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

The initial franchise fee may seem like little more than the price of joining a brand. But before buying a franchise in Portugal, it is important to understand exactly what that payment gets you. Each franchise network may structure its offer differently: two similar fees can cover very different services. Start by comparing what is included, not the advertised price.

1. Separate the initial franchise fee from the total investment

The initial franchise fee is usually an upfront payment for joining the network and gaining access to its business concept. It may cover permission to use the brand, the transfer of operational know-how and certain services to help prepare the outlet. However, there is no legally standardised package attached to this term.

Nor should it be confused with the money needed to open for business. Fit-out work, equipment, stock, deposits, administrative expenses and working capital for the launch may all fall outside this payment.

Ask for an itemised proposal that distinguishes between:

• The initial franchise fee and the services it covers;
• Other upfront payments to the franchisor;
• Costs of goods and services you must arrange directly with third parties;
• Recurring charges that start before or after opening.

Also check whether the quoted figures include VAT and ask your accountant to verify the applicable tax treatment. Even where VAT can be reclaimed, it may create a temporary cash-flow requirement.

The aim is not to insist that everything be included. It is to avoid comparing one network’s initial franchise fee with another’s almost complete set-up budget.

2. Turn every promise into a verifiable deliverable

Phrases such as ‘comprehensive support’ or ‘turnkey solution’ are not enough to establish what you are buying. For each advertised component, record what it includes, who is responsible for delivering it, the expected date and how delivery will be evidenced.

A simple checklist can help:

Advertised component	What to clarify in writing
Access to the business concept	Which documents and tools will be provided
Preparing the outlet	Which tasks the network will carry out and which are your responsibility
IT set-up	Whether installation, data migration and subscriptions are included
Launch materials	Which materials will be supplied and in what quantities
Visits by the network’s team	Whether travel, accommodation and meals are included

Also ask whether a particular service will be provided by the franchisor or an external supplier. In the latter case, clarify who engages the supplier, who receives payment and who is responsible if things go wrong.

Do not assume that a sales presentation is a substitute for a clear contractual obligation. Ask for important commitments to be set out in the contract or in a document expressly incorporated into it. Keep the proposals and correspondence on which you based your decision too.

3. Look for exclusions, duplicate charges and payment terms

The same expense may appear under different names across several documents. Initial preparation may be described as included in the franchise fee while also attracting a separate charge. This does not necessarily mean anything is wrong, but it needs explaining before you sign.

Cross-check the proposal, budget and payment terms. Count each cost only once and ask for clarification of any overlaps. In particular, check whether the included services have limits, such as the number of users, sessions, visits or versions of materials.

Then link each payment to the relevant contractual milestone. Is the full amount due on signing? Are there instalments? Does any payment depend on a specific deliverable? These terms should be negotiated, not assumed.

Also clarify what happens if any agreed services are not provided. You can negotiate a breakdown of components and their prices to make it easier to establish what has been delivered. Do not assume, however, that this breakdown automatically creates a right to a refund: the consequences depend on the contract, the facts and the applicable law.

4. Understand the Portuguese rules before agreeing

Portugal has no specific law governing franchise agreements, nor a legally standardised pre-contractual disclosure document for franchising. There is also no specific compulsory register of franchisors or franchisees as such, although general commercial and tax obligations still apply.

The general contract rules in the Portuguese Civil Code apply. Article 405 establishes freedom of contract within legal limits; Articles 227 and 762 impose duties of good faith in negotiations and in the performance of obligations respectively.

This means that the absence of a mandatory form does not remove the need to provide truthful information about matters relevant to entering into the agreement. A misleading description of the included services may have legal consequences, which must be assessed case by case. Where standard contract terms are used, Decree-Law No. 446/85 must also be considered, including its rules on communicating terms and providing information.

Practical conclusion: before agreeing to pay the initial franchise fee, get written answers to three questions: what do I receive, what do I pay for separately, and what happens if something is not delivered? Take that breakdown to your solicitor and accountant before committing.