There are a number of different costs incurred when setting up and operating a franchise, so it is important to ensure all of them are examined when choosing a franchiser.
Some fees are clearly evident, but there could be others that franchisees are unaware of 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. In most cases, if a franchise agreement is signed, the deposit will be part of the initial fee. If one cannot be worked out or a property cannot be found in time, the deposit 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 such things as equipment, recruitment, and training.
Franchisees must be realistic and able to meet these costs, but the good news for people determined to enter this industry is that initial fees for franchises are extremely varied to accommodate all types of entrepreneurs.
Since each franchise outlet is an independent business, franchisees need to choose a business structure. It could be a limited company, partnership or sole trader, each involving different costs.
Once the franchise is operational, it will pay the franchisor a royalty, either a percentage of sales or a fixed 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, so it is important to check what those prices are.
In addition, franchisees 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.