08 Sep, 2017

Franchise Fees

It is difficult to lay a finger on the exact franchise fees for businesses as this depends on a number of variables. The size of a business, its location and the kind of industry that it is in, contribute to franchise fee. However, all franchise businesses require the entrepreneurs to pay franchisee fees. This ranges from $20,000 to $30,000. However, the franchise fees might be under $10,000 for home-based and mobile businesses although there are some that require more than $100,000. Certain types of training facilities and maintenance businesses are some of the most expensive franchises. The franchisee fees are set with consideration for the advantages that the franchisees receive. They benefit from becoming part of an already popular business name and ongoing support by the franchisor. Franchisors stipulate that potential franchisees should meet other monetary requirements. Apart from the franchise fees, an entrepreneur is required to have a certain amount of non borrowed cash and also a certain worth. Before paying the ongoing expenses that have not been covered by the revenue there has to be a guarantee about the working capital. The working capital should cover a certain period of time. It can cover a few months or a period of up to three years depending on the kind of business, till it starts functioning profitably. The franchisor develops an estimate of the needed amount. Apart from franchise fees, there are other upfront costs that should be catered for. This includes professional fees for insurance, legal, accounting and the operating licenses. Inventory, equipment and employee training are also part of the start up. It is important for entrepreneurs to understand that high franchise fees does not mean that the returns from the business will automatically be high. Most times the franchises may be started with an initial investment that is around $200,000. There are franchises that cost even $50,000. Handyman, marketing and home based franchises have higher chances of providing a return with minimal upfront cash. After paying the franchisee fees an entrepreneur should be prepared to pay royalties to the franchisor at a certain percentage of the revenue. There are some franchises that ask for a fee that will cater for national advertising. Operators of businesses that have employees are the ones who are supposed to pay for their salaries and benefits. Before making a decision to pay franchise fees and become part of a franchise, investors should request the franchisor to provide them with a disclosure document. The document is a description of all the required fees and any other start up cost.