22 Jan Due Diligence – Franchising- Money Issues
What kinds of fees should a franchisee expect to pay? We have listed below some of the most common fees. It is not always true that you get what you pay for! In the case of franchising the best question may be to ask what you are getting (in the franchise agreement) rather than focus too heavily on what you are paying. But don’t be fooled! The answer to this pertinent question can only be found in the franchise agreement. A franchisor who offers the world but, cannot back this up with written promises, in the franchise agreement is worth very little and should be paid accordingly.
1. What fees are payable? Consider royalties, promotion and advertising funds, initial fees, renewal and sale fees, legal fees, start -up costs – required equipment etc
2. How are fees calculated – are fees fixed or percentage?
3. When are fees Payable? Are you required to make payments before you sign and if so how is any refund given in the event that you do not proceed?
4. How are fees paid? Eg direct debit
5. What are fees paid for? Is the franchisor required to provide any identifiable level and quality of service in return for the payment?
6. How are fees reviewed and are there likely to be substantial increases?
7. What other start up costs will you incur? Uniforms, equipment, fit out, occupancy costs.
8. Are you required to expend money on advertising in addition to any advertising levy.
Many franchisors impose a sale fee which in some cases can be tens of thousands of dollars. It is important to know at the point of entering the franchise what it will cost to escape the arrangement when, in the future, that becomes necessary.
If you are required to contribute to a marketing or other cooperative fund, the franchisor must prepare a financial statement of the fund=s receipts and expenses and the amount spent on administration, production, advertising. Unless 75% of the franchisees agree otherwise, this statement must be audited within three months of the end of the financial year. The franchisor must give you a copy of the statement within 30 days of your request.
If you require help checking your Franchise Agreement before you purchase or if you have a concern contact us.