So how much does a franchisee really have to pay?
Assessing the cost of the franchise is critical before you sign on the dotted line.
By: Lyndah S. Bartolome | Feb 11, 2013 13:00 pm
The number of people interested in investing in a franchise is increasing, but not all franchisees become successful as a result of the risks.
So how do you minimize your risks while increasing your chances of success as a franchisee? The trick is to study costs, to ask yourself questions, and to talk to people about their experiences.
For starters, keep in mind that the cost of the franchise package must cover everything from the initial fees to the operating capital. Before investing in a franchise, determine how much money you will have to pay up front, and the fees and other charges you will have to pay through the life of the agreement. Costs vary, but you must study the following package components carefully before making a decision:
• The build-out or construction costs. The so-called build-out costs cover the construction of your store, and many franchisers will demand pre-approval of your chosen location. Franchisers also have a standard computation of your building cost per square meter, but that will vary according to your location. Some will build the site for you, while others will be happy to let you do it yourself. If you choose to build the store yourself, make sure you stick to design and construction standards to avoid re-doing anything.
•The equipment. Many franchisers will specify the type and quantity of the equipment you need, as well as their authorized suppliers. Equipment prices are standard, and the franchiser is normally able to negotiate better terms with suppliers, and therefore to lower your costs.
• The furniture and fixtures. The franchiser normally provides all the equipment you will need from authorized suppliers, and to the franchiser’s specifications. However, check if the franchiser allows you to get your equipment from other sources.
• The signage and trademarks. The cost of the proprietary trademarks is also provided in the franchise package.
• Utensils and wares. The franchiser will provide you with a list of these items. Some franchisers will allow you to buy them from the open market if their quality does not vary.
• The initial fee. This is a one-time fee that you pay the franchiser for the use of his trademark and business system. It is site-specific and non-refundable, so you must study the franchise offering carefully before you decide to pay even a portion of it. Signing the franchise agreement obliges you to pay the full amount.