When setting your hopes on a franchise, you need to be clear about what it will cost you. Like many other financial offers, sometimes the real cost is more than the first figure you see.
Franchisors need to clarify the costs, but some will make them more transparent than others, so you need to know what to expect. If you do not see a certain figure mentioned, you can then ask to check if it is already included or not.
Here are the most common fees:
The initial fee
You pay this once to get the right to become a franchisee of the company. It can vary from around $2,000 to over $100,000, but the average is tens of thousands. You will need to pay this up front, although the franchisor may allow you to split payments over the first month or so.
Royalties
Typically royalties are a percentage of gross sales, although some businesses work with a set monthly fee or vary the percentage rate with volume.
Marketing
This is usually a percentage of gross revenue. Check if it covers only general campaigns or if there will be any specific marketing for your store. You also want to think about where the company markets. For instance, if most of the franchises are in the north of the country, it might spend a large portion of its marketing budget on ice hockey games. That is not going to get you many clients in Florida.
Buying a franchise could be the start of a bright new future, but only if you are entirely sure of all the facts. Getting legal help to review the paperwork before you sign gives you the best chance of success.
NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.