Examining Franchise Costs

Franchise costs vary greatly. Not just in their initial investments, but also their ongoing fees. Costs are generally very well documented, but who reads through the pages and pages of the Uniform Franchise Offering Circular (UFOC) that franchisers provide. It is important to be fully aware of what is being charged and if those charges are realistic.

Business Week’s Practical advice said: “Good franchisers will provide franchisees with a solid business model and a ready-made marketing presence, but Napell says potential franchisees should also prepare a business plan or feasibility study of their own to make sure what worked elsewhere can be duplicated in a particular market.”

Here is a business calculator you are welcome to use in calculating how much money you will be charged by the franchise per month, and what your gross and net income may be.

Some franchisers charge a rather high up-front fee, and others take a percentage of your monthly sales revenue. The initial costs may include the facility, any equipment, and any initial products. In the UFOC document you want pay special attention to the line item “working capital”. It is the estimate of any miscellaneous costs within a certain period of time (usually between 3 and 12 months).

There will also be the costs of establishing your business. The contract you have with your franchiser is only between you and him. But you will also need to establish your independent business as a corporation, partnership or as a sole proprietorship. There may be costs involved there. Possibly the franchiser may have certain requirements in that area. You may need to pay for a local license, your membership to the Chamber of Commerce, any other local fees for setting up your franchise.

A percentage of sales revenue is usually paid to the franchiser every month. There may be a management fee. There may be a requirement that you buy a certain amount of product every month.

Rent and utilities will be costs for some to consider. Some will have employee costs. Be sure that any costs being paid through the franchiser are realistic. What is a reasonable rate in one state may not be in the next.

Find out if there will be any shared franchise costs for advertising or if you are required to pay for training.