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Franchise Disclosure Document: Item 5 and Item 6

Item 5 (and Item 6) in a Franchise Disclosure Document (FDD) provides information about the initial fees and ongoing payments that franchisees will be required to make to the franchisor. This section is important because it provides potential franchisees with an estimate of the total investment required to start and operate the franchise.

Item 5 and 6 typically includes information about the following fees and payments:

  1. Initial Franchise Fee: This is the fee that the franchisee must pay to the franchisor to obtain the right to operate a franchise. This fee typically ranges from a few thousand dollars to several hundred thousand dollars, depending on the franchise.
  2. Other Initial Fees: In addition to the franchise fee, the franchisor may require the franchisee to pay other fees, such as fees for training, site selection, and initial inventory.
  3. Continuing Fees: Franchisees must pay ongoing fees to the franchisor, typically in the form of royalties or other payments. These fees may be based on a percentage of the franchisee’s gross revenue or a flat fee.
  4. Advertising Fees: The franchisor may require franchisees to contribute to a national advertising fund or to spend a certain amount on local advertising.
  5. Other Fees: Franchisees may be required to pay other fees, such as fees for renewing the franchise agreement or for transferring ownership of the franchise.

Here is an extract of the Item 5 of Tim Hortons for example:

And here is an extract of the Item 6: