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Would a franchisor allow me to pay the ‘initial fee’ in instalments?
Some franchise agreements do envisage that the initial fee is paid in instalments, but very few. There are three reasons why this is considered a bad idea. First, the initial fee is there to reimburse the franchisor the substantial costs in performing its initial obligations and recruiting a franchisee. Franchisors have to provide stationery, manuals, training and equipment, so would argue that since they are having to incur these costs from day one, why shouldn’t a franchisee have to pay for them from day one. Secondly, a franchisor might be ‘nervous’ if a franchisee cannot afford to pay the initial fee, because this might demonstrate that the prospective franchisee was insufficiently funded. Thirdly, if franchisees are allowed time to pay after they have been trained and the manual has been provided to them then the franchisee already has all of the ‘crown jewels’ in the form of the franchisor’s know how and, as a result, it may be difficult to obtain payment. Having said that, some franchises do allow franchisees to pay in instalments with a view to the first three months trading being profitable, so that franchisees are then able to generate sufficient turnover and profit to fund subsequent payments.
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