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Franchise Payments Franchisees Can Expect to Pay

Written by: Sebastien Page

Article Overview: 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...

Franchise Payments Franchisees Can Expect to Pay

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.

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Article Tags: accounting fees, cor furniture, employee salaries, equipment lighting, federal trade commission, franchise agreement, franchise agreements, franchise fees, franchisor, franchisors, initial franchise fee, insurance requirements, latter scenario, owning a franchise, property casualty, retirement plans, royalty fees, security deposits, trademark products, ufoc



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Online Payment Methods - I'd like to know what Payment method do entrepreneurs use to process credit cards online? Here at RSC Business Group we have made a decision to go with Paypal in the short term. If we find that we have more than 10 transactions a month then we plan on going with a Bank Processor of Payments. What do you guys use?
Quote of the Day - "Expect more than others think possible. - "Expect more than others think possible. Care more than others think wise." - Howard Schultz, goo.gl/SLcI4


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