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Financial Questions

The Franchise Fee In-Depth

When you sign an agreement with open a franchise, you’re probably going to be expected to pay a franchise fee. As you begin your search, learn the basics of franchise fees and prepare yourself for this necessary expenditure.

The nature of the franchise fee

The main thing that distinguishes the franchise fee from other payments you will make to the franchisor is that it is a one-time fixed fee. This is in contrast to other fees levied by the franchisor, such as royalty payments or advertising fees, which are generally recurring in nature and often calculated as a percentage.

Essentially, the franchise fee is like a membership fee for joining a club. It’s made when you first buy into a particular franchise system as a way to denote that you are now an authorized franchisee of this company. It gets you in the door, so to speak.

Also, while franchise fees are generally the same amount for all franchisees buying into the company, they vary drastically across industries and brands. For some simple service franchises, the franchise fee may only amount to a few thousand dollars. However, for more famous brands they can reach upwards of $100,000.

What you can expect to get in return for the franchise fee

The detailed explanation of what is covered by the franchise should be included somewhere in the franchise agreement, and actual specifics may differ depending upon the company. However, there are some standard elements of the franchise fee that you can expect any time you purchase a franchise.

Typically, paying the franchise fee allows you to use the franchisor’s brand and trademarks for the duration of the franchise agreement. Also, you will be allowed to use any proprietary processes and systems that make the company unique. These processes are often one of the most valuable parts of a franchise business.

Although it doesn’t apply in every case, many times the franchise fee will also give you access to special, pre-negotiated vendor pricing agreements, software platforms that are vital to running the business, equipment, and operational manuals. Sometimes, the franchise fee also helps to cover costs for your location’s grand opening event.

How is the amount of the franchise fee determined?

There is no set formula for determining the amount of a franchise fee, but in general, the more value the brand holds the higher the cost will be. Value, of course, is a qualitative attribute, but it often combines name recognition, built-in customer bases, the complexity of proprietary business systems, intellectual property, and more. The more of these qualities that the franchisor brings to the table, the more likely it is that they’ll be able to command a higher franchise fee.

Fitting the franchise fee into your budget

The franchise fee is only a small part of the total amount you are going to invest in a franchise business, but it can still have a significant impact in your choice of which company to partner with. Make sure that you research your options thoroughly so that you know what to expect, and assess how much you think you can afford to spend on a franchise fee as a part of your overall budget range.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-850-366-2394.

attributes

The Best Franchise Companies Share These Attributes

Searching for a franchise company involves hundreds of intricate considerations, and it’s a decision that requires enormous thought and analysis. While it’s too simplistic to say that there is a definitive set of attributes that makes a company a good fit for you, there are certain characteristics that many of the best franchise businesses exhibit on a daily basis.

They prioritize effective communication

One of the most astute things you can do during your franchise search is paying close attention to the communication habits of the various franchise representatives that you interview with. The tendencies they display during this phase are likely to continue should you move forward with the relationship, so think about how you want your prospective business partner to communicate.

Are they prompt with responses and forthcoming in terms of detail, or do they make you work hard to get any little snippet of information? Do they help you find the answers you are looking for, or do they leave you flailing in the wind to figure things out on your own? Successful franchise companies understand that effective communication is a crucial part of their organizational foundation.

They maintain integrity in all interactions

Integrity means so many different things in business. It means that the corporate representatives don’t have anything to hide. It indicates that when things get difficult, they won’t go looking for a quick, and possibly legally dubious, fix. It means that the company has actual value to provide and that it isn’t interested in duping people out of their money or time. It shows that the franchisor treats all of the people involved in the business, including the employees, customers, vendor partners, and franchises as human beings.

They look for long-term partners

Not every endeavor is going to work out, of course, but one thing that sets high-quality franchise companies apart is that the look for franchisees they can build long-term partnerships with. These are the kinds of franchise owners who become even more invested in the company ecosystem over time, and continually educate themselves about the company’s values and culture. A successful franchisor prizes these types of relationships with their franchisees and looks for partners they can trust to help grow the business.

