Financial Obligations of Franchisees

 


 

 

 

 

 
Opening a franchised unit involves several important considerations, particularly startup cost. Startup cost are crucial considerations for the franchisee. Startup cost include:

The franchisee's major financial obligation is to the franchisor. The franchisee is required to pay the franchisor several fees. Besides the explicit fees the franchisee is generally required to purchase specific items of equipment or inventory often carrying the logo of the franchisor. The equipment used must meet the specifications set by the franchisor. All explicit fees required for the franchisee to pay are listed in items 5 and 6 of the Uniform Franchise Offering Circular (UFOC). These fees may include but are not limited to:


1. Franchising Fees - normally ranges from $5,000 to 50,000

2. Royalty Fees - normally ranges from 3 to 7 % of gross revenues on a weekly, biweekly, or monthly basis

3. Advertising Fees - normally ranges from 0.5 to 4 % of gross revenues

4. Leasing or Rental Fees - either a fixed monthly payment or normally ranges from 1 to 8 % of gross revenues

5. Training - travel, lodging, and meals

6. Other Fees - additional cost relating to on-site visitations, computer rental fees, equipment leasing fees, or travel expenses to regional or national franchisor meetings

The franchisor is required in the Uniform Franchise Offering Circular to state the franchisee's initial investment. Some franchisors work hard to establish estimates of total startup expenses. The franchisee must recognize that the figures are only estimates that will vary from one location to the other. Franchisees need to know the basis of estimates made by the franchisor and perform their own business and financial analyses before making any final decisions. The total cost of any franchise operation will depend on a number of factors, including the location, the local market, and economic conditions.