Ask the Experts
What does the initial franchise fee typically buy you?
What the initial franchise fee covers varies from franchise to franchise - details of what is included should be set out in the franchise agreement.
Usually the initial fee covers a range of services provided by the franchisor to help the franchisee establish their business. This will usually include training in the franchise system for the franchisee and possibly some employees - if relevant - for a specified period of time and advice and assistance on the various elements necessary to start up the business.
The initial fee will also include the provision of the franchise operational manuals. For a premises-based franchise business, initial assistance provided by the franchisor may relate to the selection of premises and advice on design, fitting out and equipping them. If the franchise is a mobile operation involving a liveried vehicle, then the franchisor should provide assistance with the leasing of a suitable vehicle and application of any livery. You can expect that the franchisor will tell you what kind of equipment and fittings or other items are required for your business and where to obtain them from.
In some franchise networks the initial fee includes a package of equipment and/or products comprising all the initial requirements of the franchisee’s business. In some cases, it may include the costs of a ‘turnkey’ fitting out of premises. It may also cover the cost of an initial marketing launch or supply of marketing materials or templates. In addition, the initial fee contains an element that is attributable to the value of joining the franchised network and the strength of the name and goodwill associated with it.
If you are in any doubt as to what is included in the initial franchise fee ask the franchisor to provide you with a breakdown illustrating how this fee is calculated and allocated between the various elements.
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