Papa Murphy’s Franchise Costs: Estimated Initial Investment (Item 7, 2022 FDD)

1.  Franchise Fee:  $25,000

• You must pay the franchisor a non-refundable Franchise Fee of $25,000 when you sign the Franchise Agreement for the purchase of your Franchised Store.

2.  Lease and Utilities Deposits and Payments:  $2,500 to $6,000

3.  Leasehold Improvements:  $91,015 to $201,969

• This figure does not include any tenant improvement allowance received from your landlord or any free-standing buildings or exterior renovations.

• The average cost for leasehold improvements in 2021 was $113 per square foot.

• Payments for the Leasehold Improvements are made to suppliers, not the franchisor. The time and method of payment is determined by the contract between you and the supplier.

4.  Signs:  $7,500 to $11,500

5.  Stamped Architectural Drawings:  $6,250 to $9,350

• The low end of the cost range for stamped architectural drawings assumes a standard set of construction plans for a single tenant improvement in a typical multi-tenant strip center. The high end of the cost range includes set fees for services that may be required by a jurisdiction.

• The range does not include variable fees for additional services that are not included in the standard construction document package.

6.  As Built Survey:  $2,500 to $3,700

• The typical cost for an as-built survey is $2,500 and covers spaces up to 1,500 square feet. The high end of the cost range reflects potential survey cost that includes set fees for add-ons that may be required by the local jurisdiction, plus additional square footage-based costs for a space at the top range of square footage indicated in Note 11 below.

7.  Opening Package (including Equipment and Supplies), Decor, Cabinets, Point-of-Sale System, and Smallwares:  $134,344 to $198,139

• You must purchase an opening supply package from the franchisor and approved vendors, if the franchisor so specifies. The opening package shall include all equipment and supplies necessary to commence business at the Franchised Store. If the franchisor requires you to enter into a Development Billing Agreement with it, you will reimburse it for amounts due to it or that it pays third-party vendors for the opening package.

• You are required to have access to a facsimile machine, telephone, point-of-sale computer system and email access, business-class broadband internet connection (DSL, cable, or wireless), and reliable transportation.

• These costs reflect the cost of building Papa Murphy’s store format called the “CREATE Store.” The numbers are based on the actual costs incurred in building approximately 10 CREATE Stores in 2018 across various geographies and include an annual increase to adjust for current pricing and the negative impact COVID-19 has had on equipment, labor, and shipping costs. In 2019 and 2020 there were too few stores built in the standard format to provide a cost range.

• The CREATE Store format has optional upgrades available. The low range costs reflect few or no upgrades, as well as the highest condition of the space and the lowest cost geography.

• When estimating the cost of building your Franchised Store, the number of upgrades, space condition, and geography should be considered.

• A new store format has been developed and is the required format. The cost range for the new format is not expected to materially vary from the CREATE Store format.

8.  Miscellaneous Development Service Fees:  $0 to $1,270

9.  Inventory:  $5,000 to $7,000

• Inventory is required as outlined in the Operations Manual. Payments for the Inventory are made to suppliers, not the franchisor. The time and method of payment is determined by the contract between you and the supplier.

10.  Initial Marketing Fees and Expenses – 6 Months:  $15,000

• If the franchisor requires you to enter into a Development Billing Agreement with it, you will reimburse it for amounts it pays third-party vendors for development and build-out, and new store marketing/grand opening of the Franchised Store. The franchisor will deduct these costs from your bank account via ACH. Such purchases are a pass-through expense.

11.  Franchise Premises Rent – 3 Months:  $3,090 to $10,526

• You are solely responsible to obtain and pay for a location for the franchise (“Franchise Premises”). The cost of purchasing or leasing Franchise Premises varies with its location and size.

• The average size of Franchise Premises built in 2021 was 1,406 square feet and ranges from 1,169 to 1,778 square feet. The average cost for rent for Franchise Premises opened in 2021, including operating costs, was $34,075 per year and ranges from $14,040 to $55,176 per year.

• The range for Franchise Premises rent identified in this chart reflects the franchisor’s best estimate of the total rent you will pay for the first three months for your Franchised Store.

12.  Materials and Supplies:  $500 to $2,000

13.  Travel and Living Expenses for In-Store Compatibility Check, Operations In-Store Training, Enterprise Solutions Training, and Foundations Class:  $3,395 to $12,150

• The In-Store Compatibility Check plus the required training programs may take up to five and one-half weeks. The franchisor may lengthen, shorten, or restructure the contents of these programs at any time. In-Store Compatibility Check will be provided at no cost to up to two individuals that have signed the Franchise Agreement.

• Operations In-Store Training, Enterprise Solution Training, and Foundations Class will be provided at no cost to up to two individuals that have signed the Franchise Agreement.

• Foundations Class includes completion of ServSafe Manager certification or an equivalent state-specific food safety certification. If you do not pass the ServSafe examination, you must re-take the test on your own and at your expense. The cost of the course materials and examination varies depending on your state and local requirements.

14.  Employee Training:  $500 to $1,500

15.  Insurance – 3 Months:  $375 to $1,175

16.  Bookkeeping/Payroll Service – 3 Months:  $1,500 to $1,600

• The franchisor requires you to retain a bookkeeping and payroll service that meets its criteria for the first year of operation of the Franchised Store.

• The franchisor reserves the right to require you to retain and use a human resources outsourcing firm to provide general human resource support, including but not limited to job description services, human resource compliance support services, management and supervisor training, and payroll services beyond your first year of operation of the Franchise Store.

17.  Additional Funds, Working Capital, and Miscellaneous Expenses – 3 Months:  $10,000 to $50,000

• You will also have other miscellaneous expenses involved in establishing a business. These expenses vary greatly, and the franchisor has estimated a minimum of $10,000 and up to $50,000.

• They may include attorney’s fees, license fees, deposits, sales tax bonds (where required), recruiting expenses, employee wages, and supply expenses.

• You will pay your own legal and other expenses in connection with the review and negotiation of your lease.

• You must pay all taxes required by local, state, or federal laws related to the services furnished or used in connection with the operation of a Papa Murphy’s Franchised Store.

• You must obtain all permits, certificates, or licenses necessary for the full and proper conduct of the Franchised Store.

• The franchisor also recommends that you have direct access to a minimum of $10,000 for working capital during the first three months of operation.

• This row estimates your initial three-month start-up expenses, less any revenue earned by you. This row does not include any salary or reimbursement of personal expenses paid to you.

18.  Total Estimated Initial Investment:  $308,469 to $557,879

• Except as noted, these figures represent the franchisor’s estimates based upon actual expenses in 2020 and the franchisor’s experience and the experience of its franchisees.