Most definitely, a potential franchisee is going to inquire about how much it is going to cost them to invest in your franchise. This is because buying into a franchise is a significant financial decision that they must ensure is best for them to make. So, as a franchisor, you must be properly equipped in answering any and all financial questions they may have for you. Continue reading to learn when you should disclose franchise costs and how one of the experienced franchise law attorneys at FortmanSpann, LLC can guide you in doing so.
When should I disclose franchise costs to potential franchisees?
First of all, you may initially be introduced to a potential franchisee at a franchise trade show. This is an event in which you may showcase the merits of your franchise and potential franchisees may learn what their next career move may be.
Likely the first question they may ask you is the cost of investing in this opportunity. And depending on your answer, a potential franchisee may or may not become more interested in learning about your franchise. It is important that you do not shy away from the truth, even if you think your answer may turn them away. This is because you cannot have a potential franchisee invest in your franchise under false pretenses.
Where do I inform on franchise costs in the franchise disclosure document?
In addition to a franchise trade show, the Federal Trade Commission requires that you inform of your franchise costs in a franchise disclosure document (FDD). This is a document that discloses both monetary and non-monetary information that is essential for potential franchisees to know before following through with this significant investment.
More specifically, you must disclose your franchise costs within Item 7 of the FDD, which is otherwise known as the Estimated Initial Investment. Examples of what to include are as follows:
- The cost of the initial franchise fee.
- The cost of a reserve capital.
- The cost of training expenses.
- The cost of advertising expenses.
- The cost of business travel.
- The cost of purchased and/or leased real property.
- The cost of purchased and/or leased equipment, fixtures, and other fixed assets.
- The cost of inventory to start operating.
- The cost of build-out expenses (i.e., construction, remodeling, decorating, leasehold improvements, etc).
- The cost of prepaid expenses (i.e., security deposits, utility deposits, business licenses, etc).
This is not to mention the cost that a franchisee may incur over time to upkeep their business. In the end, there is no time like the present to get your FDD in order. So pick up the phone and call one of the skilled franchise law attorneys from FortmanSpann, LLC today. We are looking forward to it.