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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