Checklist for Financial Costs in a Franchise

When checking Out the financial costs in  a Franchise, ask yourself the following:

  • Is the franchise fee only a deposit and if I don’t go ahead is it fully refundable?

  • How much money would I need to pay for the upfront franchise fee and what costs are involved in the royalties?

  • What promotion and advertising costs do I have to pay when I take this on?

  • How much money would I need for the operations over the next 6 months, until the franchise starts to run profitably?

  • What wage figures have they put into the projections and does it allow for employees to be brought in or am I and my family expected to work the whole business at low rates of remuneration?

  • How much money do I need to get together to start up this business?

  • What systems and accounting practises run by the company and are they sound or can they give a wrong picture of the franchise?
  • Are there any training costs involved and who meets those?

  • Would the franchisor provide financing or would he assist me to arrange financing through other lending institutions?

  • What is the expected timeline between the signing of the franchise agreement and the opening of the outlet ready to earn revenue?

  • What is the annual profit projection for the particular outlet that you are going to buy?

  • If you are taking over an existing franchise you would need to look at the value of stock, value of assets, what debtors are on the books, what creditors are due to be paid, what staff entitlements are still due and check their rate of pay.

  • What are the debts of the business and who looks after the payment of those debts?

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