Buying a franchise: what exactly does the initial fee cover?

The initial franchise fee may look like a straightforward price for access to a brand, but two offers with the same price tag can involve very different commitments. Before joining a franchise network, a prospective franchisee should distinguish the right to use the business system from specific services, equipment and opening costs. The aim is not simply to negotiate a lower price, but to establish what you actually get for your money.

1. Separate access rights from the opening package

The initial franchise fee is generally a one-off contractual payment associated with joining a franchise system. However, what it covers varies between franchisors. It may cover only the initial grant of certain rights, or it may also include some preparatory services.

Do not assume that the phrase “turnkey” means all costs up to your first day of trading have been covered. Ask the franchisor to divide the offer into three categories:

• Rights: use of the brand and business system, with a clearly defined scope and duration.
• Deliverables and services: for example, initial documentation, preparations for opening or initial system setup.
• Separate expenditure: equipment, fit-out, stock, rent and other items you fund outside the fee.

It is important to distinguish what you are buying from what you are merely being given permission to use. Paying the initial fee does not, in itself, give you ownership of the brand, manuals or software. Ask for an explanation of the legal basis on which you can use each significant item, particularly where a third-party service provider is involved.

2. Draw up a specification that lets you verify delivery

The most useful document for this check is not a promotional brochure, but a specification linked to the contract. For each included item, set out what it covers, its scope, the responsible party, the deadline and evidence of completion. Wording such as “help with starting the business” is too broad unless it makes clear what the franchisor must actually do.

For example, if the fee includes initial IT system setup, clarify whether this covers configuration, creating user accounts and testing that the system works. Then ask separately whether hardware, licences and monthly maintenance incur additional charges. These are distinct items, even if the franchisor presents them as a single solution.

Ask five questions about each item:

1. What exactly will I receive, and in what form?
2. Is there a limit on quantity, time or the number of users?
3. Who pays for travel, delivery and other related costs?
4. When is the obligation considered to have been fulfilled?
5. What happens if the item or service is not delivered, or is incomplete?

If part of the package cannot be valued separately, at least describe the obligation precisely. Without this, it is difficult to establish whether you have received what was agreed. Also agree on a procedure for reporting shortcomings, so that signing an acknowledgement of receipt does not replace a proper check of what has been delivered.

3. Check for overlaps with other charges

Compare the initial fee with the price list for additional services and the breakdown of opening costs. Pay particular attention to items that appear under different names: site preparation, opening coordination, system activation or initial marketing materials.

Similar names do not automatically mean you are being charged twice. Nevertheless, the franchisor should explain where the included service ends and the additional service begins. If initial configuration is included, later customisation may be a separate service, but its scope and price should be clear in advance.

Request a quotation that clearly states the tax treatment and whether the quoted amount includes VAT. Where the franchisor is based abroad, an accountant should check the tax implications in light of the specific contract, the parties’ status and the type of supply. Do not assume that the figure in a promotional offer matches your final cash outlay.

When comparing brands, use the total cost of a comparable initial package, rather than the initial fee alone. A lower fee may mean more separate bills. Create your own table of included, excluded and as-yet-unconfirmed items; do not treat unconfirmed costs as free of charge.

4. Use the contract to protect what you have paid for

Croatia has no dedicated franchise law or specific statutory regime requiring a pre-contractual franchise disclosure document. A franchise agreement is an innominate contract — one not specifically defined as a separate contract type in legislation — and contractual obligations are governed by Croatia’s Civil Obligations Act. Depending on the nature of the relationship, competition, trade mark and tax rules may also be relevant.

The European Code of Ethics for Franchising provides good-practice guidance, but it is not Croatian law and does not replace a precise contractual specification. You should therefore not assume that a legally prescribed standard package determines what your initial fee includes.

Ask a lawyer to check whether the description of the fee reflects the franchisor’s actual promises. If it also covers specific services, the contract should clearly link payment to those obligations. Consider agreeing appropriate remedies for non-performance, such as requiring the outstanding obligations to be fulfilled or a partial refund of the fee. Do not assume these rights exist simply because the offer uses the term “initial package”; the legal remedies available depend on the circumstances and the contract.

Practical takeaway: before signing, request a single, agreed specification of what the initial franchise fee covers. For each item, it must be clear what you will receive, when you will receive it and whether there will be an additional charge.