Franchisors are required by the Federal Trade Commission to list a variety of one-time and ongoing fees in the Franchise Agreement they provide interested buyers with. The first payments franchisees will make to a franchisor will most likely be the initial franchise fee, which is paid to the system for the right to use the company's trademark and sell its products or services, AllBusiness.com explains. Typically, these fees run between $10,000 and $100,000 each.
However, before a buyer decides to purchase a unit, they will need to pay lawyers and accountants to review the contract and the franchisor's financial statements. Additionally, a lawyer is necessary for assisting franchisees in creating a corporation, LLC or other legal entity for the franchise unit.
Once the franchise contract has been signed, buyers will need to set up the unit and purchase protection for their property. Insurance is a must-have expense; there is no way to get around it. Franchisees who are wondering how much property/casualty, liability and other types of insurance will cost them can make a copy of the franchsior's insurance requirements and fax them to various offices to receive quotes.
Owners shouldn't forget about the employees they will need to hire. Not only will franchisees be required to pay their workers salaries, but they will also need to check to see if they will need to offer employee life and disability insurances and other benefits, such as retirement plans, the Web site writes.
Franchise units do not normally come fully outfitted with the machinery and equipment owners will need to get the business running - the franchise fee only pays for the right to advertise with a company's logo, sell its products and benefit from an already established and successful brand. Franchisees will be responsible for purchasing fixtures and equipment, furniture and seating, lighting, ventilation, decor, signage and technology.
Franchisees will not just be paying a one-time initial fee to their franchisors. On a regular basis, usually monthly, unit owners will be expected to pay royalties, which can be anywhere from four to eight percent of a franchisee's total sales. Franchisees may also expect to pay other continuing fees to franchisors for services, such as training, gift certificate programs and staff certification.
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