Like any other type of business, starting a franchise comes with a number of expenses that must be paid by the business owner. These include some costs that are common to all businesses as well as fees that are specific to the franchise world.
When you are trying to understand the fees related to your franchise business, one of the most important sources you have is your franchise disclosure document (FDD). This is a comprehensive document that covers everything from the obligations of the franchisee and franchisor, to territory to, the fees involved in operating the franchise. While it can seem like a rather long – even daunting – document, it is a good idea to review it thoroughly. If there are parts of it you are unsure about, don’t be afraid to ask questions. Your franchisor wants you to be successful and they should be willing to take the time to explain any details that seem unclear.
Many first time franchisees focus on the initial start-up cost but fail to put enough time and consideration into planning for the other expenses of the franchise business. Below are a few of the fees involved in running a franchise business.
- Initial franchise fee– This is your upfront fee to join a franchise. This is a onetime fees and can be as low as a few thousand dollars to as high as hundreds of thousands of dollars.
- Space modifications – if you are moving your business into an existing building, renovations may be required to make it suitable for your franchise’s standards.
- Inventory – some franchisors require that you order inventory from approved vendors before you can open your doors to the public.
- Royalties – As a franchisee you have the advantage of working with an already established and recognizable brand. But that doesn’t come for free. Royalties are paid to the franchisor in exchange for using their name. Depending on the franchisor, these fees may be payable weekly, monthly or yearly. The royalty may be a percentage of sales or it may be a flat fee.
- Merchant processing fee – If you want to be able to accept credit and debit cards, you’ll need to work with a company that can process these types of payments. The merchant processing fee is the amount you pay to these companies which can either be a flat monthly rate and/or a charge per transaction of about 1-3%.
- Labor – Unless you plan to run everything on your own, you’re going to have to hire staff. That means you might need to factor in salaries and payroll taxes into your budget.
- Accounting – Since business accounting can be tricky, it’s a wise move to hire a professional accountant to manage your books and do your taxes.
- Advertising and marketing – While advertising and marketing may or may not be included as part of the fees you are already paying to the franchisor; most franchisees also have the option to purchase their own local advertising. Depending on your franchise and the advertising opportunities in your area, this is often a good idea.
Understanding the fees involved in running a franchise business is an important step to seeing your franchise grow and prosper. It will help to give you a better handle on how much you need to earn to make your business profitable and help you to plan and set goals accordingly.
About FranNet NJ NYC
FranNet of New Jersey and New York City has several franchise experts to help you explore the world of franchise ownership. At FranNet, we provide no-cost guidance, information and support to individuals who are interested in purchasing a franchised business. We are experts in helping our clients evaluate the various types of franchise opportunities in the marketplace today. Our goal is to not only help entrepreneurs’ dreams of business ownership come true, but to help people make sound business decisions that give them the best chance for future success. For more details visit – http://www.franchise-njnyc.com/