Experts answer your frequently questions about franchising

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Q: How much will my initial investment be?

A: Forty-six percent of franchise companies have an initial investment of less than $100,000, including the franchise fee. About 80% have initial investment levels under $250,000. Thirty-six percent do some franchisor-sponsored financing, and many can recommend sources of financing.

Q: What is a franchise fee?

A: The franchise fee is a one-time, up-front payment to the franchisor for the right to operate a small business under a nationally recognized trademark, use a proven operating system and for the initial training required to operate the franchise. The franchise fee helps cover the franchisor’s costs for getting you ready to open your doors for business. Franchisees may also receive help in selecting a location, negotiating a lease and hiring and training employees. Necessary equipment and supplies may also be available from, or through, the franchisor at discount pricing.

Q: What will I be charged
in royalties?

A: Most franchisors assess royalty fees as a percentage of monthly gross sales-usually 3%-6%. Some, however, pay a flat fee or purchase
a proprietary product from the franchisor that provides franchisor revenues. In return, franchisees receive ongoing training and support, connection to other franchisees and marketing support. Some franchisors may provide bookkeeping services for franchisees, leaving them free to concentrate on running the business or have centralized or cooperative purchasing of products and services to further reduce franchisee operating costs.

Approximately 69% of franchise companies require an additional contribution based on sales, typically less than 3%, to a separate advertising and marketing fund. The franchisee benefits from sophisticated advertising and marketing on a national scale, which would be unaffordable as an independent business owner. The franchisor also helps franchisees promote their business locally by providing marketing plans, ad templates and signage.

Source: Profile of Franchising: A Statistical Profile of the 1996 Uniform Franchise Offering Circular, a study by the International Franchise Association Educational Foundation. The study can be ordered for $175 by
calling the IFA at 800-543-1038.