So you’re considering purchasing a franchise, but you have questions, specifically about franchise fees. Here, get answers to anything you could want to know about them.
What is a franchise fee?
When you decide to buy a particular franchise, you are typically required to pay an upfront fee, which is usually a flat rate.
How much are franchise fees?
They vary, depending on what sort of business you’re buying, as well as the brand’s popularity. On the low end, you have franchises like YB 12 Coach, which requires a franchise fee of just $3,000. On the other end of the spectrum are brands like Wayback Burgers, whose franchise fee is $35,000. Some charge even more. In general, the more popular the brand, the higher the fee.
On average, most franchisors charge between $10,000 and $30,000 for that franchise fee.
What do I get for that fee?
The franchise fee buys you the right to use the franchisor’s brand, logo, and products. You will also get training and support to get up and running. Ask the franchisor you’re talking to what else specifically the fee covers.
Is this all the investment I will have to pay?
No. In addition to the franchise fee, you will likely be required to pay ongoing royalty fees, which may be as much as 20% of your monthly or quarterly gross sales. The higher the royalty fee, the more a franchisor helps. As an example, some companies centralize order taking and then distribute orders or jobs to franchisees based on location. Your royalty fee pays for that feature.
You may also have to pay marketing fees if the franchisor provides marketing support. And while this cost isn’t a fee per se, you may also be required to purchase certain brands of products, which may cost more than the alternatives, so build that into your budget.
Where can I find out about franchise and other fees?
By law, franchisors are required to disclose specific information to prospective franchisees like you. These include:
Required fees
Required investment
Bankruptcy and litigation history of franchisor
Financial statement
Earnings claims
All you have to do is ask for the disclosure document. It may be a good idea to have your attorney and accountant review it as well.
Can I get financing for my franchise fee?
Yes. You’ve got two primary options for financing your franchise:
Go to a bank for a small business loan. Just like you would take out a loan for another type of business, a bank may be willing to lend you the money to cover all or part of the franchise fee, startup costs, and enough to keep you afloat for your first few months in operation. Make sure you’ve got plenty of information on your personal finances and assets, as any bank will want to ensure that you’re a good investment.
See if your franchisor offers debt financing. Because franchisors are eager to expand their brand, they often help new franchisees with the costs. See if your franchisor offers finance plans for equipment, the franchise fee, operational costs, or any other specific component you need assistance with.
In either case, it’s wise to have a well-developed business plan and budget in hand.
Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.