When buying a franchise, there will be a number of ongoing expenses and fees to be evaluated. The most significant ongoing fee that you will be required to pay as a franchisee relates to your royalty obligations.
Royalty fees represent a monthly or weekly fee that you will be required – on an ongoing bases – to pay to the franchisor. Typically royalty fees are not negotiable and are fixed by the terms of your franchise agreement.
To understand if royalty fees are negotiable you need to thoroughly review the franchisors FDD with your franchise lawyer and evaluate your negotiating leverage. Well established franchisors are less willing to negotiate their royalty rates while start-up franchisors may be more willing.
If a franchisor is willing to negotiate royalty fees, unless it is disclosed in the FDD, you should view that as a red flag and be very cautious in dealing with that franchisor. Royalty fees are a core element to a healthy and stable franchise system.
Learn about royalty fees and buying a franchise in Mr. Internicola’s book, “An Entrepreneurs Guide to Buying a Business or Franchise”.
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