Along with paying for a business license, most franchisers also charge your other fees in an effort to recoup substantial investments in founding the franchise. Some of the costs they use these fees to repay are for product development, marketing plans, demographic studies, architectural and industrial plans, site selection studies, lease and construction costs for models and startup units, carrying inventory and loans, interest payments, training program and material development, legal and professional fees, and salaries paid to their own employees. Added to this are the expenses of making sure the business meets federal and state requirements. Clearly franchisers are justified in charging varying fees to sell you the rights for their business.
The cost of obtaining a license and starting up your operation varies according to the type of business you purchase. You can pay up to 12 different fees for the license and to obtain support from the franchiser. These fees include:.
Basic franchise fee: Entitles you to a wide range of personal training, licenses, operations manuals, training materials, site selection and local preparation assistance, and so on. In order to make sure you get the most benefit from the fees you pay, be sure to negotiate this type of support and add it to your contract with the franchiser.
Royalties: These are most commonly paid on gross sales and revenues, and they are calculated on a percentage basis. Royalties are paid as you operate, and should not be part of your up front costs. They should be estimated and factored in to your profit projection each year.
Rent/Lease payments: When you rent or lease equipment, a building, or land from a franchiser you will have to pay for it. Be careful of hidden costs in up front security deposits required by whoever your landlord will be.
Prepaid capital: this is a very broad category that usually includes the cost of fixed assets and equipment required for opening.