Franchise Update Magazine Issue IV, 2015 | Page 65

to pay an up-front fee! A good way to do this analysis is to visit the major business city in a country in advance. • Tax factor. Look at the tax implications of signing an international franchise agreement. Withholding taxes before you can bring fees and royalties home can be as high as 30 percent of what you are due from the franchisee. This is in addition to your home-country taxes. • Franchise agreement. You will need a separate international franchise agreement. This is an investment that can be used in multiple countries. Have this prepared in advance of starting negotiation with a candidate. You should be able to use the same agreement with only local changes to ensure the agreement is enforceable in the country. • Development cost. Estimate the up-front cost of finding, evaluating, negotiating with, and signing a candidate in a given country. There will be communi- cation, staff time, trademark registration costs, legal agreement costs, travel, training, and other costs in the first couple of years your new licensee operates in a country. And there will probably be few units producing royalties at first. What is the cost for this process from the time you get the lead until they are opening and operating enough units to produce a good royalty stream? It can be US$250,000, so keep this in mind when you set your initial fees. Conclusion Good news on international lead sources: there are many established sources. One of the very best (and least expensive) is to add an international landing page to your company website with a link for international candidates to contact you. There also are numerous international franchise expos. Be forewarned that these are often focused on single-unit franchisee candidates, not area licensees or master franchisees. The IFA and U.S. Commercial Services have two to three franchise trade missions to countries each year, which generate large numbers of leads. The U.S. Commercial Service offers “Gold Key” services to individual franchises in some countries to help you find candidates. And numerous international websites market U.S. franchise brands seeking leads. The purpose of this article is not to scare the U.S. franchisor from going global, but rather that it’s good to do so with your eyes wide open—and to understand why an international lead requires more work than a domestic one. n William Edwards is CEO, Michelle McClurg is COO, William Gabbard is senior vice president, and Shanna Aldridge is director at Edwards Global Services, Inc. Contact Edwards at 949-375-1896, [email protected], or read his blog at edwardsglobal.com/blog. Processing a U.S. franchise lead vs. processing an international license lead United States International Candidate type Individual Company with a proven track record of business success, available management team, and strong financial capability License type Single or multiple unit Multi-unit area license or country master license Investment US$100,000 to $1 million US$500,000 to $15 million Time to closure 3 to 9 months 6 months to 3 years Manpower required One U.S. broker person U.S. franchisor person, international consultant, third-party information provider Legal Disclosure to a U.S. FDD 40 countries have di