Buying and paying franchise fees can be a complex and confusing process. Part of this is due to the various startup costs and the specific franchise financial requirements that are included in the contract. In addition to this, there is the initial one-time franchise fee required when you sign the contract and then monthly payments afterwards. However, here are proven ways to not only finance your franchise, but make sense of the monthly fees.
Franchise Financing 101
It is important to understand the basics of franchise financing. For example, experts recommend that franchise buyers invest 15 to 20 percent of their own money into a start-up franchise. Once it is determined how much you will contribute, you can look at how much must be borrowed. Financial institutions typically expect the franchiser to supply between 20 to 30 percent of the total franchise investment value. After that, a loan can be secured and a detailed budget can be created. Before you actually approach a bank, be sure to prepare your personal financial statement with tax return copies and other financial documents.
Use the SBA
The Small Business Association is an federal program whose primary goal is to help and protect small businesses. For new entrepreneurs, the SBA offers an online learning center and local assistance through their district offices. They also offer the unique SCORE program, which is made up of active and retired business experts from across every industry. Both local chapters and the SCORE program provide free counseling and even one-on-one mentoring. Even better, the SBA offers financial assistance through their 7(a) Loan Program for small business.
Use the IFA
The International Franchise Association (IFA) is the oldest and most well respected franchising organizing in the world. The IFA offers useful finance tools and solutions. First, their financial service experts are available for consultations and provide valuable financing advice. Second, the IFA offers their online business funding guide that walks users through different funding options. These include SBA loans, rainmaker plans and line of credits. Finally, the IFA offers Benetrends, which is a unique funding service that uses qualifying retirement funds to purchase a franchise.
Understanding the Regular Fees
The initial franchising fee is a one-time cost that allows you to join the organization. The continuing royalty fee is the primary franchising fee that you will submit every month or quarter. Basically, this fee will allow you to continue operating within the franchise system. While it does vary from each franchising organization, the royalty fee is normally calculated as a percentage of your total sales. The other routine fee is the advertising fee, which you will also pay based on your sales percentage. This beneficial fee pools funds from all the franchises to create a centralized marketing and advertising system.
To sum up, franchising fees may appear confusing, but there are the initial start-up fees and costs of opening a business. Then, there are fees for operations and advertising that are periodically due based on your sales percentages.