Franchise Costs: Detailed Estimates of Papa Murphy’s Franchise Costs (2018 FDD)

Updated July 28, 2018.

Detailed Estimates of Papa Murphy’s Franchise Costs Based on Item 7 (Estimated Initial Investment) of Papa Murphy’s 2018 Franchise Disclosure Document

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:  $67,000 to $166,600

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

• The average cost per square foot for leasehold improvements for the CREATE Store format was $75 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:  $5,000 to $10,000

5.  Stamped Architectural Drawings:  $6,300 to $7,800

• 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:  $2,000 to $3,700

• The typical cost for an as-built survey is $2,000 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:  $116,900 to $176,700

• You must purchase an opening supply package from 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 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 latest store format called the “CREATE Store.” The numbers are based on the actual costs incurred in building approximately 29 CREATE Stores across various geographies.

• This 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.

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:  $30,000

11.  Franchise Premises Rent – 3 Months:  $2,700 to $15,385

• 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 2017 was 1,446 square feet and ranges from 1,102 to 2,000 square feet. The average cost for rent for Franchise Premises opened in 2017, including operating costs, was $34,797 per year and ranges from $10,800 to $61,538 per year.

• The range for Franchise Premises rent does not include two stores opened in 2017 in Hawaii, which were excluded because occupancy costs in Hawaii are not a typical representation of mainland U.S. occupancy costs.

• 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.  Operations Training and Foundations Class:  $0 to $500

• Training may take up to five and one-half weeks. The franchisor may lengthen, shorten, or restructure the contents of this program at any time.

• Operations Training and Foundations Class will be provided at no cost to up to two individuals that have signed the Franchise Agreement. The cost of Operations Training and Foundations Class is $500 for each franchisee beyond two or each non-owner attendee.

14.  Enterprise Solution Training:  $400

• Enterprise Solution Training is conducted by the franchisor’s Enterprise Solution partner, NCR Corporation. The cost of Enterprise Solution Training is currently $400 per entity for up to two participants. Additional participants may attend at a cost of currently $400 for up to two participants.

15.  Travel and Living Expenses While Training (In-Store Experience, Operations Training, Foundations Class, and Enterprise Solutions Training):  $3,395 to $12,150

• If you are not located near a designated Papa Murphy’s training store (“Training Store”) or an NCR certified training site, travel, accommodations, meals, and other expenses may apply to all of the training period. These amounts are estimates and can vary widely.

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

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

18.  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.

19.  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.

20.  Total Estimated Initial Investment:  $279,070 to $518,780

• These figures represent the franchisor’s estimates based upon actual expenses in 2014 and the franchisor’s experience and the experience of its franchisees.