They have stable leadership at the top

Maintaining stable leadership doesn’t equate with having the exact same executive team together for a certain number of years. New opportunities are going to arise and people will inevitably want to pursue them. What it does mean, is that the company should largely be free of organizational turmoil surrounding leadership changes. No business is perfect, and sometimes mistakes happen that need to be rectified. But what should trouble you is noticing a defined pattern of instability in the highest echelons of the company.

They value their customers

You can generally view a company’s ethos towards its customers as a microcosm of its relationships in general. If the company culture is built around disdain for the customer, then this feeling will infiltrate other areas of the business as well. On the other hand, if respect and value for the relationship between the customer and brand are built into the company’s fabric, then it’s likely that they approach every relationship with this same level of respect and decency.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

legal questions

Key Legal Questions To Ask When Buying A Franchise  

Purchasing a franchise is a legally-binding agreement, and therefore there are numerous legal concerns involved in the process. As part of your cursory research, make sure to ask every franchisor you interview these important legal questions as you consider your options.

Is any legal assistance provided by the franchisor, and in what situations?

In certain instances, some legal matters may be under the umbrella of the franchisor, and they may, therefore, provide legal help relating to arbitration, contract negotiation, or litigation. This sometimes occurs in human resource/Union relations issues, government matters, copyright/trademark issues, etc. it will be helpful to know about these situations when you are budgeting for your legal help so that you can allocate accordingly.

What is the litigation history of the corporate parent?

Learning about the legal history of a company can tell you a great deal about its values and the way it operates. Before entering into any franchise agreement, carefully scrutinize the legal history of the company in question. What kinds of suits have been brought against the company? Do they have a strategy or threshold for settlements? Are there any patterns that can be identified by the way legal complaints are brought forth and handled?

Is the corporate organization currently involved in any pending lawsuits?

Understanding past legal issues is very helpful, but it’s also important not to overlook the present ad future. As a corollary to the previous question, it’s also crucial to ask whether or not the company is currently involved in any legal disputes that could affect its future.

What is the process for handling disputes between the franchisee and franchisor?

Everyone wants to be optimistic and believe that their relationship with their franchisor will always go smoothly, but disputes are an inherent part of business relationships. The important thing is how disputes are resolved, which is why you must ask your potential franchise company to outline their specific processes for dispute resolution.

Do you assist in negotiating leases?

Certain types of service franchises don’t even need a physical space to operate, while real estate for a storefront is often the primary concern and expense for retail franchises: such is the diverse nature of the franchising world. If your company is going to need to rent a physical space, then you will want to know what the process is with regards to the franchisor. Are you expected to hire your own real estate attorney to review contracts and leases, or is in-house assistance provided by the company?

What will happen to my business if the franchisor declares bankruptcy?

Bankruptcy hearings bring a multitude of uncertainties, so it’s best to have some idea of what will occur in the unfortunate case that it ever comes up. Keep in mind that bankruptcy laws are dependent upon the type of bankruptcy that is being filed, and they also vary depending upon the state.

What is the process for altering contracts?

Contracts are obviously executed in order to answer potential legal questions, but that doesn’t mean there aren’t times when they need to be changed. Does the franchisor have the right to make changes to agreements without your consent? Are you able to sell your stake in the franchise at any time, and is there a fee involved? If you co-own the franchise, what are the legal requirements and procedures for dissolving a partnership?

Are you aware of any legal and regulatory issues unique to my area?

The laws that govern commerce can be vastly different depending upon what state your franchise business is operating in. Certain industries are much more tightly regulated in specific states, and penalties may apply if guidelines are not followed to the letter. To give an example, certain states require franchise restaurants to disclose calorie counts if the company operates a minimum number of units in the area.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.