Aside from the franchise fee, there are other costs associated with starting and operating a franchise:
Business Name
You will need to register your business name. We suggest incorporating. You may want to consider registering an operating name as well. Your lawyer can help you with this
For example: 123456 Country Inc o/a abc business
Most franchisors will not allow you to use their name within your business name. Some have other restrictions that limit the use of a city name plus the franchise name. Check with the franchisor before registering your business name.
You will benefit from the advice of an experienced franchise lawyer.
They can handle your business registration as well as guide you through the FDD and Franchise Agreement review.
It is better if you read the FDD and FA first before turning them over to the lawyer. Read each document a few times and make notes for main talking points.
Your franchise lawyer can also review the lease, if you have a bricks and mortar business.
It is much easier to use one competent franchise lawyer than trying to coordinate multiple lawyers.
An experienced accountant can help you take advantage of all the legal methods to minimize your taxes. They will get you organized for daily, weekly, monthly reporting and tracking your revenue and expenses.
I suggest establishing management reports that help you measure, track and analyze your key success factors.
Let me know if you need some help with this.
In some instances, you may need to lease or possibly even buy land or a building
If you rent a building, you will be responsible for not only the monthly lease but for the one-time security deposit as well. In addition, you will have to pay for leasehold improvements. The leasehold improvements or build out costs tend to make up the largest portion of the initial investment.
In some cases, the landlord or building owner will absorb the leasehold improvement costs as inducement to rent the space. In other situations, the landlord may factor these costs into your rent, possibly charging an additional fee.
The franchisor might provide you with an allowance for leasehold improvements that could reach $10,000 to $100,000. Most franchisors can tell you the range of expectations for leasehold improvements.
A variety of businesses need various pieces of equipment.
There are generally long-term payments available for equipment purchases or lease agreements. Private finance companies and equipment suppliers offer lease programs.
Outside signage can be expensive for a small-busines. Bricks and mortar type franchisors have usually developed a sign package that the franchisee is obligated to purchase.
Opening Inventory
This will usually consist of at least a two to four week supply. Most franchisors will tell you what their opening inventory requirements are.
On-Going Inventory
Try to understand the frequency of inventory turns per year. Mitigating factors include the price of the goods you will be selling. Your CPA can help with this. This will help you decide on the ideal inventory level.
Working Capital
You may be required to deposit the first and last months’ rent payments plus a security fee. You will likely also need to pay a deposit for electric, gas and telephone services. They will expect a deposit prior to providing their service.
You will need some working capital and money in the cash drawer to make change, cover short term payroll needs and meet the needs of regular bills.
Advertising Fees
There is usually an ad fund fee for advertising on a regional or national basis. Most larger franchisors require their franchisees to pay a certain amount into a national advertising fund used to advance the market awareness of the concept. This fund can only be used for marketing the brand at the macro level. However, you can adapt much of this collateral for your local needs.
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