Are You Ready to Franchise Your Business? Costs to Franchise Your Business



Total Estimated Costs to Franchise Your Business: $20,000 to $100,000


The franchise development stage is the stage where you go from business owner and entrepreneur to franchisor. It’s the stage where you work with a legal team to franchise your business and take the steps necessary to franchise your business, become a franchisor, and start selling franchises. During the franchise development stage, you should consider the following costs:

1. FDD Legal Fee Development– Your FDD is a legal document that will serve as the entire legal underpinnings for your new franchise system and includes all of the legal agreements and documents, including your franchise agreement, between you and your franchisees. As a legal document your FDD must be prepared by an experienced franchise lawyer and during the development process, your legal team should also be making recommendations and giving advice about development structures (such as if you will be selling individual unit franchise opportunities, multi-unit development agreements, or both) and ensuring, overall, that your franchise offering is competitively positioned within the franchise marketplace, including the development of Item 19 financial performance representations and other key development factors. Legal development should also include trademark filings, and establishing the corporate entities for your franchise company. Estimated Cost $15,000 to $45,000.

2. Operations Manual Development – Your Operations Manual is the confidential manual that you will provide franchisees to guide and instruct them on developing and operating the franchised business. Although the operations manual is not disclosed as a part of the FDD (i.e., since it’s a confidential document you only give it to franchisees after they sign a franchise agreement) your FDD will include its table of contents and should be completed during the franchise development process. Many times start-up franchisors prepare their own operations manual if they have well developed systems with the idea that the manual will be supplemented and improved over time, and other times start-up franchisors hire development professionals who will develop the operations manual for them. If you are working with an outside professional the cost estimates vary depending on the level of service ranging from assistance for a do-it yourself operations manual to complete on-site visits and development. Estimated Cost $5,000.00 to $30,000.

3. Financial Statement Preparation – As a part of the franchise development process you will (or should) be establishing a new corporate entity, i.e., XYZ Franchising, LLC to serve as the franchisor. It is this new legal entity that will be issuing the FDD and selling franchises and under the franchise rules for many franchise registration states, your FDD will be required to include audited financial statements. Even though your corporate entity may be brand new and have little to no activity, you’ll still need audited financial statements which means you will have to pay a licensed CPA to audit and certify the financial statements included in your FDD. Estimated Cost $2,500 to $5,000.

4. Filing and Registration Fees – As you franchise your business you will incur filing fees that are most typically comprised of (a) incorporation fee (typically around $300, depending on the state) paid to the state that you elect to establish your new franchising corporate entity in; (b) USPTO filing fees (typically around $250 per trademark, per class) for the registration of your primary trademarks – assuming that your marks are not already registered; and (c) FDD registration fees (typically $250 to $750 per state, depending on the state) paid to the franchise registration states when registering your FDD within the state. Most start-up franchisors only initially register their FDD in 2 to 4 franchise registration states and, naturally, this estimate will depend on the number of trademark registrations and FDD filings. Estimated Cost $1,000 to $4,500.

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