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Required payments for franchising

On Behalf of | Mar 2, 2022 | Franchising |

In Florida and across the United States, many people set a goal of starting a business. Often, this is perceived as creating a product or service and building from the ground up. However, there are other options to be a business owner through franchising. Regardless of what type of franchise a person wants to purchase, there are fundamentals that must be known from the beginning.

What does and does not constitute required payments for a franchise?

A key part of becoming a franchisee is making the required payments. This may be a source of confusion and dispute when becoming involved with a franchisor as small differences are viewed as problematic and violate the terms of the agreement. Franchisors or affiliates must be paid a minimum of $500 in the first six months of the business operating. This is flexible in that is encompasses sources of revenue a franchisee pays to the franchisor. It can include the initial fee; rent; help with advertising; equipment and supplies; training; royalties and more.

An example of required payments would be if a person wants to buy a franchise for a fast food establishment. There are basics that must be purchased to ensure similarity and quality control. There might be a specific type of oven or grill that is used; the supplies often need to be exactly what every franchisee uses to make certain there is no disparity from one location to the next.

There are other payments that are not required. Inventory can be vital for a business, but the franchisee is not expected to go beyond a reasonable amount of inventory bought at wholesale prices if it is for resale to lease. This is the inventory exception. If a person was starting a business from scratch and not through a franchise, they would not go beyond a certain level in purchases for inventory. A hardware franchisee would not be required to purchase more tools than are necessary to be sold or leased to the public. The inventory exception does not include items that are foundational to the business operation like the prior example of an oven or grill.

Franchising can be complex and guidance is important to be protected

Purchasing a franchise is not as simple as it might appear. There are benefits with franchising such as an organized plan and the backing of an established brand. Still, the financial costs and requirements that are in the contract can be surprising. People may jump in before they realize what they are getting into and make mistakes that can cost them personally and financially. To be protected, it is important to understand all aspects of franchising and have professional advice throughout the process.