Franchise Blog

If you thought that the only finances you need to come up with in order to set-up your franchise business are the initial franchise fees, you thought wrong. In order to set up your dream business, there are many other finances to think of.

Understand that the initial franchise fee is simply the money you put forward to obtain trademarks and rights you need to run your business. Don’t imagine that there are no other costs required to get the business off the ground. This of course is besides the fact that part of your profits will be taken by the franchising company in the form of royalties. In fact, to get a good idea about the various expenses that are expected to be fulfilled by you, take a look at the Uniform Franchise Offering Circular (UFOC), or the Franchise Disclosure Document (FDD) as it is now called.

To make this clearer, the following example is a segment taken from Item 5 of the FDD, which is a necessity in all franchise companies.

Item 5 : The initial franchise fee

Franchises are offered in the form of single units with an initial fee usually ranging from $10,000 to $50,000. It is to be paid in full once the franchise agreement is signed and it may vary from one individual purchasing franchised units to another. However, an agreement to obtain direct financing may be carried out for only a portion of the required initial franchise fee.

Once the agreement is signed half of the initial franchise fee will be deemed acquired and non-refundable for the purpose of the legal, promotional and administrative expenses required for the preparation of this document among others which are required for your protection by government authorities.

Other expenses included are those the company has spent for the purpose of granting the franchise to the selected franchisee, taking into consideration that the company may have suffered a lost or a missed opportunity with other potential candidates.

The remainder of the amount is refundable in the case of your failure to adequately complete the training course you’re assigned to. If it can not be refunded, it will be withdrawn from the balance of any direct financing agreement with the company.

This is to demonstrate how necessary it is to take a thorough look at the UFOC/FDD. Don’t overlook any pages or details. Remember the value of the attached disclosure documents as well. Seek legal assistance if you feel that there is something you are unable to fully comprehend on your own.

Filed under: Buying a franchise, Franchise Advice, Franchise Articles