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	Franchises
	Article 3: Costs And Fees The franchisor’s disclosure document itemizes your costs. These expenses range from the initial fee to how much you can expect to pay for signs, inventory, leases and rentals. Costs vary. Some, like task-specific equipment such as a floor polisher, are unique to an industry. Low-investment franchises can expect proportionately lower costs and the franchisor may pay some of them. Ask to find out what’s negotiable. “The lower end has to sacrifice something, and it will almost always be an investment in equipment and buildings,” says Erwin Keup, a franchising attorney. Even total disclosed costs can be deceiving. It may take $25,000 to set up shop in the rural Midwest. But, it could cost you substantially more in metropolitan San Francisco, where property values, rents, utilities and taxes are considerably higher. Locating in a swanky, enclosed shopping mall can require using the mall’s pricey construction contractors. To get an accurate estimate, check with existing franchisees in your area. Ask about their actual startup capital requirements. To be prudent, add 10 percent to 20 percent. Common costs include: Initial franchise fee, which may be non-refundable Fees to promote your opening Royalties, often based on a percentage of your gross, may be required even if you’re unprofitable Operating licenses, insurance and legal fees You may pay advertising fees that bankroll national advertising rather than directly benefiting your franchise. Franchisors typically provide training, but you may assume some costs Will you handle your own accounting or hire a professional? How much inventory is required, and what must you buy from the franchisor? Discretionary equipment like desktop printers and faxes Expenses for renting, building or equipping your facility Costs for compliance with local ordinances like zoning, waste removal and safety codes Employee salaries and benefits Calculate total operating expenses for the first year. Add personal living expenses for two years. It may be months before you’re profitable. Ask your accountant to compare your estimates with estimates of what other franchisees paid and the price of competing franchise systems.