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Are franchise fees and other costs negotiable?
Alan Wilkinson writes:
There are two elements to consider here. First is the franchise fee itself, and second are the associated set-up costs. Sometimes these are combined to form a ‘turn-key package’ and sometimes they are kept separate.
The franchise fee itself is designed to cover all of the franchisors costs in finding, recruiting, training and supporting a franchisee through their launch period. It also buys the franchisee the rights to operate under the franchisors brand, and to use its intellectual property and know-how. This fee should therefore be consistent and fixed for all franchisees.
The next element to consider is the set-up costs of the operation. I will use some examples to illustrate how this may work.
For a business with relatively low set-up costs, such as a work-from-home business, any additional costs may be minimal, such as a laptop, printer, filing cabinet, and perhaps a software package or two. If a franchisee already has a home office set up, then these costs could be negligible.
For a van-based business, costs could include the purchase of, or deposit on the lease for a van, decals, equipment, and stock. The franchisor may include all or part of this within the franchise fee as a turn-key package, or this may be an additional cost to the franchisee.
My third example is a restaurant or cafe, where the set-up costs of kitchen fit out, equipment, or front of house will vary considerably depending on the premises. These costs would not be included in the franchise fee.
So, to summarise, franchise fees should not be negotiable, but additional set-up costs can vary. A franchisee should always produce a detailed business plan and ensure that thy understand all of the set-up costs and indeed ongoing costs and profit projections.
Alan Wilkinson is head of franchise development at The Franchising Centre and has been in franchising for over 25 years.
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