
about franchising, sales and marketing.
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