Franchise fee: what to check before you pay

The initial franchise fee may seem like little more than the price of joining a brand, but it deserves careful scrutiny in its own right. Before paying, prospective franchisees need to understand what they are signing up for, what will be provided and what happens if the outlet never opens. In franchising, transparency around this charge helps establish a more secure business relationship from the outset.

1. Separate the initial fee from the cost of opening

The franchise fee, also known as the initial joining fee, is a charge for entering the brand’s franchise system. What it covers varies between networks: do not assume it includes training, architectural design, equipment or support for the opening.

In Brazil, Law No. 13,966/2019, known as the Franchise Law, requires the franchise disclosure document (Circular de Oferta de Franquia, or COF) to state the initial fee. It also requires disclosure of the estimated initial investment needed to acquire, set up and begin operating the business, alongside estimated costs for premises fit-out, equipment and opening stock, with their payment terms.

These figures are not interchangeable. An affordable initial fee can sit alongside high set-up costs. Ask for a written breakdown distinguishing between:

• the fee for joining the franchise;
• services included in that fee;
• set-up expenses charged separately;
• payments to third parties needed to open the outlet.

This breakdown helps prevent the same item from appearing as an included benefit in the sales presentation and as an additional charge in the budget.

2. Turn sales promises into verifiable commitments

Simply asking ‘What is included?’ often produces generic answers. Instead, ask questions that let you check whether commitments have been met: who provides what, when, for how many people and subject to which limits?

If the fee includes initial training, for example, confirm the number of participants, the format and the duration. Check separately who pays for travel, accommodation and meals. If outlet design is included, establish whether the package covers only the concept design or also adaptations to the premises and technical drawings.

Organise the answers in a simple table:

Promised item	What to clarify in writing
Initial training	Participants, duration, location and additional expenses
Outlet design	Scope, revisions and technical responsibilities
Preparation for opening	Activities, responsible parties and delivery timing
Access to systems	Implementation, licences and separate charges

Do not treat this list as a set of mandatory benefits. It is a tool for checking what the brand actually offers. What the fee covers must be assessed through the COF and the contractual documents.

Important promises made in meetings or messages should be formally documented. If a discount also reduces what will be provided, that change needs to be clear before you enter into an agreement.

3. Check when the fee is payable and on what terms

The Franchise Law requires the COF to be supplied at least ten days before the contract or preliminary agreement is signed, or before any fee is paid to the franchisor or to a company or individual connected with it.

A charge described as a ‘reservation’, ‘deposit’ or ‘opportunity guarantee’ should therefore not be accepted as a way of bypassing this protection. The label given to a payment does not remove the need to examine its nature and who receives it.

This is a minimum advance disclosure period, not a deadline for completing your assessment. If you still have questions, you do not need to pay simply because the ten days have passed.

Before transferring funds, check:

• the recipient’s identity and CNPJ (Brazilian business tax registration number);
• the total amount, due dates and any instalment arrangements;
• the document formally setting out the charge;
• how payment relates to the start of the promised services;
• the consequences of late payment and the conditions for any refund.

Keep the version of the COF you received, proof of its delivery, signed agreements and payment records. Avoid transfers to recipients whose connection to the transaction has not been clearly explained and documented.

4. Agree what happens if the opening does not go ahead

Paying the fee does not remove obstacles to setting up the business. The premises may not be approved, a licence may prove impossible to obtain, or a condition in the preliminary agreement may not be met.

Before paying, ask for the document to specify which events allow this stage of the process to be brought to an end, who bears each risk and how any refund will be calculated. If amounts may be retained for services already performed, look for objective criteria and ways of verifying that those services were provided.

Do not assume that every withdrawal entitles you to a full refund, or that the phrase ‘non-refundable’ settles every situation. The validity and effect of these terms depend on the circumstances and the applicable law. Failure to comply with statutory disclosure requirements may also have separate legal consequences that warrant legal advice.

In practice: only authorise payment when you can explain, based on the documents, how much you will pay, what you will receive and what the consequences will be if the outlet does not open.