ABA Family Legal Guide

Forming and Operating a Small Business

Franchising and Buying a Business

Buying a Franchise

How much does it cost to buy a franchise, and what am I paying for?

Usually, you pay an up-front franchise fee for the right to use the trademarks, trade names, and trade secrets of the franchisor and for managerial services involved in getting the franchise established. Frequently, you'll also be required to purchase all of the franchise's initial equipment, including signs and trade fixtures, from the franchisor. You also may be required to purchase many of your supplies from the franchisor or from franchisor-approved sources.

And that's not all. You'll normally pay the franchisor a royalty based on a percentage of your gross receipts. It's usually about 5 percent, but the percentage can vary widely. The royalty covers advertising and continuing managerial services, as well as a licensing fee for use of the franchisor's trademark and trade names. If the franchisor owns the franchised location, you'll obviously have to pay rent to the franchisor.