If you are considering a Freddy’s Frozen Custard & Steakburgers franchise, don’t get blindsided by these 18 important franchise fees (from the initial franchise fee, to the royalty fee, to 16 other fees found in Items 5 and 6 of Freddy’s Frozen Custard & Steakburgers’ 2017 FDD)
1. Development Fee: $5,000 per Restaurant
- Freddy’s offers a Development Agreement to establish more than one Restaurant under a development schedule. It also offers in certain geographical areas a License Agreement to establish one Restaurant.
- Under the Development Agreement, you must pay Freddy’s an initial fee of $5,000 per Restaurant (“Development Fee”) required to be developed in the Assigned Area. The number of Restaurants is determined by agreement between you and Freddy’s before the Development Agreement is signed.
- In addition to establishing the number of Restaurants you must develop in the Assigned Area, the development schedule in the Development Agreement will also specify when each of the Restaurants must be constructed and opened.
- You must pay the entire amount of the Development Fee in a lump sum to Freddy’s at the time the Development Agreement is signed. The Development Fee is nonrefundable.
2. Franchise Fee: $25,000
- If you sign a Development Agreement to develop multiple Restaurants, you still must operate each Restaurant under a separate License Agreement. The License Agreement requires an initial franchise fee of $25,000 (“Franchise Fee”), which is payable at the time of signing the License Agreement.
- If you enter into a Development Agreement, the Development Fee for each Restaurant is credited against the Franchise Fee for each Restaurant.
- After you provide Freddy’s with all information required by the Development Agreement for site approval, it has 30 days to approve or reject your proposed site.
- If Freddy’s does not approve your proposed site, you may choose to submit a second and subsequent site proposal, provided that a proposed site must be approved within the period specified in the development schedule under the Development Agreement.
- If you choose not to submit a second or subsequent site proposal or if no site is approved within the period specified in the development schedule, you will not receive a refund of the Development Fee, which Freddy’s will retain in payment of time spent and services provided in connection with site selection.
- In areas where Freddy’s offers a License Agreement to establish one Restaurant, you must sign a License Agreement before beginning development of the Restaurant site. You must pay the Franchise Fee, which is payable at the time of signing the License Agreement.
- You must operate each Restaurant under a separate License Agreement. The Franchise Fee is nonrefundable.
3. Royalty: 4.5% of all Gross Receipts
- Due Date: Payable the 3rd day after the end of each consecutive week during each 28-day operating period.
- “Gross Receipts” means all gross revenue during each week of each 28-day period of every kind or nature related to the Restaurant, including all Restaurant revenue posted, whether it is collected or remains uncollected; all charges for other products, services, and facilities and vending machine receipts; and any amounts payable from insurance policies to compensate you for loss of the same, but excluding sales taxes or other taxes collected by you from customers for transmittal to appropriate taxing authorities.
- Amounts received for gift certificates and gift cards are included in Gross Receipts at the time of the redemption of the gift certificate or gift card (or portion thereof) and not at the time of the sale of the gift certificate or gift card.
- “Gross Receipts” are determined in accordance with the accounting procedures set forth in Freddy’s Operations Manual, as it may exist from time to time.
4. Marketing and Advertising Fund: minimum – 0%, maximum – 3.0% of Gross Receipts. Currently, the Marketing and Advertising Fund contribution is 0.375%.
- Due Date: Payable the 3rd day after the end of each consecutive week during each 28-day operating period.
5. Site Selection: $0 to $2,000 per trip
- Due Date: Upon demand.
- At present, Freddy’s does not charge for this service, but if it does charge, it will require reimbursement for travel, food, and other reasonable expenses incurred.
6. Cooperative Advertising: minimum – 0%, maximum – 2% of Gross Receipts per 28-day operating period
- Due Date: Payable on the 15th day after the end of each 28-day operating period, commencing 30 days after notice of implementation by Freddy’s.
7. Additional Training: $100 to $18,000
- Due Date: Upon demand.
- Freddy’s will provide initial training at no cost to you, although you are responsible for your employees’ and Freddy’s employees’ travel, lodging, and food expenses.
- You must reimburse Freddy’s for training replacement personnel and other required or optional training it may provide your employees.
8. Products and Services: price of products and services
- Due Date: As incurred.
- Freddy’s may from time to time designate approved suppliers of products and services, which may include itself.
9. New Product/ Service Testing: $0 to $1,000 per product or service
- Due Date: Upon demand.
- Freddy’s may inspect and test samples of items you desire to purchase or lease from a source not previously approved by Freddy’s in writing. You or the proposed source must pay the reasonable expenses of the testing or inspection.
10. Audit Expenses: $500 to $5,000 per location
- Due Date: Upon demand.
- Payable if audit shows an understatement of at least $10,000 of reported Gross Revenues during any 52-week period. Also payable if you fail to file required financial reports.
11. Loan Approvals: $1,000 to $5,000, not including the cost of outside services not performed by Freddy’s
- Due Date: As incurred.
- You must pay Freddy’s an amount determined by it to fully reimburse it for its reasonable costs and expenses associated with reviewing the proposed loan arrangement, including legal and accounting fees.
12. Transfer: $2,500 for License Agreement transfers and $2,500 for Development Agreement transfers
- Due Date: Before consummation of transfer.
- Payable when you transfer an interest in the License Agreement or the Development Agreement, or when a controlling interest in you is transferred, if the transfer satisfies other conditions specified in the Development Agreement and the License Agreement.
- No transfer fee is payable if you transfer the interest to Freddy’s or to an entity you form for convenience of ownership and not involving a change of beneficial ownership, if the transfer satisfies other conditions specified in the License Agreement.
13. Private Offering Fee: $1,000 to $5,000, not including the cost of outside services not performed by Freddy’s
- Due Date: As incurred.
- You must pay Freddy’s an amount determined by it to fully reimburse it for its reasonable costs and expenses associated with reviewing the proposed private offering, including legal and accounting fees.
14. Interest: 1.5% per month or as allowed by law
- Due Date: Upon demand.
- Payable on overdue amounts owed to Freddy’s. Interest begins from the date of the underpayment.
15. Renewal Fee: one-third of Freddy’s then-current initial franchise fee
- Due Date: Upon signing of new License Agreement before expiration of initial term of License Agreement.
16. Costs and Attorneys’ Fees: will vary under the circumstances
- Due Date: As incurred.
- Payable if incurred by Freddy’s in obtaining injunctive or other relief for the enforcement of any term in the Development Agreement or License Agreement.
17. Indemnification: will vary under the circumstances
- Due Date: As incurred.
- You must reimburse Freddy’s for claims arising from your Restaurants’ operations or any occurrence at your Restaurant.
18. Termination Fee: will vary under the circumstances
- Due Date: When Freddy’s terminates the License Agreement after your default.
- Amount due equals the sum of all franchise fees, royalty fees, marketing and advertising fees, and other fees required under the License Agreement for the eighteen 28-day periods of operation at the Restaurant preceding your default.
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