Opening your own technology franchise can be an exciting but exhausting experience. For one thing, the world of franchising is rife with jargon that can sometimes be hard to decipher for newcomers. In this guide, we’ll break down some of these terms so you can research franchises like an expert.
Franchise Disclosure Document (FDD)
The FDD is one off the most important documents you will review as a potential franchisee. The FDD provides details on the performance of the franchise, available territories, litigation history, obligations of the franchisor, and more. Franchisors are required to provide this document to prospective franchisees, and franchisees should review it carefully. In a nutshell, it will reveal everything franchisees need to know about the brand before investing in it.
Initial Franchise Fee
An initial franchise fee is typically a one-time fee that franchisees pay to the franchisor. The purpose of the franchise fee is to cover considerations such as training, set-up, assistance scouting a location in your area, and so forth. The franchise fee does not cover things like inventory or employee salaries. Many franchisors, like Experimac, can help franchisees secure financing to help cover the cost of the franchise fee.
Royalty fees are an ongoing fee that is paid to the franchisor. At Experimac, franchisees pay 6% of their gross sales as a royalty fee. This fee helps the franchisor pay for ongoing research and development, and the support that franchisees rely on to keep their businesses running smoothly.
Oftentimes, franchisors will ask to see proof that their prospective franchisees have a certain dollar amount of liquid assets. Franchisors want to see this documentation to ensure that their franchisees have the resources necessary to get their business off the ground in the early stages, before it begins making a profit. Liquid assets include things like bank accounts, cash, or other easily convertible assets. At Experimac, we ask that our franchisees have $50,000 in liquid assets.
The total investment refers to how much money franchisees can expect to invest in their new business. This number typically includes the franchise fee, inventory, payroll considerations, a monthly lease, and everything else that is required to open up your business. While franchisees are expected to show that they have a portion of this money in liquid assets, franchisors like Experimac can often help franchisees secure financing to cover the balance.
These are just a few of the important franchising terms you should know as you begin working towards opening your own technology franchise. One of the benefits of franchising with a company like Experimac is that we are part of the United Franchise Group family of brands. Our extensive experience opening new franchises has made us experts on the subject, so when you decide to partner with us, you can rely on our expertise to get you through the red tape.
Visit us online today to find out more about how we can help you along on your franchise journey.