Thirsty Turtle

Definition: The initial fee paid to a franchisor to join their system

What you need to know: Found in Item 5 of the FDD, this may be a flat fee, or may vary based on territory size, experience, or other factors.The franchise fee is an up-front (one-time) cost that a new franchisee pays to the franchisor. This fee is usually due at the signing of the franchise agreement and covers the right to use the franchisor's trademarks, name, and related business systems.

Definition: The total amount necessary to begin operation of the franchise

What you need to know: The initial investment includes the franchise fee, along with other startup expenses such as real estate, equipment, supplies, business licenses, and working capital. This is outlined in a chart in Item 7 of the FDD, showing a range of possible costs from low to high.

Definition: The minimum liquid capital you must have available in order to qualify to become a franchisee of this company.

Definition: A ongoing fee paid to the franchisor on a regular basis.

What you need to know: Most franchisors require franchisees to pay an ongoing royalty fee, which is detailed in Item 6 of the FDD. This fee is typically a percentage of weekly or monthly gross sales, but may also be a flat weekly, monthly, or annual fee.

Definition: An exclusive territory is a fixed area in which you are given the right to operate and in which no other units of the same franchise may be opened.

What you need to know: Territory size may be based on factors such as radius, population size, zip codes, and more. Details can be found in Item 12 of the FDD.