Franchise Cost

PPT CONTENT:

1st slide

What are the average costs associated with franchise ownership? What fees will you
need to be aware of when you buy a franchise?

2nd slide

Breaking Down the Franchise Fees

Professional Fees: associated with obtaining a franchise typically cover services

provided by professionals such as lawyers and accountants.

Startup costs: can vary widely depending on the industry, the specific franchise brand,
and the size and location of the business.

Franchise Fee: one-time, upfront payment made by a franchisee to the franchisor for
the right to use the franchisor's brand, trademarks, business model, and support
services.

3rd slide

Royalty Fee: ongoing payment made by a franchisee to the franchisor, typically

calculated as a percentage of the franchisee's gross sales.

Operating Capital: also known as working capital, is a crucial aspect of running any
business, including franchises. Operating capital represents the funds available to
cover the day-to-day operational expenses of a business.

Last slide

Time Cost for your Franchise

The concept of "time cost" in franchising refers to the amount of time and effort
invested in various aspects of owning and operating a franchise.
Research

The cost to buy a franchise varies widely depending on the industry, the specific
franchise brand, and various other factors. When considering the cost to buy a
franchise, it's important to consider several key components:

Professional Fee:

• Legal Advice - Franchise agreements and contracts can be complex.

• Due Diligence - Professionals can help you conduct thorough due diligence on
the franchiso
• Structuring and Documentation - Lawyers assist in structuring the business
arrangement and ensure that all necessary documentation is in order.
• Compliance - Franchise businesses are subject to various regulations and legal
requirements.
• Financial and Tax Guidance - Accountants provide financial advice and help
you understand the financial implications of the franchise.
• Risk Mitigation - Professionals can identify potential risks and liabilities
associated with the franchise.

Startup Cost:

• Equipment and Inventory - The specific requirements depend on the nature of

the franchise.
• Leasehold Improvements – Any changes made to customize a rental property
to satisfy the needs of a specific event.
• Technology and Point-of-Sale Systems - Costs for implementing the required
technology systems, including point-of-sale systems, computer hardware, and
software.

Franchise Fee

• Purpose - Primarily a payment for the intangible assets provided by the

franchisor.
• Amount - can range from a few thousand dollars to several hundred thousand
dollars.
• Payment Structure - will be outlined in the franchise agreement.
• Non-refundable – not allowed to be returned in exchange for the money you
paid.
• Franchise Disclosure Document (FDD) - The FDD, provided by the franchisor,
includes detailed information about the franchise fee, as well as other fees and
costs associated with the franchise.
 • Negotiations - In some cases, franchise fees may be negotiable, especially for
multi-unit or area development agreements.

Royalty Fee

• Percentage of Gross Sales - The royalty fee is usually expressed as a percentage

of the franchisee's gross sales.
• Recurring Nature - The frequency and payment structure are outlined in the
franchise agreement.
• Support and Services - Franchisors use the revenue generated from royalty fees
to provide ongoing support to franchisees.
• Performance Metrics - Some franchisors tie the royalty fee to performance
metrics, such as achieving certain sales targets or meeting specific operational
standards.

Operating Capital

• Daily Operations – Any activities that employees or a company engage in on a

regular basis.
• Inventory Management - Operating capital helps in purchasing and
replenishing inventory as needed.
• Marketing and Advertising - Operating capital allows franchisees to implement
marketing strategies to drive business.
• Seasonal Fluctuations - Operating capital helps to bridge the gap during slower
periods and ensures ongoing operations.
• Contingencies - Operating capital provides a financial buffer to handle
unexpected costs, reducing the risk of disruptions to business operations.
• Maintenance and Repairs - Operating capital covers these ongoing
maintenance costs.
• Compliance and Licensing - Operating capital ensures that the franchise
operates legally and avoids penalties.
• Employee Training - Operating capital supports the costs associated with
training programs.

Time Cost

Training Period: The time cost associated with the initial training provided by
the franchisor.

Setup and Opening: The opening period can be time intensive as franchisees
prepare for the grand opening.

Day-to-Day Operations: The ongoing time cost involved in the day-to-day

management of the franchise.
 Administrative Tasks: Time spent on administrative tasks such as accounting,
payroll, and other paperwork.

Compliance and Reporting: The time required to adhere to the franchisor's

reporting requirements and maintain compliance with operational standards.

Training and Development: Ongoing training for employees and keeping up

with industry trends and updates.

Marketing and Promotion: Time allocated to local marketing efforts,

promotional activities, and community engagement.

Communication with Franchisor: Regular communication with the franchisor,

attending meetings, and participating in training sessions or conferences.

Adaptation to Changes: Time spent adapting to changes in the industry, market

conditions, or updates from the franchisor.