Ask the Experts
What does a franchisee typically receive for his initial investment?
The products and services provided by the franchisor in return for the upfront fee are likely in nearly all cases to cover the rights to use the name and various IT and communication systems, plus an appropriate amount of training for the appropriate staff, either in-house at the franchisor’s office and/or on-site at the franchisee’s location.
It’s worth noting that many franchisors claim to make nothing from the upfront fee once they have deducted all their costs. Indeed, some claim not to be breaking even with an individual franchisee until the latter has been trading, and paying ongoing fees, for at least a year.
Note that the upfront fee is not the same as the franchisee’s total set-up cost, the latter of which includes all the other necessary purchases and expenses of getting an outlet opened. These may include search for, and acquisition of, premises, equipment and vehicles; design and implementation of building works; shop fitting; initial stock purchases; staff recruitment and training; and various other items, the fees for which may go to third parties.
Sometimes the franchisor will wrap all the above up into a ‘turnkey package’, whereby all the money goes to him, so the best advice is to get a definitive list of what is and what is not included by the particular system, or systems, with which you are in discussion.
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