Franchise Fees and Expenses

In this article, we try and understand how and what your expenses are when you set up your franchise business and ensure you are on top of it so as to avoid any unforeseen pitfalls.

Initial Investment
This is the first expense you will be facing when planning on joining a franchise business system. The franchisor will be having a set fee of $X which will be detailed out in the franchise agreement. If you want to join the club, you will be giving the joining fees and that will be the initial investment you will be incurring. Since this is a one-time fee, some brands will be offering a discount for franchise veterans, minorities, or existing franchisees.

Space Modification
From the point you make the initial investment, these are expenses which you may not have considered. You are most likely going to incur additional expenditure for redecorating and renovating the franchise space to meet your franchise business’s requirements. There will be a set branding for the franchise business and to meet the exact brand guidelines set down by the franchisor, you will have to spend funds to meet the requirements.

Inventory
Each franchise will be having contractual agreements with vendors for different inventory and as a franchisee; you will also have to follow the same agreements with the vendors. You will have to factor in that cost to meet these requirements as in some cases, the franchisor will be setting down hard and fast rules as to which vendors to go with for meeting your inventory requirements. And, this will be an ongoing expense as well.

Royalty Fee
Since you will be expanding your business through the franchisor’s brand name, they will also want to be a part of the action. The royalty fee is something you may be required to pay weekly, monthly, or even yearly depending on your franchising agreement. For some franchisors, they might set a clause where in they will have to pay a percentage of sales, or sometimes a flat fee.

Processing Fees
This is not a fee you will be paying your franchisor, but to the companies which will be processing your transactions. This can be either credit card companies or other banks. You may have to end up paying a fixed fee per transaction which will be an additional ongoing expenditure for you.

Labor Expenses
If you do not factor in the monthly salaries you will have to pay to meet your expenditures for labor, you may end up having to put in more efforts to meet this requirement in the long run. Factor in health insurance and other employee benefits if possible.

For more information on other hidden fees you will have to factor in while setting up your franchise business, talk to our experts at FranchiseExpo today!