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Franchise costs

Written by: Diarmuid Kieran

Article Overview: Franchise costs to consider.

Franchise costs

There are a number of different costs to pay when setting up and running a franchise, so it is important to ensure all of them are examined when choosing a franchiser.

Some fees may be low but there could be others that franchisees do not know about or the extent of them before entering into an agreement. It is crucial that they discuss these with the prospective franchiser.

A deposit is usually needed to research the territory and to help find a suitable property and in most cases, if a franchise agreement is signed, the deposit will be part of the initial fee and if one cannot be worked out or a property cannot be found in time it will be returned.

If franchisees immediately benefit from the deposit money, such as getting a specific territory reserved for them, it can be partially or non-refundable.

Therefore, they need written confirmation from the franchiser which clearly sets out the terms of the deposit including the time limits for the new franchise to be ready to open.

Franchisees will need to pay an up-front fee once a franchise agreement has been made so that the franchiser can provide specialist and regular equipment, its recruitment system and a training programme.

They must also be realistic and be able to meet this cost, but the good news for people determined to enter this industry is that initial fees for franchises are extremely varied to cater for all types of entrepreneurs.

They can be as low as under £10,000 and as high as millions of pounds with major franchise organisations.

As each franchise outlet is an independent business, franchisees need to choose a business structure. It could be a limited company, partnership or sole trader and these involve different costs.

Once the franchise is up and running, it will pay the franchiser a royalty, a percentage of sales or a fixed amount, with the amount determined by the level of contribution to the business by the franchiser. This system also mainly applies to advertising fees.

In some cases, franchisees will need to purchase stock from the franchiser and so it is important to check what prices it charges.

In addition, they must ask when they need to pay a renewal fee to obtain an extended contract term and if there could be special fee charges for services like training in the use of new software.

If franchisees are able to have a good estimate of what costs they need to pay, they will be more likely to choose a franchise that is right for them and be able to succeed.

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Related Forum Posts
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]
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.
Re: Prospecting for a Franchise? Hold Tight - Franchise sales grew with the general economic growth in recent years, and are now contracting with the recent economic retraction. It is true that the best concepts will still have sales, but the ones most hurt at this time are those depending on financing for a large part of the development costs.
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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