Questions about franchising and the law
In this section, experts answer the questions most commonly asked about the legal requirements and stumbling blocks for franchisors and franchisees.
Why do franchisors insist on the payment of an entry fee?
It is customary for a franchisee to pay a lump sum when they acquire a franchise. This purchase fee is primarily a prepayment to the franchisor for the building up of the market, the level of recognition and system development. The amount to be paid is calculated on the basis of the investments effected, the value of the proffered know-how (including patents) and the extent of the support which is to be given to the franchisee from the time he/she commences business. Support which is especially frequent in this respect is advice as to location, the planning of the furnishings and equipment, profitability calculation, basic training and publicity for the opening.
It is important to first check what services are actually provided by the franchisor in exchange for the entry fee. It is often claimed that the fee is there to pay for the know-how and experience of a franchisor as well as for a well-known brand. In reality, however, it is sometimes the case that neither the know-how, as described in the guidelines of the VABE, nor sufficient experience nor even a well-known brand actually exists. For tax reasons, the services provided by the franchisor in return for an entry fee or acquisition fee should also be listed individually, not least for the purpose of tax write-offs.