Buying a franchise: What does the initial franchise fee cover?

The initial franchise fee is the price of joining a franchise network, but the amount alone does not tell you what you will receive. Before buying a franchise in Denmark, ask for a breakdown of the specific rights, goods and services covered by the fee. This makes it easier to compare franchise concepts and spot costs that might otherwise only emerge after you have signed.

1. Distinguish between access to the concept and specific deliverables

When buying a franchise, you will often pay a one-off fee for the right to operate a business under the franchisor’s concept. This may be called an initial franchise fee, joining fee or set-up fee. However, the name does not determine what the franchisor must provide.

The fee may simply pay for access to the concept. Alternatively, it may include a package of support to help you set up the business. You should therefore not assume that equipment, system set-up or launch materials are included merely because the payment is described as covering a complete start-up package.

Ask the franchisor for a written specification that distinguishes between:

• The right to use the name, concept and relevant systems.
• One-off goods and services to be provided before opening.
• Support provided during a defined set-up period.
• Services that must be ordered and paid for separately.

For each deliverable, the specification should state what you will receive, who will provide it and when it must be ready. Descriptions such as ‘complete start-up package’ or ‘support as required’ are difficult to base a decision on unless their scope is clearly defined.

Also ask whether the fee covers one specific outlet. If you later relocate or open another business, the agreement may require a further payment. This should not come as a surprise.

2. Identify costs outside the start-up package

Prepare a separate list of set-up costs that are not covered by the initial franchise fee. The aim is not to recalculate your entire operating budget, but to identify gaps between what the package promises and what your business actually needs in order to open.

Check, for example, point-of-sale system set-up, access to an ordering portal, installation, delivery charges, travel expenses and adaptation of materials for your local outlet. Ask about both invoices from the franchisor and payments to other businesses within the franchise network.

Use three columns: included, compulsory extras and optional extras. An essential service should not be listed as optional if you cannot realistically open without it. Also note whether a quote assumes that you will carry out some of the work yourself.

Check whether prices include or exclude VAT, and ask your accountant to assess the VAT treatment. Compare quotes on a like-for-like basis. A lower initial franchise fee does not necessarily mean a cheaper deal if more essential start-up services are billed separately.

Keep one-off goods and services separate from ongoing subscriptions, too. If system set-up is included, that does not automatically mean that access or support is paid for throughout the agreement’s term.

3. Understand the Danish legal framework

Denmark has no dedicated franchise law, no statutory standard franchise disclosure package and no compulsory franchise-specific registration scheme. General business registration requirements still apply. There is therefore no special official approval that guarantees the initial franchise fee covers particular goods or services.

The Danish Contracts Act and general principles of contract law are central to assessing a franchise agreement. The Danish Marketing Practices Act and Competition Act may also be relevant. Depending on the circumstances, general duties of good faith and disclosure may require material information to be disclosed before signing.

There is no specific Danish franchise rule defining what an initial franchise fee must include. Your protection therefore depends largely on the terms of the agreement and the information provided during negotiations.

Nor should you assume that you have a standard consumer cooling-off right when entering into the agreement for business purposes. Ask a solicitor to review any clauses stating that the fee is final or non-refundable, and how these interact with the franchisor’s obligations to deliver.

4. Agree what happens if something is not delivered

Clarify the consequences if an agreed part of the start-up package is not delivered. This is a different issue from choosing to abandon the project yourself. The agreement should distinguish between cancellation by you, failure to deliver by the franchisor and circumstances beyond either party’s control.

Consider negotiating staged payments linked to specific deliverables. This is a point for negotiation, not an automatic entitlement. If the entire fee must be paid upfront, precise descriptions and a clear procedure for dealing with shortcomings are particularly important.

Also agree how a missing service may be replaced and whether this requires your consent. A general reference to ‘equivalent support’ will not necessarily offer the same practical value as the help you had planned around.

Practical rule of thumb: Only sign once you can explain what the fee buys, what costs extra and what options you have if an agreed item or service is not delivered.