Just because you invest in a franchise business, it doesn’t mean you’ll be a franchisee for the rest of your life. Franchise agreements don’t last forever, and even after signing your initial contract, there will come a time when you have to renew it.
And, just as you are required to pay franchise fees when first becoming a small business owner, when you renew your franchise agreement you are also required to pay some costs to your franchisor.
Known as renewal fees and redesign costs, this payment should be clearly defined in your initial franchise agreement with the amount varying depending on the industry and market conditions. Costs can vary anywhere from several hundred dollars to a percentage of the franchise fee.
That being said, most franchisors will set the amount somewhere between $3,000 and $5,000 for the new renewal term, which should be paid in full by you at the time of entering into the new agreement.
So, why are franchisees charged an additional cost when renewing their agreement? To keep it simple, these fees help to cover changes your franchise system must undergo in order for the brand to evolve, develop and remain competitive. Equipment upgrades, the implementation of new technology and location remodeling can all be required to keep up with these brand changes.
Just as you can be charged to upgrade equipment to successfully run your business, another renewal fee can appear in the form of training. New equipment means you and your employees will need to be trained on how to operate it. You will need to pay for staff training and potentially for the travel, accommodation and meals for a trainer to come to your location.
When it comes to renewal fees and redesign costs, the most important thing to know is what the costs will be. Make sure you have the funds to pay for these changes and don’t be afraid to turn to your franchisor for assistance. Your success is their success!
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