If you are considering a California Closets franchise, don’t get blindsided by these 20 important franchise fees (from the initial franchise fee, to the royalty fee, to 18 other fees found in Items 5 and 6 of California Closets’ 2019 FDD).

1.  Initial Franchise Fee:  $35,000 to $70,000

• If you are purchasing a Manufacturing and Showroom franchise, you must pay California Closets a lump sum initial franchise fee of $70,000 for the first unit when you sign a Franchise Agreement. The fee to add additional units under a Franchise Agreement is $35,000 per unit (“Unit Fee”).

• If you are purchasing a Design, Sell, and Install (DSI) franchise, you must pay California Closets a lump sum initial franchise fee of $40,000 for the first unit when you sign a Franchise Agreement. The initial franchise fee for a DSI franchise is reduced to $35,000 for the second and each subsequent unit.

• Qualified honorably discharged veterans will receive a 10% discount on the initial franchise fee per unit for Manufacturing and Showroom franchises and DSI franchises.

• A unit is a territory that contains a minimum of 60,000 households and a maximum of 200,000 households with at least 20,000 of those households having an annual household income of $150,000 or greater (“Unit”).

• California Closets uses GbBIS, which obtains its information from Applied Geographic Solutions, to determine the demographics in a territory.

• You and California Closets will agree upon the number of Units contained in your Marketing Area prior to your execution of the Franchise Agreement.

2.  Training Fee:  $12,500

• All franchisees must pay to California Closets a non-refundable training fee of $12,500 (the “Training Fee”). The Training Fee is paid in full upon the execution of the Franchise Agreement.

3.  Other Initial Fees:  $2,235 to $4,400

• If you are purchasing a Manufacturing and Showroom franchise, you must purchase from California Closets a CC Dashboard and the designated Computer Aided Design software (“CAD”), the costs of which range from $2,235 to $4,400.

• CC Dashboard is a customer relationship management software database application.

• Except as provided for above, all initial fees and the Unit Fee are uniformly imposed and are deemed fully earned and non-refundable upon payment.

4.  Royalty:  6% of Revenues for the first three years of operation. Beginning on the 37th month of operation and for the remainder of the term of your Franchise Agreement, including any renewal term, the monthly Royalty is the greater of 6% of Revenue or $4,000.

• Due Date:  10th day of each month.

• If you are in default or breach of your Franchise Agreement, California Closets may increase the Royalty Fee up to 18% from the date the default or breach occurred until the date it is cured. This is a Breaching Royalty Fee. The minimum period the Breaching Royalty Fee will be charged is 7 days.

5.  Marketing Fund:  3% of Revenues

• Due Date:  10th day of each month.

6.  Local Advertising Expenditure:  minimum of 7% of Revenues

• Due Date:  Not paid to California Closets. This is an annual obligation; you control the timing of expenditures in the course of the year.

• You must submit a monthly report to verify your local advertising expenditures.

• Unexpended amounts shall be remitted to California Closets by you as Royalty at the end of each calendar year.

7.  Customer Leads:  as determined by lead generator

• Due Date:  After completion of customer sale.

• California Closets has the right to pass the lead cost it is charged by the lead generator on to you for all customer leads that it refers to you, but at present it does not charge for them.

8.  Joint Marketing Programs:  varies by type of activity; for ongoing pooled advertising, the amount is determined by vote of the Marketing Co-op

• Due Date:  Varies by Marketing Co-op.

• California Closets has the right to establish different types of joint marketing programs in which you must participate.

• Your contributions to a Marketing Co-op and/or expenses for other Joint Marketing Programs are in addition to your 3% Marketing Fund contribution but count toward your 7% Local Advertising Expenditure.

9.  Transfer Fee:  $20,000 per Unit

• Due Date:  Before closing of transfer.

• Transfer of your franchise is subject to California Closets’ approval and right of first refusal.

10.  Renewal Franchise Fee:  50% of then-current initial franchise fee per Unit plus reimbursement of California Closets’ costs and expenses associated with renewal

• Due Date:  5 days before successor agreement takes effect.

11.  Initial Training for Additional Personnel:  $12,500

• Due Date:  Before training begins.

• Applies when new general managers, transferees, and renewing franchisees attend California Closets’ training program.

12.  Additional Training and On-Site Assistance:  $100-$250 per day per person for classroom training; $400 per trainer per day for on-site assistance, plus expenses, including travel and lodging

• Due Date:  On demand.

• California Closets has the right to charge fees for additional training or optional training courses and for on-site operating assistance you request.

• If California Closets charges a fee, the franchisor anticipates it would not exceed the rates shown above.

13.  Late Charges:  lower of 18% per annum or the highest legal rate allowed

• Due Date:  With overdue amount.

• California Closets can charge interest from the due date until the delinquent amount is paid in full.

14.  Financial Records and Reports:  cost of preparing financial statements

• Due Date:  Periodically.

• You are required to submit gross sales reports periodically, and submit quarterly unaudited financial statements, year-end unaudited financial statements, and any customer data as California Closets may require.

15.  Audit Expenses:  estimated at between $3,000 to $10,000

• Due Date:  Upon demand.

• Payable if California Closets audits because you failed to submit required reports on time or to maintain records, or if the audit shows greater than 5% understatement.

16.  Enforcement Costs:  California Closets’ actual costs; will vary with the circumstances

• Due Date:  On demand.

• You must reimburse California Closets for all costs and expenses (including attorneys’ fees) that it incurs for enforcement as a result of your failure to comply with the Franchise Agreement, whether or not it initiates a formal legal proceeding.

17.  Indemnification:  amounts California Closets incurs arising from claims involving your Franchised Business

• Due Date:  On demand.

• You must defend, indemnify, and hold California Closets harmless.

18.  Post-Termination and Post-Expiration Expenses:  costs and expenses associated with ceasing operations and de-identifying yourself with your former business and California Closets’ System

• Due Date:  As incurred.

19.  Showroom Buildout Services:  approximately $400 per day, plus expenses

• Due Date:  As incurred.

• Upon your request, California Closets may, in its sole discretion, agree to provide assistance with building out your showroom.

• These services are optional.

20.  Assumption of Management:  $500 per day, plus costs and expenses

• Due Date:  On demand.

• If you abandon or fail to operate your Franchised Business and California Closets or a third party takes over the management of the Franchised Business for up to 60 days.

• This is in addition to the Royalty fee and Marketing Fund fee.