As with most legal counsel, the amount of time you spend with your attorney will determine the overall rate. It's also essential to start record-keeping right away. To keep track of your expenses, you should enlist a qualified accountant. Your franchisor may provide you with software or a chart of accounts, and your accountant will help you set up your books and records.
Your accountant can also help you determine how much working capital you will require. Working capital is the amount of day-to-day cash available to a business. Depending on the type of business, it is vital to ensure that your working capital covers a particular length of time, ranging from as little as two or three months to as much as two to three years until the business is in full swing. The franchisor typically provides an estimate of the amount that is needed, but you should do your thorough research on your own to make sure your calculation is based on your market rather than the system average, which may not be accurate for your location.
The franchise fee usually covers the cost of training not including travel expenses , plus support and site selection. The items or benefits that are included in a franchise fee are different for every company. In some cases, the franchise fee is just an upfront licensing fee for the right to use the franchise name.
Be sure to investigate exactly what you are getting in return for the franchise fee. Build-out costs can vary wildly between franchises.
If you choose a franchise with great training and support, as well as a leadership team that you trust, that franchise fee should be well worth it. By signing up you agree to our Privacy Policy. Publication Date:. This document breaks out the information you need, and the franchisor is subject to legal liability if they don't make this disclosure accurate and complete.
Some of the most typical costs and fees paid to the franchisor or to direct affiliates of the franchisor include:. The UFOC will let you know what these costs and fees are. The other question about whether these costs are reasonable is more difficult to answer, because it involves a perception of value.
The secret to answering this question is to focus on the global picture of the opportunity from your perspective rather than the details of any specific fee or cost. As an example, let's suppose we're comparing two franchise opportunities, A and B. Which is the better opportunity? Which delivers better value to the franchisee? Which is more fair and reasonable in relation to the fees and costs that they charge? In this example, most people would identify B as a far better opportunity, in spite of the fact that its fees and costs are dramatically higher than A.
This is because, from the franchisee's perspective, it offers a much greater return. The fees and costs that go to the franchise company are what they are. The true test of value is what goes to the franchisee. That said, there's one caveat that every prospective franchisee must be aware of. The charts below, which were compiled from the FDD of each franchise, illustrate this fact. The range does not include real estate costs, market studies, insurance, interest, or the cost of improvements under a conversion, re-licensing or change of ownership license.
These are two examples from the extremes of the spectrum, but the point remains: the cost to open a franchise varies by the franchise system and location the franchise unit will be run from. Seid , founder and managing director of Michael H. This is significant because the purchase and renovation of real estate is commonly the most expensive and variable cost in opening a franchise.
In addition, with franchises like Dream Vacations where the equipment and materials needed for operation is less specialized, the cost is further lessened. Regardless of the franchise, though, there are some common costs involved with the purchase of a franchise.
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