Franchise Cost

The "Franchise Cost or fee" is a term which refers to the initial cost outlaid by the franchisee in order to adopt a franchise. More appropriately it is the overall cost associated with obtaining "use" of the name, logo and trade mark (franchisor's mark) as well as the cost off training, support and site selection.

Every franchise regardless of entering as an independent operator or a company will require you to pay an initial franchise fee; depending on the agreement, this could be paid on a monthly basis, either as a flat fee or a percentage of sales. The costs for establishing a franchise differs for every franchise company based upon its financial requirements. The royalty fee may lie somewhere between $20,000 and $50,000. There might be ongoing franchise fees that will be dependent upon the contract. Low franchise fees may be attached to home based work or mobile businesses.

Having paid the initial fee additional cash is required as working capital to support ongoing expenses until covered by revenue.

Aside from the initial Franchise Cost there are certain other fees that have to be met while operating a franchise below is an explanation of these costs.

• Legal Fees:- This fee accounts for the consultation with a franchise attorney which is extremely important to do. The attorney will review the terms and condition attached to the Franchise Offering Document and the franchise agreement. The time spent with your attorney will determine the cost of this exercise. Attorneys usually charge an hourly rate and this type of exercise would generally range somewhere between $1,500 and $5,000.
• Cost of Commodities:- Having decided on a franchise and chosen a location you also request an estimate of costs from the franchisor. The estimate for the overall build-out cost should include an estimate of all furniture, fixtures, equipment and signage.
• Products:- Depending on the type of franchisee; it may be a requirement to stock up on the relevant products. The cost of product would vary and could be anywhere between $2,000 and $150,000 worth of product depending on the business.
• Required Supplies:- The franchisor should give you an accurate estimate of the proper supplies required to run your business.
• Capital Required:-Working capital refers to the amount of day-to-day cash available to a business. An estimate of the cost is provided by the franchisor.

Franchise Costs can be calculated by utilizing the information provided by the franchisor and adding to this other costs including the legal costs.