Initial Franchise Fees Explained
If you’re considering starting your own small business, a franchise is often an excellent option. They give you the freedom to fund your own business with the security of having trusted products and business practices.
Getting started with franchising, however, can be a bit confusing. Here you’ll find an explanation of the initial fees needed to get started with your business.
A royalty fee is just an upfront payment that gives the franchisee the right to use the name and logo of the company for a certain period of time. How long you can use it depends on the company and often your location. After that period, there are generally options for renewal, which are again different for everyone.
In addition to royalty fees, you’re also going to have to pay for equipment and other supplies from the franchisor. What makes a franchise work is that you can go into any store anywhere in the country and know what products and services to expect. This means everyone has to have the same tools, and the same supplies.
In addition to the initial fees, you will also have to pay royalties as you make money. Again, this is something that varies by company, but is usually dependent upon how much you sell. That is good for you because if they benefit from how much you make, they’re going to work harder to make sure your business is successful.
Have you ever noticed that most buildings for a franchised store look the same or at least similar? Often, the franchisor buys and sets up the external part of the building before they ever bring someone on to run it. Instead of an upfront fee, they will normally charge you a monthly flat rent fee, or an additional percentage of your profits to pay for the building. If the franchisor does not provide the location, you will also be responsible for building costs.
In addition to paying to use the brand name, you also will have to periodically pay to advertise. This budget is used nationally for billboards, TV, radio ads, and all other kinds of advertising. This not only means you don’t have to worry about developing and producing your own marketing campaign, it also means other members are gaining business which means you gain business when those customers move or travel.
When it comes to starting a franchise, you’re going to need quite a bit of money to get started. In addition to the fees, you’ll also need working capital to keep your business running until it begins making money.
While it may require a substantial amount of planning, saving, and searching for loans, in the end you’ll be rewarded with support from other business owners and a fairly high chance of success.