What Does A Typical Franchise Start-up Fee Include?
answered by John PrattSenior Partner at Hamilton Pratt
In franchising, there are both continuing fees and an initial fee - the latter is the fee you will pay to the franchisor on entering into the franchise agreement. You need to look carefully at that fee because in some franchises the franchisor charges an initial fee and then a separate package fee, which is a fee payable for physical elements provided by the franchisor.
In other franchises, the franchisor requires an incoming franchisee to acquire physical elements from third parties. When comparing franchises and the cost of entering into a franchise, make sure you’re comparing apples with apples and know precisely what it is you will receive for the initial fee.
Although what you will receive for the payment of the initial fees varies from franchise to franchise, it’s important the initial fee does not contain a substantial element of profit for the franchisor, because otherwise the danger is the franchisor’s business model is the sale of franchises, rather than ensuring franchisees operate successful businesses.
Generally, you would expect an initial fee and other fees payable on entering into the franchise agreement to include payment for the provision of the operations manual (which contains the franchisor’s confidential information), initial training, the launch and promotion of the franchise, an initial stock of stationery, stock of products, equipment, hardware and software.
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