For investors considering a food franchise business, two of the biggest considerations are the initial investment outlay and subsequent/ongoing fees. When researching potential companies, it’s important to have a clear picture of the requirements to ensure a good fit. Here are some common expenses incurred that may serve as valuable discussion points with franchises to determine if a restaurant is budget-friendly.
- Franchise Fees: A franchise fee is a one-time set amount the franchise owner requires of new franchisees for a single restaurant. If you’re interested in more than one location, it’s worth asking if the business will offer a discount for a second franchise purchased at the same time.
- Royalties: These fees are paid by franchisees to the company on an ongoing basis. The charges can either be a fixed amount or based on a percentage of gross revenue.
- Marketing and Advertising Fees: With each franchise business, there will generally be a requirement for franchise owners to contribute to a fund to support both local and national marketing and advertising efforts based on their gross sales.
- Products and Services: Some businesses require franchisees to buy specific goods and services to support their business and, often, from a particular company affiliated with the franchise.
- Training Fees: Depending on the business model, a franchise may pass fees onto franchisees for training and testing, documentation, and other support.
For a complete list of fees, be sure to review the Uniform Franchise Offering Circular closely. Then compare businesses you’re considering to decide the best opportunity for you.
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