Costs under a Franchise Agreement

The Franchisee needs to carefully consider the additional operational costs associated with running a franchised business. In the development of any business plan, it is essential the Franchisee grasp a complete understanding of those costs because those cost will ultimately eat into the profit margin.

We frequently deal with Franchisees who have signed complex agreements without obtaining legal/accounting advice or understanding their true cost obligations.

Accountants advising Franchisees may be asked to give certificates of advice to a Franchisor. We would recommend that such a certificate only be given after a thorough and rigorous budgeting and income analysis.

In some franchise agreements we have examined for retail food franchises the Franchisee could expect the following costs:

Recommendations

A Franchisee’s decision to enter into a Franchise Agreement should never be motivated by emotion or ego. Unless the figures stack up, a Franchisee will quickly find itself descending into a dark financial abyss resulting in the loss of the family home or other assets. A Franchisor will usually not make any representations about the profitability of the business and if they do the representations are usually heavily qualified.

We recommend the following:

• Have the Franchisor disclose all expenses and fees associated with the Franchise

• Check the figures of other Franchisees if they are available

• Negotiate for a relaxation of upfront franchise costs and or other costs under the agreement

• Conduct a 5 year budget plan on the basis that you will need to spend significant cash on a refurbishment

• Get Legal Advice from a Franchise Lawyer and Accounant

Contact LeaseFranchise director Evan Sarinas (07)47242969, evan@sarinaslegal.com.au

This release is not intended as legal advice and all liability is disclaimed for reliance on it.