How does a potential franchisee know what costs are involved relating to becoming a franchisee?

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Rory MacDonald is the principal and founder of the firm and has been a lawyer in Australian and New Zealand firms since 1970. He has specialized in Franchising Law for over 20 years and has broad experience in commercial, trust, conveyancing and business law. He has a strong and loyal client base including many well known local and international franchise brands. He was a founding member of the Franchise Association of New Zealand Inc and has previously acted as Honorary Solicitor to the Association. He is chair of the Parnell Business Association (2009, 2010).

A well organised franchisor can provide most of this information. Some costs will be compulsory under the agreement others will be general business set up costs. Apart from an up front or initial franchise fee there are a number of matters that need to be taken into account such as:

(a) The cost of initial equipment which may include a pc or laptop, software (as specified by the franchisor), dedicated cell phone, modem, fax machine etc.

(b) The cost of uniforms (if appropriate).

(c) The cost of initial products to be sold (if appropriate).

(d) The cost of training i.e. travel and accommodation costs.

(e) The cost of setting up a company as franchisee (and perhaps the creation of a family trust as well).

(f) Legal and accounting costs (covering franchise agreement review and related documentation and initial accounting advice).

(g) Loan costs (bank fees and legal fees) if a bank loan is required.

(h) Lease costs (lessor costs and legal fees) if a lease is required.

(i) Vehicle costs (such as sign writing or fitting out of the vehicle) if the vehicle is required.

(j) Initial advertising and opening promotions

(k) Working capital to cover start up costs and outlays for such matters as insurance, printing etc.

It is essential to have a realistic budget to include all of these costs and avoid any ugly financial surprises.

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