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How is the initial franchise fee calculated?

Author: Shelley Nadler

answered by Shelley Nadler

Legal director at Bird & Bird

In most cases, a franchisee will be charged an initial franchise fee. How it is calculated and what it covers varies from franchise to franchise. Details of what is included as part of the initial franchise fee should be set out in the franchise agreement.The initial fee covers a range of services provided by the franchisor to help the franchisee establish its business. This will usually include training in the franchise system for the franchisee and possibly some employees (if relevant) for a specified period of time, as well as advice and assistance on the various elements necessary to start up the business. The initial fee will also include the provision of the franchise operational manuals.For a premises based franchise, initial assistance provided by the franchisor may relate to the selection of premises and advice on the design, fitting out and equipping of the business. If the franchise is a mobile operation involving a liveried vehicle, the franchisor should provide assistance with the leasing of a suitable vehicle and the application of the livery. In some franchise networks the initial fee includes a package of equipment and/or products comprising all the initial requirements of the franchisee’s business. In some cases, it may include the cost of a ‘turnkey’ fitting out of premises and cover the cost of an initial marketing launch or supply of marketing materials or templates.If you are in any doubt as to what is included in the initial franchise fee, ask the franchisor to provide you with a breakdown.

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