Know Before You Buy: These Are The Costs Associated With Purchasing and Operating a FranchiseFrom initial investments to royalty fees to legal costs, take stock of these numbers before it's too late.
Ready to take the jump into the franchise world? Afteryou've narrowed down your optionsand settled on a brand, it's time to run all the numbers — from one-time costs to all the associated fees that come with buying and operating a franchise both day-to-day and in the long run.
Although abrick-and-mortar businessmight require you to secure a storefront and staff and an ecommerce company might include software expenses and inventory, there are other costs unique to franchising that you should be aware of. From initial investments to royalty fees to legal costs,take stock of these numbers before it's too late.
Franchise fees and initial investments
One of the biggestperks of franchisingis buying into the company's preexisting model and business method. To do that, you make an initial investment that's called afranchise fee.
The franchise fee is theinitial paymentyou make to the franchisor for the right to use its trademark, business model and support systems. Franchise fees differ from franchise to franchise, but they are typically a one-time payment.
Remember: Thefranchisor is responsiblefor developing and maintaining its business model, training you and providing you with a support system — and the franchise fee helps the franchisor recoup some of those costs.
Related:The 4 Biggest Myths About Franchising
Royalty fees
Unlike franchise fees, which are usually a one-time payment,royalty fees are ongoing payments被特许人向特许人支付。这些费用are typically a percentage of your gross sales. The frequency with which you pay these fees varies, but generally you can expect to make a payment on a monthly or quarterly basis.
When you buy a franchise, you're not just paying for a static business model. Instead, royalty fees enable the franchisor to continue to supportyour businessthrough an ever-evolving roster of training, marketing and product development services.
Becauseroyalty feesare calculated differently by every franchise, it's important to understand what you'll be responsible for and what you'll receive in return. For instance, royalty fees can be a regularly paid flat rate for the life of your franchise, or they can be tiered, where yourpayment percentagedecreases as your sales increase.
Advertising fees
You've probably seen your franchisor's national commercials, internet and social media campaigns, billboards and even paper mail campaigns. This requires capital, so many franchisors require their franchisees to contribute to theiradvertising fund. Similar to royalty fees, advertising fees are usually a percentage of your gross sales, paid regularly. With these fees, franchisors create andrun advertising campaigns促进完整的品牌,而不是个人franchise locations.
Advertising fees are integral because they contribute to building brand recognition and attracting new customers to the entire franchise system. As a franchisee, you should understand howadvertising feesare used and what type of campaigns you can expect to see as a result.
Training and support fees
In order to provide training andcontinuous supportto franchisees, some franchisors charge training and support fees in addition to the initial investment and ongoing royalty fees.
Training and support fees are typically for the training needed before your business opens as well as continuous training, education and support as yourbusiness evolves. If your franchisor does not include these fees, then it's most likely included in your initial franchise fee or royalty fees.
Before moving forward as a franchisee, you should understand what type oftrainingand support exists within the franchise as a whole, and how much it will cost.
Related:23 Questions to Ask a Franchisor When You Meet Face to Face
Equipment, inventory and technology fees
Depending on the industry and franchise, you might need topurchase specific technology, equipment or inventory from the franchisor or their approved suppliers. This can include everything from point-of-sale systems to uniforms to food products. It's difficult to estimate how much these costs will be and how frequently you will need to pay them because they vary depending on the industry and the franchisor's requirements.
Be sure to ask the franchisor about their equipment, technology andinventory requirementsbefore you sign a franchise agreement.
Legal fees
Finally, you must consider the legal fees associated with buying a franchise as part of your initial investment. You'll need to hire anattorneyto review the franchise agreement and advise you on any potential legal issues or concerns that you might be responsible for as time goes on. This can be a significant expense depending on how complex the franchise agreement is and what yourattorney's rateis.
It might be expensive, but working with an experienced franchise attorney can help younavigate the franchise agreementand protect your interests.
Related:Which Franchise is Right For You? Follow These Steps
Running the numbers
Buying a franchise can be a great way tostart a business, saving you time in creating a brand and business model from scratch. But beyond hiring staff and finding a location, there are several initial costs and ongoing fees you need to plan for. Keep in mind that all of these fees will be clearly outlined in theFranchise Disclosure Document (FDD)that you are required to sign before buying the franchise.
Related: Considering franchise ownership? Get started now and take this quiz to find yourpersonalized list of franchisesthat match your lifestyle, interests and budget.
